Being a contractor is as difficult as it has ever been. You have to deal with not only material delays but also impatient customers and a pandemic. It is now more critical than ever to increase your bottom line for the work you do.
You can increase your bottom line by looking at the components of your current estimation strategy. Make sure you are achieving your profit margins.
I have worked with contractors daily to evaluate their estimating methods, and I have learned from them some common mistakes. These four mistakes are common, so learn from them before you make them!
1. Do not forget to add fixed costs.
Add your fixed costs to the hourly labor rate when estimating an hourly rate. These are the costs that you must pay, regardless of how much you make in revenue.
You will also need to include labor rate markups for field personnel such as the Federal Unemployment Tax Act, the State Unemployment Tax Act, and the Federal Insurance Contributions Act. These are mandatory and must be included in your labor rate estimates.
For estimating purposes, I suggest that you divide your workforce into three groups:
- Owners/foreman/project managers;
- General field labor-crew members who have achieved self-sufficiency;
- You may hire newer staff members or crew members who have been with the company for less than six months.
When estimating, each classification will have a different rate. It is common to see category 1 go for $45-60 per hour, category 2 for $30-$45, and category 3 for $25-$35 (these rates will vary depending on many variables). Remember: They are not being paid at this rate. This is the rate you should use to estimate their man-hours.
2. Do not forget to include supplier costs.
You should also include freight costs and pallet charges. Also, the estimate for the size of the box your supplier will send you. If your estimate says you’ll need 21 gallons (79.5L) of material, but your supplier sells 5- or 15-gallon containers (18.9 and 56.8 L), then you will be responsible for paying the entire material cost. Your project’s bottom line will be affected if your bid does not include the amount you have estimated. Have you ever seen freight costs? These are your responsibility, so ensure that they are included in the bid.
3. Do not buy in small quantities.
You can buy in bulk disposable items like roller covers, mixing buckets, and tapes. These items can be used for one project, then thrown away. These items can be purchased at a retail outlet such as Lowes or Home Depot. These will be cheaper than buying them in bulk from a flooring supplier’s house. Most contractors don’t have enough money to afford the services of a purchasing agent. Spend some time researching this area. This will make you a great R.O.I.
4. Do not copy and paste.
Finally, be sure to take the time and calculate every job cost. Learning from your bids is the only way to become a contracting sniper. Software packages for bidding are very affordable and allow you to easily compare your estimates in labor, material, and profit percentages with what your team achieved. You can use them but not for every job.
Be a great contractor.
My experience has taught me that attention to detail is what makes a great contractor. Good luck with your estimating!