Estimating is where projects are won or lost — before a single nail is driven. Estimate too high and you don't get the job. Estimate too low and you wish you hadn't. Accurate, profitable estimating is a skill that separates successful subcontractors from those who struggle.
The Anatomy of a Good Estimate
Material Takeoff
Every estimate starts with counting. How much material do you need?
Measure everything — don't guess. Count every fixture, measure every linear foot, calculate every square foot. Then add waste factor (typically 5-15% depending on material and installation conditions).
Labor Hours
Estimate how many hours each task will take. Use your own historical data when available. Industry productivity guides can fill gaps, but your actual experience is more reliable.
Don't forget setup time, cleanup, breaks, coordination with other trades, and inevitable inefficiencies.
Labor Costs
Calculate your fully burdened labor cost: base wages, payroll taxes (employer portion of FICA, Medicare, unemployment), workers compensation insurance, health insurance and benefits, and non-productive time (paid holidays, sick time, training).
Your true labor cost is typically 30-50% higher than the base wage.
Equipment Costs
Include equipment rental or ownership costs. For owned equipment, allocate depreciation and maintenance costs per project hour.
Subcontractor Costs
If you're subcontracting portions of your scope, include those costs plus appropriate markup.
Overhead Allocation
Your overhead (office rent, vehicles, insurance, administrative staff) must be recovered through your projects. Allocate a portion to each estimate.
Profit Margin
After covering all costs, add profit. This isn't greed — it's what allows your business to survive, invest, and grow.
Common Estimating Mistakes
Underestimating Labor
Labor is the most commonly underestimated cost. Productivity assumptions are often too optimistic. Track your actual labor on completed projects and use that data for future estimates.
Forgetting Indirect Costs
Permits, supervision, temporary facilities, project management time, cleanup — these indirect costs add up and are easy to overlook.
Using Yesterday's Prices
Material prices change. Get current quotes for specific projects, especially on volatile materials.
Ignoring Site Conditions
Difficult access, occupied buildings, extreme weather, or coordination with many other trades all impact productivity. Adjust estimates for actual conditions.
Rushing the Takeoff
Pressure to submit bids quickly leads to errors. A mistake on the takeoff ripples through the entire estimate. Take time to be accurate.
Not Visiting the Site
You can't fully understand conditions from plans alone. Site visits reveal access issues, logistics challenges, and other factors that impact your work.
Building Your Estimate Step by Step
Step 1: Review Documents Thoroughly
Read the specifications, not just the drawings. Spec requirements significantly impact cost. Note any unusual requirements or potential problems.
Step 2: Complete Takeoff
Count, measure, and calculate all materials. Use digital takeoff software for efficiency and accuracy.
Step 3: Price Materials
Get current supplier quotes. Note lead times — long lead times may affect your schedule.
Step 4: Estimate Labor
Break work into tasks. Estimate hours per task based on your data and adjusted for specific conditions.
Step 5: Calculate Equipment
Determine what equipment you need and for how long.
Step 6: Add Overhead and Profit
Apply your overhead recovery and profit margin.
Step 7: Review and Adjust
Before submitting, review the estimate critically. Does the total make sense? Are there any items that seem off?
Pricing Strategy
Know Your Costs
You can't price profitably if you don't know your true costs. Track actual costs on every project and use that data.
Know Your Market
Understand what the market will bear. What are competitors charging? What do GCs expect to pay for your type of work?
Know Your Value
If you deliver higher quality, better communication, or more reliable scheduling, you can command higher prices. Don't undervalue yourself.
Risk-Based Pricing
Higher-risk projects deserve higher margins. Difficult access, aggressive schedules, unfamiliar work types, or problem clients all justify premium pricing.
Relationship Pricing
For repeat clients who pay on time and are easy to work with, slight price flexibility makes sense. They're worth keeping.
Improving Your Estimating Over Time
Track Actuals vs. Estimates
After every project, compare your estimate to actual costs. Where were you accurate? Where were you off? This analysis is gold.
Build Your Own Data
Create a database of actual labor productivity, material costs, and other data from your projects. Your own experience is more relevant than generic industry data.
Learn from Losses
When you lose a bid, try to learn why. Was your price too high? Were you missing something in your approach?
Invest in Tools
Estimating software, digital takeoff tools, and historical databases improve accuracy and efficiency.
Presenting Your Bid
Professional Format
Your bid should be clear, organized, and professional. Include a clear scope statement, itemized pricing (where appropriate), exclusions and clarifications, and relevant qualifications and experience.
Cover Letter
A brief cover letter that expresses interest and highlights your relevant experience adds a professional touch.
Timely Submission
Submit on time. Late bids are often rejected outright.
Follow Up
After submitting, follow up to confirm receipt and express continued interest.
Frequently Asked Questions
How much profit margin should I include?
It varies by trade, market, and project, but 10-20% net margin is a reasonable target. Cover your overhead separately; profit is what's left after all costs.
Should I provide detailed breakdowns or lump sum pricing?
Depends on the GC's requirements and your preference. Detailed breakdowns make negotiation easier but give more visibility into your pricing. Lump sums provide flexibility but less transparency.
What if my estimate seems too high compared to competitors?
First, verify your estimate is accurate. If it is, your competitors may be underpricing (bad for them) or more efficient (something to learn from). Don't race to the bottom — unprofitable work isn't worth winning.