Guide
How to cost a service job and see the real margin
The short answer. Job cost is labor plus materials plus subcontractors plus equipment plus a share of overhead. Add those up before you look at the price. Margin is profit divided by price. Markup is profit divided by cost. They are different numbers, and mixing them up is how a quote that looks like 40% earns 29%. This guide gives the formulas, a fictional worked example and a checklist.
Last reviewed: 2 October 2026. All figures below are fictional and for illustration only. They are not advice about your accounts, tax or contracts.
The formula
Job cost = loaded labor + materials + subcontractors + equipment and vehicle + overhead share
- Loaded labor is hours multiplied by the loaded hourly rate: the wage plus payroll taxes, insurance and benefits. Count all hours the job consumes, including travel and the trip to pick up a part.
- Materials are everything bought for the job, including consumables and delivery charges.
- Subcontractors are anyone you pay to do part of the work, plus disposal and permits you pay for.
- Equipment and vehicle is a sensible allowance for the van, tools or machine time the job uses.
- Overhead share is your annual overhead divided by your annual billable labor hours, multiplied by the hours on this job.
Then:
- Profit = price minus job cost
- Margin = profit / price
- Markup = profit / cost
- Price for a target margin = cost / (1 minus target margin)
A worked example (fictional)
A fictional firm replaces a failed circulation pump at a small office. First, its rates. Wages are $34 an hour. Payroll taxes, insurance and benefits add $14, so the loaded rate is $48 an hour. Annual overhead is $264,000 and the firm bills 12,000 labor hours a year, so overhead is $22 per labor hour.
| Cost line | Estimate | Actual |
|---|---|---|
| Labor: 10 hours (estimate), 13 hours (actual) at $48 | $480 | $624 |
| Materials: pump $410, fittings and consumables $65 | $475 | $475 |
| Subcontractor: disposal and haul-away | $60 | $60 |
| Vehicle and equipment allowance | $60 | $60 |
| Overhead share at $22 per labor hour | $220 | $286 |
| Total job cost | $1,295 | $1,505 |
| Price quoted | $1,850 | $1,850 |
| Profit | $555 | $345 |
| Margin (profit / price) | 30.0% | 18.6% |
| Markup (profit / cost) | 42.9% | 22.9% |
The quote was priced to earn 30% margin. A second trip for a part added three hours, and the overhead share moved with it. The job still made money, but the margin fell by more than eleven points. Nothing in the invoice would have told the owner that.
Price for a 35% margin. If the same estimate had a target margin of 35%, the price would be $1,295 / (1 - 0.35) = $1,992.31. That is a markup of about 53.8%, not 35%.
Method: six steps
- Set your loaded labor rate. Wage plus the employer costs attached to it. Do this once a year.
- Set your overhead rate. Annual overhead divided by annual billable hours. Revisit it when your overhead or your hours change.
- Build the estimate line by line. Labor hours, materials, subs, equipment and overhead share, before choosing a price.
- Choose the price from your target margin, not by adding a round percentage to cost.
- Track the actuals. Hours, receipts, sub invoices. Record them against the job as they happen.
- Compare estimate and actual, and write down why they differ. Use the result to correct next quote.
You can check any cost and price with the margin vs markup calculator.
Copying the table into a spreadsheet
A downloadable sheet is not yet published. The table above has everything needed to build your own in any spreadsheet. Set up a sheet with headings in row 1, the five cost lines in rows 2 to 6, total cost in row 7, price in row 8 and profit in row 9, with the estimate in column B. The total cost cell is =SUM(B2:B6), profit is =B8-B7, margin is =B9/B8 and markup is =B9/B7, with the last two formatted as percentages.
Job costing checklist
- Loaded labor rate is current, and includes employer costs
- Travel, parts runs and callbacks are counted as hours
- Materials include delivery and consumables
- Subcontractor and disposal costs are on the job, not in general overhead
- Overhead rate uses billable hours, not total hours
- Price comes from a target margin, and markup has been checked as a separate figure
- Actual hours and receipts are recorded as the job runs
- Estimate and actual are compared when the job closes
- Any change to the scope has a written variation and an approver
How this looks in Lode
Lode is designed to link the quote, hours, supplier invoices and payments for each job into one file, so the comparison above is built from records rather than memory. In the Cedar walkthrough, which uses sample data, completed jobs without a payment follow-up are surfaced in a daily "Today" view for approval. The public site makes no claim that Lode calculates job cost or margin for you today. See the overview of AI for service businesses, or talk to us about your workflow.
Questions
What is the difference between job costing and estimating?
Estimating predicts the cost before the work. Job costing tracks the actual cost during and after it. Good practice compares the two.
Should overhead be included in job cost?
Many firms include a share so that every job carries part of the cost of the office, insurance and vehicles. If you leave it out, a job can look profitable and still lose money once the business is paid for.
Is a 30% markup the same as a 30% margin?
No. A 30% markup on a $1,000 cost gives a price of $1,300 and a margin of 23.1%. A 30% margin on the same cost needs a price of $1,428.57, a markup of 42.9%.
How often should I update my rates?
At least once a year, and whenever wages, insurance, fuel or supplier prices move materially.
Where can I get the spreadsheet?
A downloadable sheet is not yet published. Use the table and formulas above.