To stop underpricing, you need to price every job using true costs + overhead recovery + target profit, not “what feels competitive.” Work out your labour and material costs, add a realistic overhead allowance, then apply a profit margin that reflects risk and responsibility. If the price doesn’t work, the job doesn’t work.
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Why do construction businesses underprice in the first place?
Most UK construction business owners don’t underprice because they’re careless — they underprice because they’re busy, and quoting often becomes a rushed mix of:
- what the competitor might charge
- what the client “seems willing to pay”
- what you charged last time
- what your gut says
And then suddenly you’ve delivered a project that looked like it made money… but the bank balance says otherwise.
At Thomas Emlyn Ltd, we see the same pattern repeatedly:
“We’re turning over good money… but we’re not keeping enough of it.”
“Margins look fine until we pay tax, VAT, and wages.”
“We’ve got work coming out our ears, but cash is always tight.”
That is nearly always a pricing problem disguised as a workload problem.
What’s the difference between markup and margin (and why does it matter)?
This is one of the most common pricing mistakes in construction.
- Markup is what you add on top of your cost.
- Margin is what you keep from the final price.
Example:
If a job costs £10,000, and you add 20% markup, your price becomes:
- £10,000 × 1.20 = £12,000
Your profit is £2,000, which is:
- £2,000 / £12,000 = 16.7% margin
So if you want a 20% profit margin, you actually need a 25% markup.
✅ Rule of thumb:
If you want a 20% margin, multiply costs by 1.25.
This confusion alone can wipe out profit without you realising.
What is the “true cost” of a construction job?
Most builders price direct costs fairly well:
- materials
- subcontractors
- plant hire
- sometimes labour
But “true cost” includes more than what’s on the invoice.
True cost includes:
1) Direct costs (easy to see)
- materials
- subcontractors
- plant/hire
- fuel directly tied to the job
- site labour
2) Labour cost including burden
Your labour cost is not just wages.
If someone costs you £150/day wages, your real cost may be closer to £180–£220/day once you include:
- employer NI
- pension
- holiday pay
- sick allowance
- training
- non-productive time
3) Overheads (the silent killer)
This is where underpricing really happens.
Overheads include:
- office/admin staff
- software (Xero, Simpro, QuickBooks, etc.)
- accountant and payroll costs
- insurances
- vehicles & maintenance
- tools replacement
- marketing
- financing/interest
- phone, internet, utilities
- director salary (yes — you must price this in)
If you’re not intentionally recovering overhead through pricing, you’re basically hoping the business survives on luck.
How do I calculate what to charge? (Simple method)
Here’s a pricing structure we recommend at Thomas Emlyn Ltd because it’s realistic and repeatable.
Step 1: Calculate direct job cost
Add up everything that directly belongs to the job:
- Labour (true daily cost × days)
- Materials
- Subcontractors
- Plant
- Disposal
- Any site-specific costs
Example:
- Labour: 2 people × £200/day × 10 days = £4,000
- Materials = £3,500
- Subcontractor electrician = £1,800
- Plant & waste = £700
✅ Direct cost = £10,000
Step 2: Add overhead recovery
Overhead recovery is the amount you add so each job contributes fairly to running the business.
A simple way to estimate this is:
Overhead % = total annual overhead ÷ total annual revenue
If you spend £180k/year on overheads and turnover is £900k/year:
- £180k ÷ £900k = 20% overhead
So on a £10,000 job, overhead recovery is:
- £10,000 × 20% = £2,000
✅ Cost + overhead = £12,000
Step 3: Add profit margin (not markup)
Now add profit that reflects your goals and risk.
Typical target net profit margins we see in UK construction vary, but a sensible target often starts at:
- 10–15% net profit for smaller firms
- 15–20%+ for higher-risk work, specialist trades, or design & build
- More complex jobs may require more contingency and profit
If you want a 15% margin on £12,000 cost+overhead:
Price = £12,000 ÷ (1 – 0.15) = £14,118
✅ Quote: £14,100 (rounded)
Pricing table (simple view)
| Pricing element | Example value |
|---|---|
| Direct job cost | £10,000 |
| Overhead recovery (20%) | £2,000 |
| Subtotal | £12,000 |
| Target profit margin (15%) | £2,118 |
| Final quote price | £14,118 |
This is how you stop guessing.
What about contingency? (Because construction isn’t predictable)
If you’re quoting jobs where variation is likely — and let’s be honest, most are — then you need contingency.
Examples where contingency is sensible:
- jobs in older buildings
- groundworks
- renovations
- jobs with unclear drawings/spec
- clients who change their mind every 5 minutes
A common approach:
- add 3–7% contingency depending on risk
Contingency is not “extra profit.”
It’s protection against reality.
A real example (anonymised) — how underpricing kills cashflow
We worked with a contractor (let’s call them “South East Fit-Out Ltd”) turning over around £1.2m.
They thought margins were “fine” because they were adding a 15% markup to jobs.
But once we rebuilt their pricing model properly:
- Their overheads were actually 24% of turnover
- Their 15% markup translated to roughly 13% margin
- After overheads, they were averaging only 3–4% net profit
- One delayed payment cycle created constant cash strain
We introduced:
- job pricing with overhead recovery
- labour day rate calculation (including burden)
- a consistent margin target per job type
- monthly margin tracking (by job and by customer)
Within 90 days:
- average quote value increased by 8–12%
- gross margin stabilised
- cashflow improved because they stopped taking “busy fool” jobs
And the key part:
They didn’t lose as many jobs as they feared — because the quotes were justified and positioned properly.
How do I know if my construction prices are too low?
Here are clear indicators you’re underpricing:
- You win too many jobs quickly
- You’re constantly “busy” but not building reserves
- You dread VAT bills and tax payments
- You rely on overdraft or late payments to survive
- Your margins look fine on paper but cash doesn’t match
- You don’t pay yourself consistently
- One mistake wipes out profit for the month
If two or more of these are true, pricing needs fixing.
What should I charge per day? (Labour day rate method)
This is a common question, especially for directors who are still on the tools.
A simple day rate calculation:
Day rate = (annual pay + annual overhead share + target profit) ÷ chargeable days
Let’s say:
- desired pay: £60,000
- overhead allocation: £20,000
- target profit contribution: £15,000
- chargeable days: 200
Day rate = (£60k + £20k + £15k) ÷ 200 = £475/day
If you’re charging yourself out at £250/day because “that’s the market,” you’re underpricing.
How do I raise prices without losing work?
Good pricing isn’t just maths. It’s also positioning.
Here’s what works:
- break your quote into clear phases (scope clarity reduces pushback)
- explain what’s included (and what’s not)
- use professional templates (clear quotes feel higher value)
- show timelines and assumptions
- introduce options (good/better/best)
- explain the risk and why it costs money to manage properly
People don’t only pay for labour — they pay for:
- certainty
- project management
- speed
- reduced hassle
- accountability
Thomas Emlyn Ltd often helps clients rewrite quoting and proposal formats to support better pricing.
How Thomas Emlyn Ltd helps construction business owners price properly
Pricing is one of the fastest ways to improve profit — without working harder.
Our clients often engage us in one of two ways:
✅ Virtual Finance Office (VFO)
For construction companies that want:
- monthly bookkeeping and reporting
- job profitability tracking
- labour and overhead cost clarity
- real-time margin monitoring
- cashflow management support
✅ Virtual Finance Director (VFD)
For directors who want:
- pricing strategy and margin planning
- quote modelling and overhead recovery
- forecast and capacity planning
- smarter decision-making on which jobs to accept
- growth planning without cash pressure
If you want to stop underpricing and start building a more stable business, the numbers must support it.
We regularly share construction finance insights through:
- guest podcast appearances (construction / trade business shows)
- collaborations with trade software partners
- articles on pricing, margin control, and cashflow systems
- partnerships with insurance and finance specialists supporting contractors
If you’d like Thomas Emlyn Ltd to contribute to a podcast or platform, or collaborate, we’re open to the right opportunities.
FAQ: Construction Pricing & Underpricing
1) What profit margin should I aim for in construction?
It depends on your trade, job risk, and overheads. Many healthy UK construction businesses aim for 10–20% net profit, but that requires strong gross margins and consistent overhead recovery. If you’re often below 5% net profit, you’re likely underpricing or leaking costs.
2) How do I include overheads in my quote without scaring clients off?
Don’t label it as “overheads.” Build it into your pricing model quietly and consistently. Clients don’t need to see the internal mechanics — they need a clear scope, timeline, and professional quote. Overheads are the cost of delivering properly.
3) Why does my bank balance feel worse even when my profit looks okay?
Because profit is an accounting concept — cashflow is timing. In construction, late payments, VAT cycles, retention, and upfront materials can drain cash even if a job is profitable. Pricing must include enough margin and structure (deposits/stage payments) to protect cashflow.
4) Should I price variations differently?
Yes. Variations are higher risk and disruptive, so they should often be priced with a higher margin than original scope. Also, variation pricing should include time impact and admin costs — not just materials and labour.
5) What’s the quickest way to stop underpricing?
Start with a basic pricing template that includes:
- true labour day rate
- overhead recovery %
- target margin by job type
- contingency rules
This alone usually increases profitability within 30–90 days — especially when paired with job tracking.
Thomas Emlyn Ltd
Stronger Margins – Healthier Cashflow – Sustainable Growth
