A usable quote starts with a defined job. Write down the deliverable, access conditions, expected visits, customer responsibilities and what would count as extra work. A correct percentage cannot fix a missing task.
This guide uses one fictional job to show the difference between delivery cost, allocated overhead, retained profit and cash received. Amounts are in a single unspecified currency and exclude tax.
1. List the work and its direct costs
| Item | Calculation | Amount |
|---|---|---|
| Materials used | Supplier estimate | 300 |
| Delivery labour | 8 hours × 30 | 240 |
| Job travel | Fuel and vehicle allowance | 40 |
| Subcontractor | Agreed work package | 120 |
| Direct cost | Sum of the above | 700 |
The labour rate here includes relevant employer costs but excludes general business overhead. If you use a fully absorbed hourly rate that already includes overhead, do not add the same overhead again.
Use purchase quotes and job records where available. Label uncertain figures as estimates. A contingency is a disclosed planning allowance for uncertainty, not a substitute for identifying the work.
2. Add overhead consistently
Suppose the business budgets 3,000 of monthly overhead and expects 200 billable hours. Its allocation rate is 15 per billable hour. This eight-hour job receives 120 of overhead, so its included cost is 820.
That allocation assumes 200 hours will actually be billed. At 160 hours, allocating 15 per hour recovers only 2,400. The 600 shortfall still exists even if individual job sheets look satisfactory. See how to allocate overhead.
3. Calculate the price for a stated margin
For a target margin of 20% on the included cost base:
Price = 820 ÷ (1 − 0.20) = 1,025
The amount left after the included costs is 205, and 205 ÷ 1,025 is 20%. Multiplying 820 by 1.20 would instead give 984: a 20% markup but only a 16.67% margin.
This is a planning margin after the costs listed above, not a promise of net accounting profit. Financing, taxes, omitted costs and differences in actual overhead recovery can change the outcome. Use the margin calculator with revenue 1,025 and cost 820 to reproduce it.
4. Include selling-price fees in the right place
If a fee is 3% of the final selling price, it changes the denominator:
Price = 820 ÷ (1 − 0.20 − 0.03) = 1,064.94
The rounded fee is 31.95 and the retained amount is 212.99. A fixed fee belongs in the numerator instead. Do not use this formula for a fee calculated on some other base, or add fees again when the tool already includes them.
5. Stress-test the job
At the original price of 1,025, a two-hour labour overrun adds 60. Included cost becomes 880 and the retained amount falls to 145: 14.15% of revenue. That scenario does not assume any additional materials or extra overhead allocation.
Ask what caused the extra hours. If the job scope was unclear, revise the scope. If the estimate was optimistic, revise the estimate. If the customer requests additional work, cost that work before agreeing a change.
6. Check affordability and payment timing separately
A cost-based price is a calculation, not proof that a customer will accept it. The Australian Government’s pricing guide recommends considering costs, customers and the market when choosing a pricing approach. Reference: choosing a pricing strategy.
Also check when materials and wages must be paid. A profitable quote may create a cash shortfall before collection. Continue with profit versus cash flow and the cash forecast guide.
Apply the method to your work
Follow the HVAC installation example, plumbing callout example or software retainer example. Each treats a different source of cost or uncertainty.
About the examples and sources
The figures are hypothetical teaching examples created for AskToBot, not surveyed prices or recommended industry margins. The linked references explain the underlying concepts; they do not supply or endorse these example figures. The arithmetic is checked against the stated assumptions. This is AI-assisted educational content and has not been independently reviewed by an accountant. Read how we check calculations.
Decisions to check next
Sources & references
- Choose a pricing strategy — Australian Government — business.gov.au
