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This is page one of our construction estimating
free tutorial on bidding, estimating and putting it all together. Part one
discusses putting your bid together, when you are the only
installer for your company.
two discusses what changes you'll need to make to your
numbers, when you're ready to hire one or more employees.
Keep your eyes
open for links to products designed to simplify the bidding
process. Oh, and if you haven't yet, please subscribe
to my free newsletter!
BIDDING | ESTIMATING
| PUTTING YOUR BID TOGETHER
This page contains our tutorial on bidding estimating and putting
it all together. We've got ideas about what you may want to include
in your bid, we've got proposal forms you can use, and you'll find
links to products designed to simplify the bidding process.
The first thing you need to do is to determine your overhead and
profit margins. Profit is easy simply because it is a percentage
of the overall cost of the job. Overhead on the other hand can be
a bit more complicated, so let's start there.
Basically, overhead is what it will cost you to run your business
(supplies, time spent doing takeoffs and bidding projects, postage,
electricity, etc., all fall under overhead). Every business has
at least some overhead, and a business will not survive if the overhead
is not included or is not figured as accurately as possible. [If
you don't have money to buy paper you can't write up proposals.
If you don't have electricity you can't use your computer or turn
on your lights. And so on...]
Going on the assumption that you'll be performing your own work
for right now [overhead when using employees
is discussed further down], to get an idea of how to calculate
what the overhead figure will be, first you need to decide what
the hourly wage is that you'll be paying yourself (hint:
pay yourself at least what you would pay an employee because you
went into business to make money, not to give away your own personal
expert labor, for free !!).
Please see tables one and two below:
$20.00 per hour
x40.00 hours per week =
$800.00 wages per week
$800.00 wages per week
x 4.3 weeks per month =
$3440.00 wages p/month
Okay, once you have applied your hourly wage to table 1 and come
up with the total wages per month in table 2, then you need to figure
out how much it is going to cost your company to pay out that wage,
in this case $3440.00 per month.
Using sample expenses on a monthly basis, table three contains
expenses that might be part of your overhead and table four shows
you what the overhead percentage would come out to be:
$ 15.00 supplies +
$200.00 phone bill +
$250.00 gasoline +
$ 15.00 pager +
$ 50.00 plan room +
$125.00 liability ins.
$655.00 monthly expenses
$655.00 monthly exp. ÷
$3440.00 monthly wages
Please keep in mind that the numbers
provided in all tables are for illustrative purposes only. To
arrive at your correct figures you will need to put your own numbers
in place of the examples (as well
as add any expenses that you have that are not listed, ie: warehouse
rental, cell phone, time spent working up estimates and proposals
for projects, etc. Make sure you get everything included).
Using the above examples, you would have an overhead of approximately
19% of every one of your labor dollars (.19¢ on every dollar).
Now (assuming you've already figured out how much material and labor
you need for the project you're bidding) you add together your material
expenses for the job, your labor expenses for the job, and your
overhead, in this case the overhead would be 19% of the labor dollars.
Now we get to figure out your profit margin...
A good starting point would be to attempt to profit $100 per day.
So, if your project will take three days for you to complete,
then you want to add on $300 profit. If your project will take five
days, then you want to add on $500 profit.
This is somewhat of a hit and miss until you have been the winning
bidder on at least a few projects, meaning $100 per day may not
be the appropriate number for your trade.
To figure out what your profit percentage is on each job, divide
your profit number by the sum of the material, labor and overhead
costs. This number is the percentage of profit you have figured
into the job.
Take your profit percentage on the winning bids and average them
out (add the profits of the winning bids together and then divide
the answer by the number of winning bids) and use that average percentage
on your next round of bidding. Continue on in this manner until
you find the right numbers.
When you are not the winning bidder, make every attempt to find
out what the winning bid dollar amount was and then go back to your
bid to see if you could have submitted that lower price while
still making a profit on the job. This is how you fine tune
your numbers to become competitive in your bids.
Something to watch out for while comparing your bid amount to
the winning bid amount: Sometimes a subcontractor will 'buy' a job
by submitting a very low number (possibly a bid with absolutely
no profit). The sub hopes that by 'buying' a job he can show the
general contractor what he can do, so that the general will use
him on the next project but at higher prices.
Be careful, because if you compare your bid to one of those types
of bids, you could end up in trouble on a project by bidding it
Also, if you decide to try to 'buy' a job by not charging any
profit, you could end up in trouble if your labor and/or material
goes over, because you have no profit on the job to absorb the overages.
That means that if your job goes over, you will pay money out
of your pocket just to finish the project. Not a way to stay in
Now for a couple side-notes:
If you are working
out of your home you should have a lower overhead figure than
businesses that purchase rental space for their office and/or warehouse,
possibly allowing you to use a slightly higher profit margin than
Same goes with all overhead expenses, if you can keep them lower
than your competitor then you can make a bit more profit than he
can (or leave your prices the same and win more projects with your
Instantly downloadable fill-in-able proposal and bid forms available
If you need proposal forms or bid forms we have several available for purchase and they all come with unlimited free replacement and unlimited free support.
here for estimating programs and other goodies!