Estimating

New shops underbid because they forget to price the things that are not labor or material: burden, overhead, and contingency. The three-layer estimate: 1. Direct costs. Material from a takeoff plus labor hours times your true labor rate. 2. Burden. Your labor rate is not what you pay the tech. It includes payroll taxes, workers comp, unemployment, paid time off, and any benefits you offer. Most trades shops run 25 to 45 percent burden on top of hourly wage. 3. Overhead plus profit. Rent, truck, fuel, insurance, phone, software, dispatcher pay. Divide your annual overhead by your annual billable hours to get a per-hour overhead add. Then add profit on top. 10 to 20 percent is typical but varies by trade. Many new contractors use a labor rate that is what they pay the tech, then add 'some profit'. That misses overhead entirely and is why so many shops fail inside three years despite doing good work. Unit pricing for repeat jobs. If you replace water heaters, measure how long it actually takes including drive time, pulling the permit, and haul-off. That is your unit. Multiply by your full loaded rate. Material cost stays material cost (with a reasonable markup for stocking and handling; 15 to 25 percent is common on material for most trades). Contingency. On renovation and service work, 5 to 15 percent contingency on the direct costs is sane. You will find unexpected conditions. The customer is better served knowing the price floats between X and X+15 percent than getting a hard price and an angry change order. Write the estimate in plain English. Scope in, scope out, exclusions, payment terms, and how a change order works if the scope changes. Small claims court is full of shops that did not write this down.