How do contractors price jobs based on actual business costs instead of competitor rates?

Question

We run a contracting business in Juneau, Alaska. It’s a remote town with no roads in or out, so our market does not work like most places.
Lead generation is not our problem. The work is there. Our bigger challenge is filtering demand, choosing the right jobs, and pricing from the actual cost of running the business instead of just asking, “what does everyone else charge?”
That has changed how we look at pricing.
Two companies can do the same job with completely different numbers behind it: equipment payments, fuel, insurance, payroll, repairs, debt, admin time, material costs, disposal, taxes, and risk. Competitor pricing matters, but only to a point. If our cost structure is different, their price can’t be our whole pricing strategy.
We have a CPA and bookkeeper we trust, so the books are not something we’re guessing on. What we’re working on now is turning the P&amp;L and balance sheet into real-world pricing decisions: what the equipment needs to bill, what materials need to carry, what minimums make sense, and which jobs are actually worth putting on the schedule.
We’ve also been using AI to organize that information into pricing structures, quote templates, equipment rates, per-ton pricing, material pricing, and job-type frameworks.
To be clear, we’re not using AI to tell us what to charge. We’re using it to organize what we already know, pressure-test assumptions, run simulations, and find holes before they show up in the bank account.
The more we work through it, the more we wonder how often underpricing comes from not having a clear link between pricing and the actual cost of running the business.
Curious how others think about this.

When you price work, do you start with your own numbers first, the market first, or a mix of both?
For those using AI, have you used it for pricing, estimating, job costing, or financial review beyond emails and marketing content?

hugehomepros · Answer

I honestly don't ever look at what my competitor's prices. I don't know if this is naive or not but I don't think it's information that's helpful. Like ... AT ALL. If you can't cover your expensive and you don't give yourself money to grow as an operation... why does it matter what your competitors charge? Who's to say they have a good handle on their numbers also?
I think maybe if I was in a small town like you I may think about it more but your primary objective is to stay in business. Something you can't do with no money. You also need to be pricing in things like:

The yearly cost of continueing education. Maybe there's conferences you want to go to that would benefit the business
Additional licenses or maybe something in the future
What would your business 5 years from now have - what kind of building, what kind of other infastructure. You need to price that stuff in. A good example would be your salary. I'm super guilty of this btw. Someone doing my job would make XX per year. I need to be paying myself that (if I can) and I also need to price that in to my overhead when I'm determining what to charge. If I don't do that, I'm never going to get out of the business myself. This is something I need to change now actually. haha

jnicols · Answer

Agreed. I don’t look at competitors pricing as it never the same job being quoted. It’s different if you (and forgive the very basic analogy) were hired to just go and change a 60 watt incandescent light bulb from a standard keyless light with easy access to the fixture from the ground. Everyone would see the scope as the same. Attend, supply and change bulb, dispose of original and test complete. Simple right. So everyone could charge based on that but then what about the back end. How did the call come in, through a service, through your own admin system, how was the lead generated, through marketing or a lead generator, how far was the location from your location, how much fuel or were toll roads used, how much does it cost to carry the vehicle (insurance and monthly payments), how many people are sent per truck regardless the task, and on and on.

you have to price based on your costs. Your a business, you report earnings and pay taxes so you know what your costs are per job as well as per month on the admin side.
this all most comes down to a conversation of Margin vs Markup (both with a factor of 35% as most businesses in the services industry should be aiming for 30-35% overall) which to me is the way you are able to include your admin costs into each job - in choosing Margin over Markup pads the costs by about the same about needed for admin, marketing, insurance and fuel of running a business.

this is a long way of saying that pricing a project is based on your business and if your too high then you should look at your costs and determine how to reduce the overall overhead. If your too low the you should also look at the same overhead and consider updating vehicles or tools and create a obsolescence plan for these things so that your not caught off guard when you have to replace them or hire more people.

greenthumb777 · Answer

When it comes to competitors I always tell myself even though it's the same job, I give great quality and customer service. That stands out, so charge what YOU charge for YOUR quality of service.

turft · Answer

I’ve been using AI in a very similar way to organize what I know and do a deep cost breakdown analysis.

The biggest thing I found out by using AI to organize that data is that I wasn't charging enough and I definitely wasn't paying myself enough. When you use AI to look at the raw numbers instead of just a "gut feeling" estimate, it’s eye-opening to see where the holes are.

My business is seasonal and hasn't started up for the year yet, but doing this work now has definitely increased my prices for the coming season. It forces you to look at the numbers without the emotion of "hoping" the price is right. It’s been a game-changer for moving away from competitor-based pricing and toward a structure that actually supports my life and my family.

mendenhallctrg · Answer

Thanks! I agree with this. A lot of these are lessons we’ve learned, many the hard way, and I’m sure plenty are still left to be learned.

It took us several years to learn how to pay ourselves properly, and that alone changed how we look at pricing. Competitor pricing can be interesting, especially in a small market, but it can’t be the foundation because we don’t know what their numbers actually look like.

The future cost part is huge too. Equipment replacement, licensing, training, insurance, storage/shop space, and owner pay all have to come from somewhere. If we don’t build that into the pricing, we’re really just undercharging now and creating a bigger problem later.

Forum Discussion

How do contractors price jobs based on actual business costs instead of competitor rates?

8 Replies