The ultimate goal of any company is to make money. What determines if your company makes money? You simply have to sell jobs for more than what they cost you to do. Contractors that use square foot pricing run the risk of losing money on jobs because they neglect to identify and account for all of their costs. The description of neglect in Websters dictionary is “to give little attention or respect to”.
If a company’s ultimate goal is to make money, why would any contractor use a method of estimating that gives little attention to or respect to identifying and accounting for all of their costs? I have to believe that it’s simply because they don’t know any better. Producing highly accurate estimates in a timely manner is not at all difficult if you know how to do it.
TurboBid provides a simple step by step process of estimating and bidding that allows you to systematically identify and account for all of the costs involved in a job. We take great pride is our ability to personally help contractors become better business people. We have a passionate desire to help our customers succeed. Honestly, there is no better feeling in the world than receiving a letter from one of our customers thanking us for helping them provide a better life for themselves and their family.
Following is what needs to be considered when estimating and bidding on a job:
Material costs and labor hours
The fastest and most accurate method of estimating is to use assemblies. An assembly should include your material costs and the amount of time to lay out and install the assembly. TurboBid currently includes over 45,000 per-built assemblies. Assembly maintenance screen
Your material pricing needs to be accurate. TurboBid allows you to easily keep your material prices up to date. If applicable, you need to add a percentage of the material cost to account for misc. material, material waste and theft, and material sales tax.
Manpower: In order to calculate your labor cost, you need to identify the manpower that will be used on the job. Your manpower costs should include the following:
– The employee’s pay rate per hour.
– The employee’s burden cost. Burden is the additional cost that you incur on behalf of your employees. This is typically in the form of payroll taxes, workman’s compensation, general liability insurance, health insurance, paid vacations/holidays/sick days, benefits, and bonus’
-Pay Raises: You should account for any employee pay raises that are incurred in the middle of the job and add the prorated cost to the estimate.
– Skill Level Adjustment: The material labor units used in TurboBid are based on a typical journeyman doing the installation. If you have employees that produce at a lower rate, they will cause the job to take longer to complete. You must calculate the effect that this lower productivity has on the entire crew and add it to the estimate.
– Additional Labor: This is where most contractors leave money on the table. Your estimate needs to include all of the additional time that you’re paying your employees for. This can include things like job set up in the morning, packing up to go home at the end of the day, material handling, meetings, paperwork, sweeping, and travel time. These tasks can be for one-time only, per day or per week. View our additional labor tab
– Type of Work: You can’t use the same material labor unit to estimate all types of work. For example, residential typically has a faster pace and more repetition than commercial work. You need to be able to quickly adjust your labor units to accurately reflect the type of work that you’re estimating.
Misc. Direct Job Expenses: You must take the time to identify and account for all of your misc. direct job expenses. View our Misc. Direct Job Expenses tab
Subcontracts: You need to add any costs for work that you’re paying a subcontractor to perform.
Tools: You should not only account for the cost of new tools that a job will require you to purchase but you should account for the cost of using your existing tools as it relates to tool replenishment.
Direct Cost Detail
Your estimate should clearly display the calculated values for all of the above.
It is vital that you know your true overhead costs. Overhead is what it costs to run your company. It includes costs such as office personnel, vehicle expenses, advertising, office supplies, utilities, and cell phones. It’s basically all of the costs that your company incurs simply because you are in business. It has nothing to do with direct job expenses. TurboBid includes a calculator to assist you in determining your overhead expenses. It also includes the ability to break down your overhead cost into a rate per hour. In our opinion, this is the most accurate method of adding overhead to your estimate.
The are two steps in determining the price to provide to your customers.
Estimating: Estimating is the process of calculating how much it will cost you to do a job. This is also known as your break-even cost.
Bidding is deciding how much to sell a job for. You simply need to decide how much profit to add to your break-even cost.
When I was contracting, almost all of my customers wanted to negotiate a lower price. If I only had a dollar for every time I heard the phrase “you have to go back and sharpen your pencil”, I’d be a rich man.
When negotiating a job, you have to decide, how badly do you want the job?
- Maybe it’s for a new big customer than you want to develop a relationship with. This is also known as buying a job.
- Maybe things are slowing down and you need the job to keep your key employees.
- Maybe you need cash flow to cover your overhead expenses.
- Maybe you need a paycheck.
Before I created TurboBid, I have to admit that, for whatever reason, I wanted to win every job that I bid on. What used to drive me completely out of my mind is that I didn’t know how low I could go before I would lose money on the job. At the time, I relied on my gut instinct but in reality, when I look back today, I didn’t have a clue. I’m cringing right now thinking about how many jobs I probably took at below cost.
One of the biggest benefits you’ll find in using TurboBid is that you’ll know your break-even cost. You’ll be in a position to negotiate your bid price without the risk of losing money. If it comes down to it, you’ll be able to tell your customer with conviction that as much as you want to do their job, if you lower your price any more, you will lose money. At that point, tell them in no uncertain terms that they need to be very careful about awarding the job to anyone that claims they can do it for less.
For more information, please visit TurboBid.net or call (888) 417-2458 Ext 102.
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