Day Rate vs Fixed Price: How to Pay Your Subcontractors

You always charge the client a fixed price. That is the core of the construction arbitrage model - you agree a number upfront and keep the difference between what the client pays and what it costs you to deliver. But how you pay the subcontractor is a separate decision, and it determines who carries the risk on every single job.

Get it right and your margin lands where you planned it. Get it wrong and a five-day plumbing job that runs to eight days quietly erases your profit.

The two options#

There are two ways to pay a sub, and each is correct in different situations.

Day rate: you pay a fixed daily charge for as many days as the job takes. You know the rate. You do not know the final cost until the job is finished. You carry the duration risk.

Fixed price: the sub agrees to complete a fully defined scope of work for a set sum, regardless of how long it takes them. You know the final cost before the job starts. The sub carries the completion risk - and prices in a buffer for it.

Day rate in practice#

A day rate is a labour-only charge for one tradesperson for a day. What a subcontractor charges you (their charge-out rate) sits well above what an employed worker earns, because it includes their overhead, tools and profit. Rates vary widely by country, city and trade, so treat these as illustrative USD ranges and check your own market before you quote:

Trade	Illustrative charge-out day rate (USD)
Carpenter / joiner	$300 - $500
Plumber	$400 - $700
Electrician	$400 - $800
Plasterer / drywall	$300 - $500
Painter / decorator	$250 - $450

Major metros run well above these midpoints; rural areas below. In some markets (the UK, Australia, New Zealand) trades quote a daily rate as standard; in much of the US and Canada you will more often see an hourly or per-job price instead - the same logic applies whatever unit they use. Materials, equipment hire and waste removal are always priced separately on top.

Day rate works well when:

• The scope is genuinely unclear before work starts - opening-up, investigation, or remedial work
• The job is complex or bespoke and hard to price accurately upfront
• You are working with a sub for the first time and want to observe their pace and quality before locking in fixed prices
• The total duration is short (one or two days) and already well understood

The risk for you: if the job takes longer than estimated, every extra day comes out of your margin. A sub who runs two days over on a $280/day rate is a $560 hit. On a low-margin job, that can wipe the profit entirely.

Fixed price in practice#

With a fixed price, the sub names a number for a defined scope and commits to delivering it for that amount. You benefit from cost certainty and simpler cash-flow forecasting.

The trade-off is that experienced subcontractors building a fixed quote will add a risk buffer - typically 10-20% above what they would charge on day rate - to cover the possibility of the job running long or hitting complications they could not foresee. You pay for their certainty.

Fixed price works well when:

• The scope is fully specified before work starts and both parties have agreed it in writing
• The task is repeatable - fitting a standard bathroom suite, laying 50 sqm of floor tiles, painting a three-bedroom house
• You have an established relationship with this sub and trust their pricing
• The job is large enough that the risk buffer is worth the predictability you gain

The risk for you: any ambiguity in the scope becomes a dispute. The sub says the extra work discovered mid-job is outside what they agreed. You assumed it was included. That conversation is slow, costly, and damages the relationship.

A worked example#

Say you have priced a bathroom refurbishment at $8,500 to the client.

Paying on day rate:

• Plumber: estimated 5 days at $280/day = $1,400
• Tiler: 3 days at $240/day = $720
• Materials: $2,200
• Job costs (skip, consumables): $200
• Total cost: $4,520 - margin: $3,980 (47%)

If the plumber runs to 7 days because of hidden pipework, add $560. Margin falls to $3,420 (40%). Still acceptable - but two trades both overrunning by two days on the same job and the margin halves.

Paying on fixed price:

• Plumber: fixed at $1,700 (their buffer above the day-rate equivalent)
• Tiler: fixed at $870
• Materials: $2,200
• Job costs: $200
• Total cost: $4,970 - margin: $3,530 (42%)

You paid $450 more for certainty. On a clean, well-specified job that is a fair trade. On a job where the specification was vague, you paid extra and still ended up in a dispute.

The numbers above are illustrative - real figures vary by trade, region and job complexity, as the Pricing and Margins guide explains in detail.

The hybrid approach#

Most experienced operators use both models on the same job. The logic is simple: price whatever is genuinely known on a fixed price, and agree a day rate for anything instructed after work starts.

A practical example: a kitchen refurbishment has a known scope (remove and replace units, fit appliances, tile splashback) - you fix-price those elements. But the client wants to "see what the wall looks like when we open it up". That investigation work is day rate, and any remedial work that comes from it is also day rate until you can properly scope and fix-price it.

The scope defines the model. Clear work gets fixed price. Unknown work gets day rate. Never the other way around.

For the paperwork that makes this stick - variation clauses, instruction trails, confirmation emails - see Contracts, Insurance and Legal.

Getting it in writing#

Neither pricing model protects you without a written record before work starts.

For day rate work, confirm the rate and the estimated duration in a message or email - not to cap the duration, but so both sides have aligned expectations and there is no argument later about what the rate was.

For fixed price work, the written scope is everything. Walk the sub around the job, agree line by line what is in and what is out, and get a signature or at minimum a written acceptance via message.

On both models, instructed changes must be in writing before the sub starts the additional work. A verbal "while you're at it" that runs into hundreds of pounds is a recurring source of operator losses. How to issue and track variation instructions is covered in Managing Subcontractors Remotely.

The simple rule#

If you can write a clear scope, use fixed price. If you cannot, use day rate until you can. Every job has a moment when the unknowns become knowns - convert to fixed price at that point.

The decision is not permanent and it is not the same on every job. Operators who default blindly to one model - always day rate because it feels safer, or always fixed price because they want certainty - pay for the rigidity. Match the model to the risk, job by job, and your margin becomes predictable.

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For a full breakdown of how to structure your client-facing quote so the margin is protected from the start, read Pricing and Margins.

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