Bidding For Profit - Cost Estimates matter
I am a business man first, and a deck builder second. That's what I
always tell my wife anyway. It's my attempt to remind her, and me, that
although I love building decks, I'm in it for the money.
It's my living.
My business is meant to support my family, not just be an outlet for a hobby. I (and I'm sure many of you) am lucky in that we get to do something we love as a means of making money.
But make money we must, and this can be realized in large part by how we bid our jobs.
Of all the figures involved in building a deck, profit is derived from only two: how much you charge the customer to build a deck, and how much it costs you to have it built. Beyond that, profit can be further categorized into gross profit and net profit.
Gross Profit, Net Profit
Gross profit is the amount of money the customer paid for the job, minus the expenses directly associated with that project, primarily materials and labor.
Net profit factors in the overhead expenses of running a long term business, such as insurance, license fees, tools, trucks, etc.
I prefer to also include a salary for myself in the overhead expenses. Your business can, and should, be making a profit above and beyond what you regularly pay yourself as a business owner.
We will get to more on overhead expenses later.
For now, let's go back to the start, those two crucial numbers that will make or break your business.
I will show you how to accurately determine how much you will make and thus have greater control of the financial side of your business.
Estimating The Cost Of Construction Isn't Always Easy
I start scribbling some figures, making calls to check on material prices, and literally guess the amount of time it will take my employees to complete certain tasks.
It always helps me to break the project into segments.
For example, I usually have some demolition to do first, then structural work, then the decking and perhaps railing. It is easier to see yourself successfully completing a job for what you're bidding when you can see it broken down into smaller, simpler parts.
I've also found that
it helps a customer understand why you are charging what you do, and it
allows them to pick and choose easier.
For example, say the
overall project is a couple thousand dollars above their budget, and
they see an itemized bid with lighting costing $2,000.
now decide to scratch the lighting, move forward with the project, and
you get the job instead of losing it because your bid only had a lump
sum for the overall cost.
So let's work through the construction
cost estimating process, breaking down the individual steps of the
project, as well as the costs associated with each of those steps:
Demolition of old deck
$200 (for dump fees)
1 day for a 2 man crew
$800 (cost of all materials to build the structure)
2 days for a 2-man crew
Decking and Fascia
$1,500 (cost of deck boards, fascia, fasteners, etc.)
2 days for a 2-man crew
There are a few keys to doing this right.
Number one is
to think through the entire building process and make sure you have
every step written down. If your project requires you to do something
extra, make sure you are charging for it.
Secondly, know your costs.
you ever had a bad experience with guessing what something might cost
and then finding out you were way off? I know I have, and it only had to
happen once to teach me to never do it again.
Call your vendor to
get an exact figure. Better yet, go into their office, hand them your
material list, and get a written quote.
This is how I would come up with the cost of the Decking and Fascia in the above example:
Cost Per Unit
1x6 deck board
Bucket of screws
Don't forget to include sales tax on the materials. I live in California
and pay almost 9%, so forgetting to pass this cost on can really come
back to bite.
When estimating labor, be liberal to be safe.
If you think it will take two days, charge for three.
my case, my initial estimate is almost always short and so in reality
my projects used to always take longer than I first thought, and I was
losing money. I learned that my shot was off and I adjusted.
don't know if it's only me that tends to be overly optimistic about what
my employees can accomplish in a given time, but I do know that when I
give myself a cushion, it usually covers the hold-ups and complications
that seem almost inevitable in the construction business.
So be liberal with time, and also with materials.
rule of thumb is to mark up material cost 10-15%, not to make money,
but to cover my expenses for broken boards, waste, mistakes, etc.
Include overhead and business profit.
your construction cost estimating process is something like the one described, you
should come up with a figure close to what the project will actually
Whatever you charge your customer above and beyond this
base cost should include two things: overhead expenses, and business
You need to calculate your overhead expenses for any given
month or year and make sure that they will be covered based on the
amount of days you work in that same time period.
For example, if
all the costs of construction involved with running your business for a
month total $1,000, and you expect to have 20 working days a month, you
need to include $50 a day just to cover your cost of doing business.
Finally, you need to charge extra so that you can make a profit, the amount being entirely up to you.
if you charge well above the competition, you have a chance of not
getting any jobs. If you charge too little, you will not make enough
money to support yourself or your family. In either extreme, you will
run out of business.
Somewhere in the middle is the most important
place to be, because ultimately the amount you keep when all is said
and done is what will make or break your business.