Guide
How to bid a job so it actually makes what you intended
Most jobs are lost in the estimate, not on the job. The crew was fine; the number was wrong.
Reviewed by Darren Lim, US CPALicence CPA.742536028 min read
Most contractors lose money in the estimate, not on the job. The crew did fine. The number was wrong before anyone picked up a tool.
A bid has four parts, and skipping any one of them is how a busy year ends with nothing in the bank. Here they are in the order they go together.
1. Material
The part everyone gets roughly right. Take off the quantities, price them at what you actually pay today — not last quarter — and add for waste, because you will not use exactly what you bought. Waste runs higher than people allow: offcuts, breakage, the box you opened for two fittings.
Add delivery and any restocking you expect to eat. If prices are moving, note how long the quote holds, because a bid you honour three months later at old prices is a discount you did not mean to give.
2. Labour — at the loaded rate, not the wage
This is where bids quietly go wrong. You estimate the hours, which is a skill, and then you multiply by the wrong number.
The hours have to be priced at the fully loaded cost of a billable hour — the wage plus payroll taxes, workers compensation, and benefits, divided by the hours you can actually bill rather than the hours you pay for. Drive time, the supply run and the rained-off afternoon are all paid and none of them are billed, so the real cost of a productive hour is well above the wage.
If you multiply estimated hours by the bare wage, every bid is short by the same proportion, on every job, forever. Work out your real number here and use it — it is usually a genuine surprise the first time.
3. Overhead — the cost of existing
Rent, insurance, the truck payments, the office, software, your own management time. None of it moved because you won this job, but this job still has to carry a share of it, because every job does.
Two ways to add it, and the choice matters:
As a percentage of the job. Annual overhead divided by annual revenue gives a rate you apply to each bid. Simple, and fine for a business whose jobs are broadly similar in shape.
Per labour hour. Annual overhead divided by billable hours gives a dollar figure you add per hour estimated. Better for labour-heavy trades, and it exposes something the percentage hides: overhead per hour rises when you are slow, because the same fixed cost is spread over fewer hours.
Work out your overhead rate here. A bid with no overhead in it is not a cheap bid — it is a bid that loses the cost of your building every time you win it.
4. Profit — added on top, not hoped for
Material plus labour plus overhead is your cost. Profit is what you add on top of it, on purpose, as a number you chose.
This is the part most often left to chance — "we'll make it up on volume", "there's probably some margin in there". Hope is not a line item. Decide the profit, add it, and if the resulting price loses the job, that is real information about your market, not a reason to have skipped the step.
The markup trap that eats the profit you added
Here is the error that quietly halves margins across the trades. You want to make 30% on a job, so you add 30% to your cost. That does not give you a 30% margin. It gives you about 23%.
Markup is measured against your cost. Margin is measured against the price. They are different numbers, and adding a markup when you meant a margin gives away points on every job. To actually keep 30% of the price, you divide the cost by 0.70, not multiply by 1.30. The full conversion table is here, and it is worth pinning above the desk of whoever prices your work.
Put it together
Material (with waste and delivery)
+ Labour (estimated hours × loaded cost per hour)
+ Overhead (as a % of the job, or per labour hour)
= Cost
÷ (1 − target margin)
= Price
That last line is the one that separates a bid that makes what you intended from one that makes whatever is left over.
Then close the loop
A bid is a prediction. The only way to get better at predicting is to check the prediction against what happened, so cost the job properly after it closes and compare it to the bid — line by line, not just the bottom line. Job costing does exactly that, and the job profit calculator gives you the after-the-fact number to hold your estimate against.
Do that on ten jobs and you will find your own pattern — the trade where you always underestimate hours, the customer type where the extras never get billed. That pattern, priced into the next bid, is worth more than any estimating template.
Related
How we do this
We build this into your books. Starting with a month that costs you nothing.
Books that give you the two numbers a bid depends on — your true loaded cost per billable hour and your real overhead rate — and after-the-fact job costing so every estimate can be checked against what the job actually did.
- Every transaction categorized, accounts reconciled, the month closed
- Reviewed and signed by Darren Lim, US CPA — licence CPA.74253602
- The Two-Day Guarantee: Your first month back in two days, or the next month is free.
A bid is a prediction, and you cannot improve a prediction you never check. One month of properly built books gives you the cost figures the estimate needs and the job-level actuals to hold it against.