How do I work out an hourly rate that pays?
Build it from the hours you sell, not the hours you pay. Cost per billable hour is your burdened hourly wage divided by efficiency, plus overhead divided by billable hours.
Burdened cost is the wage plus payroll taxes, workers' comp and benefits. Efficiency is billable hours over paid hours: drive time, supply house runs, callbacks and training are paid but not sold.
| Six-tech shop, worked through (indicative, As of Oct 2026) | Figure |
|---|---|
| Burdened labor: $32.00 an hour plus 30% burden | $41.60 an hour |
| Billable hours: 6 x 2,080 paid hours x 60% efficiency | 7,488 |
| Labor per billable hour: $41.60 / 0.60 | $69.33 |
| Overhead per billable hour: $780,000 / 7,488 | $104.17 |
| Break-even per billable hour | $173.50 |
| Rate for a 20% net margin: $173.50 / 0.80 | $216.88 |
Cross-check: 7,488 hours at the unrounded rate bring in $1,623,960 against $519,168 of labor and $780,000 of overhead (trucks, fuel, insurance, office staff, rent, marketing and the owner's salary), a profit of $324,792, or 20.0%. Every input is an assumption: your own job costing replaces it.
What markup should I put on materials?
There is no number to copy: choose the margin you need, then convert it, because markup is profit over cost and margin is profit over price. A 25% markup is only a 20% margin.
In the example, $216.88 less the $173.50 cost leaves $43.38: 20% of the price, 25% of the cost. A flat-rate price is task hours times your rate plus materials times a markup factor. A water heater swap at 3.5 hours is 3.5 x $216.88 = $759.08, plus $850 of materials x 1.5 = $1,275.00, so $2,034.08 (indicative, As of Oct 2026). That 1.5 factor is a 50% markup, a 33.3% margin on the materials. Recheck your price book when costs move.
Do I charge sales tax on the estimate?
It depends on the state and on whether the job repairs or improves real property, so state the sales tax treatment on every estimate. Examples, As of Oct 2026:
- Texas: labor to repair or remodel residential real property is not taxable; repair, remodeling and maintenance of nonresidential real property is (34 Tex. Admin. Code sec. 3.357). The state rate is 6.25% plus up to 2% local, 8.25% at most.
- California: a contractor is the consumer of materials it installs in real property and pays the tax when buying them, but the retailer of fixtures, such as a water heater (Cal. Code Regs. tit. 18, sec. 1521). Installation labor is not taxable (sec. 1546).
- Florida: on a lump-sum real property job, the contractor pays tax on the materials as their final consumer (Fla. Admin. Code r. 12A-1.051).
- New York: repairing or maintaining real property is a taxable service; a capital improvement is not, and you keep the customer's Form ST-124 to prove it (Tax Law sec. 1105(c)(5)).
What must a written estimate include?
Scope, price and terms in writing, plus whatever your state adds for home improvement work.
- Every estimate: owner and site, scope with exclusions and allowances, price with its sales tax treatment, schedule, a validity period, payment terms, and your license number where the state requires it on contracts, bids and ads, as California and Florida do (Bus. and Prof. Code sec. 7030.5; Fla. Stat. sec. 489.119(5)(b)).
- California: home improvement contracts carry the license number, statutory notices and a payment schedule linked to progress (Bus. and Prof. Code sec. 7159); service and repair contracts of $750 or less follow sec. 7159.10.
- New York: home improvement contracts over $500 must be in writing with the 3-day cancellation notice (Gen. Bus. Law secs. 770 and 771).
- Florida: home contracts where labor and materials exceed $2,500 include the Homeowners' Construction Recovery Fund notice (Fla. Stat. sec. 489.1425). As of Oct 2026.
How much deposit can I take on a home job?
Some states cap it or attach conditions; check yours first. Examples, As of Oct 2026:
- California: no more than $1,000 or 10% of the price, whichever is less (Bus. and Prof. Code sec. 7159.5).
- New York: payments before substantial completion go into an escrow account within 5 business days, or are covered by a bond (Lien Law sec. 71-a(4)).
- Florida: taking more than 10% up front on covered residential work means applying for permits within 30 days and starting within 90 days after they issue, unless there is just cause or a written agreement (Fla. Stat. sec. 489.126(2)). It is not a cap.
A "nonrefundable" deposit is tested as liquidated damages: in a California consumer contract they are void unless actual damages would be impracticable or extremely difficult to fix (Civ. Code sec. 1671). Tie deposits to equipment you order.
When can a customer cancel an estimate signed at home?
Under the FTC Cooling-Off Rule, a buyer generally has 3 business days to cancel a sale of $25 or more made at their home, or $130 or more at a temporary location, and you must give written notice and a cancellation form (16 CFR Part 429). As of Oct 2026.
- It applies even when the buyer invited you. The repair exclusion covers only the buyer's personal property, such as an appliance, and never extras sold on the visit (429.0(a)(5)).
- A bona fide emergency is excluded only with the buyer's separate dated, signed, handwritten waiver (16 CFR 429.0).
- States add rules: California gives 3 business days, or 5 for buyers 65 or older (Civ. Code sec. 1689.6); Texas 3 business days on home solicitation sales over $25 (Bus. and Com. Code ch. 601); Florida 3 business days (Fla. Stat. secs. 501.021 to 501.055). As of Oct 2026.
The Academy covers deposits and cancellation on a home job, checking a flat-rate book and pricing labor beyond the wage.
How Greymill helps
Cash & Profit checks whether your prices cover your costs and which jobs actually make money. Connect QuickBooks or Xero and it works from your live figures instead of what you type in, and every plan includes spreadsheet models.
Writing drafts the estimate or proposal for you to check. Sales & Quotes helps you answer a customer who says your bid is too high and drafts the follow-up when an estimate goes quiet (see following up leads). Contracts & Disputes writes your terms and conditions, and Tax & Bookkeeping covers sales tax. Greymill loads your trade's rules and rates when you sign up, so even the first answer fits your business.
Nothing is sent unless you press Send, and conversations are not used to train AI. Greymill owes no professional duty, and where your CPA or an attorney must sign something off, it says so. Try it free for 7 days on full Scale access, no card needed; plans from $130 a month plus tax. See pricing and how it works.
Questions owners ask
How do I price an estimate so the job is profitable?+
Divide your burdened hourly labor cost by efficiency, add overhead divided by billable hours, then divide by one minus your target margin. In an indicative example, $69.33 of labor and $104.17 of overhead give $173.50 to break even and $216.88 for a 20% margin. As of Oct 2026.
What markup should a small contractor put on materials?+
There is no figure to copy: set the margin you need and convert it. A 1.5 materials factor is a 50% markup and a 33.3% margin; a 25% markup is a 20% margin.
Do I charge sales tax on labor?+
It depends on the state. Texas taxes repair and remodeling labor on nonresidential property but not on residential; New York taxes repairs but not capital improvements; California does not tax installation labor, though fixtures are taxed. As of Oct 2026.
How much deposit can I take in California?+
For a home improvement contract, no more than $1,000 or 10% of the price, whichever is less (Bus. and Prof. Code sec. 7159.5). As of Oct 2026.
Can a customer cancel an estimate they signed at home?+
Usually, within 3 business days under the FTC Cooling-Off Rule for sales of $25 or more at the buyer's home, even if they invited you (16 CFR Part 429). Some states add longer periods, such as 5 business days for California buyers 65 or older. As of Oct 2026.
Sources
- 34 Tex. Admin. Code secs. 3.291, 3.357, checked Oct 2026
- Texas Comptroller, sales and use tax rates, checked Oct 2026
- Cal. Code Regs. tit. 18, sec. 1521, checked Oct 2026
- Cal. Code Regs. tit. 18, sec. 1546, checked Oct 2026
- Fla. Admin. Code r. 12A-1.051, checked Oct 2026
- NY Tax Law sec. 1105(c)(5); Publication 862, checked Oct 2026
- Cal. Bus. and Prof. Code secs. 7030.5, 7159, 7159.5, 7159.10, checked Oct 2026
- CSLB, down payment and progress payment limits, checked Oct 2026
- NY Gen. Bus. Law secs. 770 and 771, checked Oct 2026
- NY Lien Law sec. 71-a(4), checked Oct 2026
- Fla. Stat. sec. 489.126(2), checked Oct 2026
- Cal. Civ. Code sec. 1671, checked Oct 2026
- FTC Cooling-Off Rule, 16 CFR 429.0 and 429.1, checked Oct 2026
- Cal. Civ. Code sec. 1689.6, checked Oct 2026
- Tex. Bus. and Com. Code ch. 601; Fla. Stat. secs. 501.021 to 501.055, checked Oct 2026
- Fla. Stat. secs. 489.119(5)(b) and 489.1425, checked Oct 2026
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