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Estimating Mastery: Pricing Projects Without Losing the Job or Your Shirt · Contractor Business Builder Podcast

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You never finished the job and wondered where all the money go.
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This video is for you. I'm going to show you how to
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price project without undercutting yourself or scaring
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off good clients. Alright, so this video is part
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of a series of videos on all things estimating, estimating
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mastery. Make sure you check out the
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other videos after this one. The first thing I mentioned
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about pricing is markup versus margin.
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We're gonna get into all the nitty gritty details of, of
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specific pricing, of oversights, things to include labour
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materials, all that kind of stuff.
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But I need to get started with a really important stuff first,
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which is markup versus margin and knowing the difference and
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why it even matters. You may have heard it and
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they're like, isn't it like kind of the same thing?
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What does it really matter? Well, a 20% margin is equal to a
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25% markup. The difference of this is when
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you calculate for overhead and your expenses.
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So if you're running an overhead type calculation, you're looking
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at your books and you may look for the past year you made like
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$1,000,000 and let's say you spent $100,000 on overhead.
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That is a 10% margin of overhead.
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Now if you are marking up your estimates by 20% and you figure
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you've got a 10% margin, you're actually selling yourself short
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because of 20% markup is not a 20% margin.
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And it's actually probably about like a, I don't know exactly
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1617%. So really make sure that you're,
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you're understanding the margin and markup and the difference
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between it, because typically speaking, overhead is going to
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be somewhere around 10:50. And I've even seen it up, you
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know, higher 2025 percent in some contracting companies.
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So your markup is probably gonna need to be around 25 to 30% to
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operate a larger business. If you're hiring a management
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team with, you know, project managers and, and different
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admin people and things like that in the mix.
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If you're still kind of the lone wolf or, you know, the head
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honcho leader in your business and you're running all your
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projects and everything, you can't afford to have a little
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bit lower markups. But the problem is that when you
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start to grow, if you want to hire and bring in these other
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people, your pricing is not in a position to facilitate that type
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of growth. And you're not going to be able
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to sell the same type of projects with the same, you
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know, level of abilities that you have as you have to raise
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your prices in the future. So better to get that out of the
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way now, have a healthy markup and make sure that you're
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covering your overhead as well as your personal salary profits,
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as well as some contingency. No project goes as planned.
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No estimate is bulletproof. You know, there's always going
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to be things that pop up and you're probably always going to
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have something, it ends up decreasing your margins
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throughout. So make sure you're you're
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pricing accordingly and you know the difference.
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We mark up margin and that's why it matters.
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Alright #2 moving on to #2 here is common oversights.
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So again, I wanna get some stuff out of the way right off the
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back here. And if you want a free templates
2:52
for estimating the full template that we have for a new home
2:55
build as well As for home walkthroughs and an SOP, we got
3:00
a three template stack. It's all free.
3:02
Check out the links in the description below.
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Go grab that stuff for yourself. Right now, the common oversight
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is project management. I know a lot of guys, especially
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starting out in doing GC type work, they feel like the project
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management is something that you include in the markup.
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You know, I'm going to mark it up 25% of 30% and that's kind of
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my salary as, as the project manager or have project managers
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and that's how I pay them. The problem with this is you
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can't really attribute the hourly rate of your project
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manager to the project that they're managing.
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And how many, how many projects do we need to imagine manage to
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afford their, their hourly rate or their salary or whatever it
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may be? So that's why you need to
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include a separate line item for project management that
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typically I like to do this by how many hours per day are gonna
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be spending on the project. So if you're building a new
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home, maybe they're there, you know, 2 hours a day.
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And it's not that they're on site 2 hours a day, but they're
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talking with trades, they're talking with clients, they're
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ordering materials, they're maybe meeting inspectors, you
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know, whatever it may be that the amount of time and then
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times it by was just going to be a 7-8 month, you know, home
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build. How much time are they going to
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be there times that by their hourly rate plus, of course, the
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a healthy markup, which I'm gonna get to like how to price
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labour. But typically for project
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management, you're probably gonna be in the $100.00 an hour
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range. Figure out what makes sense for
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you. But that way, even if you are
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the one project managing, you know that you can hire project
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manager and their salaries covered in the estimate making
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sense here. Can you see how that's very,
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very important and set yourself up for growth and scaling.
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Now, the other thing that's common oversight is
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miscellaneous. And you may be a little afraid
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to like put miscellaneous in an estimate because the clients
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like, why am I paying for miscellaneous?
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What's this, right? But essentially, you could tell
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them every project that we've ever done in entirety of
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construction always has something that was not accounted
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for, something that comes up. There's a lot of variables, a
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lot of things that can go wrong. And we've found that there's
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always something. So instead of trying to, you
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know, come back later, we had a little bit of miscellaneous, you
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know, labour, little bit of miscellaneous materials because
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there's always something that we have about oversight.
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Or if there's small things that pop up in a project, we can take
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care of it without change. Ordering you to death for a
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couple 100 bucks here, a couple 100 bucks there, right?
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So add a little bit of miscellaneous into your budget.
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And then the final thing that's common on oversights is a risk
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assessment. Do a little bit of of forward
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thinking. And is this project far away?
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Is, you know, if it's a remodel, I mean, there's risks all over
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the place, right? Is this 100 year old home that
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who knows, you know, what's behind the walls or is there
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asbestos or aluminum wiring or or whatever, right?
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So obviously you're gonna check for these things before you
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start construction, but do a risk assessment.
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What are the risks involved? Do I need the price differently
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based off of these risks? Risk could be, I'm not too sure
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about this client. Maybe they're like a lawyer or
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you know, some, some big way or something like that.
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And they've talked about the other contractor that they
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fired, you know, last year or whatever, right?
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So what are the risks price accordingly?
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Alright, still with mayor #3 these are things that you do not
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include. So when you're presenting budget
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estimate proposal to a client, there's things that you don't
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want to have in your estimate. Now feel free to add these, but
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generally speaking, especially early on before you know, kind
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of where this is going, the first real like rough estimate,
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itemized estimate that you provide to a client, present
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them with this is, you know, doable.
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This is like base pricing. And then from here, depending on
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what they select or the options and where things go, the price
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will, you know, kind of go up from there.
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And things that you don't want to include like permits, unless
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you know specifically every, you know, project like this, the
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permit is $5000. Put that in there.
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If it's a variable thing that has to do with the county, the
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city, your district, whatever it may be, where it's like service
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upgrades for, you know, water connections or electrical
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connections or stuff like that, that, that is very variable.
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And essentially the, you know, the government districts, city,
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whatever, whoever is gonna send, send a bill for that and leave
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that out and just let the client know that these things are
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variable. I don't really know how much
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they're gonna cost because you know, we get charged from XYZ at
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the government by their people that come out.
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And this is an unknown cost. That's why I have not included
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it. But you can expect that having,
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you know, these upgrades, which you may or may not have to do,
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it could be anywhere from 20 to 40,000, which right.
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So you let them know you're open and in front of buddy, you're
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not trying to like hide anything, but you're just trying
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to remove variables. Alright.
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Other things that you want to exclude don't include.
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This is extras. So if they're like, yeah, you
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know what, like we want to remodel our whole home and we're
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also thinking of maybe like extending our garage or
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finishing our basement as well, but we might just stick to the
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main floor. If you want to give them
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different versions, that's fine, but typically speaking,
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definitely do a separate. Don't just give them the one big
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shot, everything included and then tell them you can remove
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stuff later. Have either options for it or
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have like a base one. This is for your main floor.
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If you choose to do the basement as well, that's gonna be an
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extra 60 grant or whatever it may be, right.
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Again, you wanna like chunk the numbers for options so that you
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can keep the the main scope of work as low as possible.
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And if they want extras or considering other things, have
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it as like a secondary option as well as like Gray area.
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So if, if there's again, like some sort of Gray area where
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they're not sure or you're not sure, like landscaping is, is
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one of these things. If you get a set of plans for a
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new home build, it's often that, you know, they've got the floor
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plans and elevations and all that kind of stuff, but they
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don't really have like a landscape plan then either just
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leave it out and say to be included upon, you know, final
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plans or, or selections or whatever.
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Alright, so we've talked about a lot of things that are sort of
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contingent and that's the, those are really important things a
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lot of people don't think about, like when you think about
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pricing, but those influence the entire kind of sales process and
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budget for the client a lot more than some of the other things
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which I'm going to get into now. Even though these are more
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important because they will eventually either, you know, let
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you know if you've actually making money or losing money.
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Grab these templates and the description.
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They will help you make sure that your pricing is on point
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and you're not forgetting anything in your estimate.
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Alright, so #4 is labour pricing.
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Labour pricing is the easiest way to lose money on a
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construction project is what I've found.
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It's often the thing that kind of goes out the window and is
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very hard to know exactly for a lot of reasons.
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You know, guys are kind of all over the place or can be, you
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know, weather you got site conditions, you got lots of
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different things that could happen with labour.
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Often, especially if you're an entrepreneur, your vision of the
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future is generally optimistic and maybe a little bit rosy and
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you're not really taking account of all the things that can go
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wrong, which is why you're risk assessment.
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But what you want to be thinking about labour pricing is you're
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going to have a wage. So if you're paying a guy, let's
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say, you know, $30.00 an hour, you ought to be adding the
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things like any taxes, workers comp, even things like having to
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buy them clothing or training, all that big downtime kind of
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stuff, admin costs that go along with having that employee,
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anything that, that employee costs you money, you need to be
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accounted for on top of their wage.
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And then on top of that, I would say you probably want at least a
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50% markup on the labour. Because that 50% markup is sort
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of contingency where if you've estimated 30 hours for this,
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this item in the, in the budget, it's very easy.
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That could go to 40. And of course, you want to
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always add a little bit extra hours more than you think, but
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it's just, it gives you that ability to make sure that if you
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give them raises in the future or something goes wrong in the
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project, you've got that, that padding built in there so that
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you've got that 50% markup. And then on top of that, you've
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got another, you know, whatever, maybe 2530% markup for the whole
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project. So how this looks is you like
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$30, typically it's going to be about double for the burden and
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the 50% markup for contingency. So that thirty goes to 60,
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potentially higher, but let's say 30 goes to 60.
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And then you're gonna on top of that sixty, you're gonna put an
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additional 2530% for your project, you know, overhead and
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margin and, and everything like that makes sense.
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And then the next thing with pricing for labour is what I
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like to do is do a mental walkthrough of what the person's
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actually gonna be doing. And if you've worked in the
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trades before, you're going to know this a lot better.
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If not, you may need to talk to, you know, somebody else on site
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or something like that and maybe get their input.
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But if it's like, you know, they've got a demo this wall
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and, and build this wall or they've got to build this house,
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like framing wise, it's sort of like with my history, how long
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has it taken? How can things go wrong?
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And what are they gonna need every day, you know, or, or that
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day, if let's say you've got 20 hours in there, Well, they gonna
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have to show up on site every day.
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They're gonna have to clean up. They're gonna have to do this.
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So just do a little mental walkthrough of the work.
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And often that'll help you sort of chunk things into like, OK,
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that will take two hours and that will be 5.
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And then, you know, they got another 8 or there's like this
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many days and they've got to take down set up, you know, so
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do a mental walkthrough and that really helps you get a lot
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clearer of a picture of how many hours or days of project is
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actually gonna take. Alright, so moving on to point
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#5 we are talking about material pricing.
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So how much of the material is gonna cost going into this
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project? You should be using some sort of
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software ideally, or at least have a database of spreadsheets,
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something like that. There's gonna be some pricing
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database and there's two different types of pricing
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databases. Typically there is going to be
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kind of your online resources. These are things like Rs means
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or Build 1 or there's a number of them out there where it's a
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essentially a live database that you can reference or pricing at
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anytime and it's going to have pricing for your area at that
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specific point in time. But you may also have things
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where you've got your own pricing database.
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Those things are gonna be pricing that you've just kind of
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figured out over time and then you put in your database.
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A good way to save time is if you're ever looking up pricing
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online or anywhere else and it's not in your online, you know,
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database that I mentioned where it's live, make sure you put
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that into your hard copy pricing database so you don't have to go
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and look it up every single time. 1 caveat is if you put a
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price in there last year and you're like one or two years
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later, you probably need to update that price.
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So that's the the problem with having like a hard database
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you're just putting numbers into.
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It's very helpful, but just remember that you do need to
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check it and update it from time to time to make sure that the
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pricing isn't old and there hasn't been, you know, inflation
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or changes in the cost of items. Next thing is make sure you're
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putting on a little bit of waste.
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So five 1015% even depending on the material and what it is,
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always have some if you need 1002 by fours, you probably want
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to order 1200, right, or 1500. That's a little much maybe.
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But anyways, if you need 1000 like thousand 100,150 something
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like that, right, 10 to 15% at least for things that are more
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critical, like tile or flooring where you can't just run to the
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store and get more, especially if it's special ordered, make
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sure you're ordering like or at least estimating like an extra
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20% of waste because you do not want to have to try to, you
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know, skimp on it. Order and then something you
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know doesn't come in or whatever you got to order more and, and
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now you're paying extra for delivery as well.
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So make sure you put your delivery costs in your
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materials. This typically I would have a
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separate line item of like deliveries and however many
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deliveries you think you can need for the project, because
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there's always something that you need, you know, shipped to
14:04
the, to the site or you need some guy to go pick up, whether
14:07
that's one of your guys or what have you.
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So make sure you're, you're including the delivery as well.
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And then assemblies are always an easy way to have built in
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kind of pricing and assemblies depending on your estimating
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software, but you'll have sort of several pricing for stuff.
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But let's say like a 2 by 6 wall exterior wall.
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Well, you're gonna have the studs, you're gonna maybe have
14:27
some bolts or fasteners, your nails, your, your glue or sill
14:31
plate. You know, you have to double top
14:33
plates and OSB sheeting and tie typar, Tyvek house wrap,
14:36
whatever you wanna call it. All of that could sort of be
14:38
built into it in assembly. And you can have like a overall
14:41
price for something like that without having to price all
14:44
those things individually. And that's where assemblies come
14:46
in really handy and get speed up your estimating a lot quicker
14:50
and help you price things a lot quicker as well.
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And of course, you know, you gotta double check your numbers
14:54
every now and then if you don't have that live pricing in in
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your model. So next thing we're moving on
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here is number six, and that is selection.
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So your client is gonna have selections or preferences that
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they want installed in their home or their their office
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space, you know, commercial property, whatever it may be.
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When you're starting out, if you're doing like a rough budget
15:12
type of a budget where they haven't made selections yet,
15:14
you're just kind of pricing out the project.
15:16
Always do sort of mid to low allowances because again, you
15:20
don't want to scare off your client by pricing these these
15:23
high end fixtures or luxury kind of things.
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And then the the price be inflated and they balance
15:29
because it's you know, well, well over what they expected or
15:32
whatever. For the estimates, make sure
15:33
that you have like solid allowances in there and it's
15:36
clearly stated allowance. Also for allowances, make sure
15:40
you have some sort of documentation in there if taxes
15:43
are included or not. If you're going to pay taxes on
15:45
top of materials, then, you know, is that part of the
15:48
allowance or not part of allowance?
15:50
And you want to make sure that that is understood as well as
15:52
your elections, right? If they have a, a bathtub in
15:55
there for, you know, $1200 or something like that, and you've
15:58
got whatever taxes may be on top of that, you wanna make sure
16:02
that it's clear to them that that allowance includes taxes or
16:05
doesn't include taxes. And, and obviously the, the
16:08
adjustment would have to be made and then have your preferred
16:10
vendors somewhere. So when the client is going in
16:13
to get selections, even if you're not dealing with this and
16:16
designer is dealing with this, make sure you're talking with
16:18
the designer and letting them know that these are your
16:21
preferred vendors. Have a list of preferred vendors
16:23
because first of all, it's easier to do business with
16:26
someone recurring. You probably have, you know,
16:28
contractor pricing, discounts, whatever with certain vendors.
16:31
So you may as well be referring those vendors to clients to make
16:35
selections. And it's just easier getting
16:37
pricing from a few different people that you already know
16:40
than the client just going out there and shopping around or
16:42
some designer just using all these different suppliers all
16:45
over town. You know, they've got three
16:47
different type of tile from three different type of
16:48
suppliers and it's just a mess, right to go in and actually get
16:51
this stuff or price it out. So have a list of preferred
16:54
vendors, provide that to the client, provide that to the
16:56
designer. Yes, they can go off, you know,
16:58
out of those, but at least you are trying to kind of rein them
17:02
in as far as like which suppliers that they should be
17:05
selecting from. Alright, now we got the seven
17:08
thing here. This is equipment.
17:09
Alright, So equipment is things like rentals.
17:13
And if you're supplying your own equipment, you can rent it out
17:17
to the client if it's big things because that way the client is
17:20
paying for the the use of it. Essentially, this is going to
17:24
work everything like you're not gonna rent out your skill saws
17:26
or, or some basic thing that's very expected.
17:29
But if you've got to rent like a, a large generator or you
17:33
know, pumps to pump out their, their lot because there's a lot
17:37
of water in it or something like that.
17:38
And you happen to have a pump. But typically you'd have to rent
17:41
that, put stuff like wear and tear on machinery or, or rentals
17:45
into your budget and have a little bit of rental space in
17:49
there. Again, even if you're like, I'm
17:51
not sure if I really need a rental here.
17:53
There's always things that come up sometimes need to rent a
17:55
bunch of humidifiers because maybe the, you know, humidity is
17:59
really high and you've got hardwood floors going in and you
18:02
need to keep, you know, the humidity down or whatever rate.
18:04
So just be thinking forward, scaffolding, fencing, site
18:07
protection, whatever it may be that you have some sort of
18:11
rental in there. And then the last thing I want
18:13
equipment is security. What kind of security do you do?
18:16
You setting up cameras nowadays is a really great way to make
18:20
sure the site's taken care of, make sure your materials aren't
18:22
going off site and have that as a line item in your, in your
18:25
estimate, you know, $100 a month or whatever it may be for on
18:30
site security and let the client know you'll get access to the
18:32
security. You can check the footage
18:34
Commission live. You can see what's happening on
18:37
site, all this kind of stuff, right.
18:38
So this is a big boat like bonus both to you as a builder and the
18:42
client. And then just put it in there,
18:44
have the client pay for it because it's it's an added
18:46
service, added value. You can buy your own cameras and
18:49
your own security equipment if you want and again, rent it to
18:52
the client, if that makes sense, whatever, however you want to
18:55
set it up, but it's it's something that can be done and
18:57
just price it into your project. Alright, so now you should know
19:00
how to price your project well without losing money.
19:02
Make sure you go check out the next video in the series.
19:05
This is estimating mastery. This next one is on fixing
19:08
proposals. So now that you've got the
19:09
pricing and everything in place, you've got to go fix your
19:12
proposal to make sure you can put the proposal in front of a
19:14
client and sell the project. You don't want to miss that.
19:17
Go check out the next video.