1. Build the job cost before adding profit

Start with costs attributable to the project: sheet materials, doors, panels, hardware, benchtops or subcontract work, direct labour, delivery and installation. Add waste, consumables and machinery charges according to the business's chosen method. Keep provisional allowances visible rather than hiding them inside another rate.

A consistent cost breakdown makes revisions easier. If hardware changes, the estimator can update hardware without accidentally changing labour or margin. If a project grows, room and cabinet quantities can be adjusted while the costing method remains the same.

2. Calculate direct labour

List the activities needed for the job: estimating, drafting, programming, machining, edging, assembly, finishing, packing, delivery, installation, project management and supervision. Decide which are direct project hours and which belong in overhead.

For each direct activity, estimate hours and multiply by the applicable charge or cost rate. A cost rate may include wages, superannuation, leave and other employment costs; a charge-out rate may also recover overhead and profit. Do not combine methods without understanding what each rate already contains.

Direct labour formula

Estimated labour cost = estimated hours × labour cost per hour. Use actual historical hours to improve future estimates, but do not generalise from one unusual project.

3. Choose an overhead recovery method

Overheads are business costs not easily assigned to one cabinet: rent, administration, software, insurance, vehicle ownership, machinery depreciation, utilities and non-billable time. Estimate the annual overhead pool using current financial information, then choose a rational activity base.

Common approaches include recovery per productive labour hour, a project allocation, a percentage of direct cost or rates embedded in machinery and labour. Each has trade-offs. A labour-hour method can suit labour-driven shops; a percentage method is simple but may distort unusually material-heavy or subcontract-heavy projects.

Review the recovery method with a qualified adviser and real operating results. The purpose is consistency and visibility, not a universal industry rate.

4. Distinguish markup from gross margin

Markup measures profit relative to cost. Gross margin measures gross profit relative to selling price. They are not interchangeable.

  • Markup percentage: (selling price − cost) ÷ cost × 100.
  • Gross margin percentage: (selling price − cost) ÷ selling price × 100.
  • Selling price from target margin: cost ÷ (1 − target margin as a decimal).

If the total cost is $10,000 and the selling price is $12,500, gross profit is $2,500. Markup is 25%, while gross margin is 20%.

Common formula mistake

Adding 20% to cost produces a 16.67% gross margin, not a 20% margin. To achieve 20% gross margin, divide cost by 0.80.

5. Worked cabinetry example

Consider a hypothetical project with $8,000 materials and hardware, $4,000 direct labour, $1,000 delivery and subcontract costs, and $2,000 allocated overhead. Total estimated cost is $15,000.

At a target gross margin of 25%, the selling price calculation is $15,000 ÷ 0.75 = $20,000 before any applicable tax treatment. Gross profit is $5,000. This example explains the calculation only; it is not a recommended rate or target.

If a finish change adds $1,500 cost, recalculate the selling price from the revised cost rather than adding $1,500 to the old selling price and unintentionally reducing margin.

6. Review profitability before issue

  • Confirm material and hardware rate dates.
  • Check hours against the actual scope and installation conditions.
  • Verify that overhead is neither omitted nor counted twice.
  • Review contingency and provisional allowances separately.
  • Confirm whether discounts alter the intended margin.
  • Check tax treatment with appropriate professional advice.
  • Record the quote revision and pricing basis.

After completion, compare estimated and actual quantities, hours and costs. Use the variance to improve the estimating method rather than simply increasing every future quote.

Common questions

Should machinery recovery be labour or overhead?

Either can work if the method is deliberate and avoids double counting. Some businesses use machine-hour rates; others include machinery ownership in the overhead pool.

Is gross margin the same as net profit?

No. Gross margin describes gross profit after the costs included in the job calculation. Net profit considers the business's complete income and expenses.

Can software choose the correct margin?

Software can calculate a selected rate consistently, but the business remains responsible for choosing rates, validating costs and reviewing commercial risk.

Keep the pricing inputs reviewable

See how JOINA organises materials, labour, overhead and margin within a structured cabinet quote.

Explore cabinet job costing