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  Let's start bidding! Construction Estimating Free Tutorial


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This is page one of our construction estimating free tutorial on bidding, estimating and putting it all together. Part one (below) discusses putting your bid together, when you are the only installer for your company.

Part 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:

TABLE ONE
TABLE TWO
$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:

TABLE THREE
TABLE FOUR

$ 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
19.00% overhead

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 too low.

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 business!

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 some.

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 lower numbers).

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.


Click here for estimating programs and other goodies!


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