I’ve heard a lot of contractors break pricing down to cost per square foot.
There are obviously a lot of other considerations (e.g. materials) but we’re curious to know how some of the other contractors out there come up with pricing estimates.
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For my particular business, I was taught from many years growing up in the field and from generations of family contractors to keep things simple.
I personally do use the price per sq ft method; I also offer a time/materials cost basis method as well.
For the price per sq ft method, there is a national book and information outlet for my service location as well as any area you would need to know fair pricing for.
This book is annual and is very helpful to control the cost per sq ft, especially when the economy fluctuates, material costs rise, or there is a rise in labor costs.
Its known as the RSMeans Construction Fair Pricing Guide. It offers a fair pricing for both the client and the service provider to keep things clean.
I happen to like this guide because its a guide for the contractor as well as the client who can also see exactly what the costs are. Instead of just dropping a quote for the project, the customer can pre-budget and ballpark what items or projects they will want or can/cannot afford.
All in all its a very powerful and helpful tool both equally for the client as well as the contractor.
Focussing on bathroom remodels, I have created a spreadsheet that contains all of the popular upgrades as well as the basics. These options are selected as needed and totaled. The labor portion is calculated by either installation cost per item or by sq ft. While some of the material costs need to have their specific value altered, that value is asked of me by the spreadsheet. I have found this to be an effective way of achieving a job cost with evidence of backing it up. And…if necessary, changes can be made very easily. I think when servicing a niche market, having a form of personally created pricing is important. Arriving at a project cost will always contain $/sqft values, however in most cases, pricing an entire project this way leaves a lot of room for error
There are multiples of formulas used in the industry to calculate pricing for any job. In the end, it comes down to knowing your margins and what factors affect them the most. 3 contractors bidding a project are all going to use the same materials if the specifications are cleary spelled out, as they should be. Each one is going to have similar labor costs if hiring the work done, or similar hourly costs if doing the work themselves. I use a 3 point system to get me in the ball park. 1st, I calculate all materials, estimate labor costs and multiply that factor x 2. I will then add the materials and labor. This gives me a basis. 2nd I will use the local area market price for the project. 3rd I will think the project through thorougly in my mind and come up with the number my gut tells me is where my company needs to be. All 3 of these numbers should be real close. If they are not, something is off and I need to go back and find the variable that is causing the discrepancy. In the end, the number has to be one that will allow us to run proper profit margins. Every companys margins are different. Sometimes a lean company can win the bid with the same margin percentage due to lower overhead costs. Too many people are selling jobs on market prices that don’t support healthy margins for their company. Market prices can be driven up or down by economic conditions. Knowing your market is one thing, knowing your business is another. Knowing your margins is paramount.
We use 3 methods to figure the project cost, 1st we do sq.ft. on the work se do best. 2nd we do line item costs on projects we take on a general contractors, plus markup for overhead and profit, knowing who we bid against we end up 5 to 10% below others as out overhead is less, 3rd labor & matrials plus markup. Keep an open mind for tough locations and access, night work vs. day work, some times mixed used projects, residential on top of comercial.
Square Foot Formulas are either High or Low and are used mostly in new home building-
each job is different and should be worked up man hours plus materials and other expenses like fuel ,subcontractors and permits- then add your percentage of profit you operate off of- This gives you the price! no other way!
I personally don’t like formulas for a number of reasons.
Each job is different with regards to the remodeling portion of the job as well as the difficulty or ease of construction for each phase or trade.
Using industry standard numbers & pricing each task or operation within the construction process is far & away the best & most reliable method of estimating a job.
Not just the best for the contractor, but for the homeowner as well.
We all know someone who hired the wrong guy with the wrong numbers who could not finish the project, or of the homeowner who paid way too much for the job, both because their contractor wasn’t using industry standard numbers, or lacked the experience to properly bid a job.
Item by item, task by task, using industry standard numbers, then crosschecking with sf numbers, and you’ll see that sometimes your low according to the sf costs, sometime a little higher, but always able to easily rationalize both estimates based on circumstances presented in the job.
A clean & easy construction job will tend to come in a little lower than sf costs, as will a more difficult job come in a little higher than sf costs, but it is the best for both contractor & homeowner.
I use 3 sources-, at least–#1, by area remodeling or insurance estimators, #2 local quotes, #3 Competition… Cost per sq.ft.—not me—exact—get sub quotes / materials, with-in 30 days-----material highs are considered, although, time of contract signing is critical on what materials get quoted, vs. time of construction.
I have found years ago, contracts signed in February, and construction in Summer—better add fuel adj. to price for materials—or you eat it.
Contracts control. : Advise—In contracts, materials are quoted as a 30 day, unless supplier states more. If you can lock in a reliable sub, go with his price. If you do not have sub available, or many busy ones to pick from, since prices can vary, I put in allowances in my contracts…I just get sometimes a ballpark----last small job I did, I put in $1100 for Electrical, Electrical was by the hour as it was a custom job, job costs just slightly over $850…My contract stated—any overage / under, re-emburse or pay… My contracts are approx. 28 pages…People quite understand–never been challenged yet…----Some guys go by sq.ft., some exact or in the ball park—sq.ft. does not always work— it just gives you an idea that your in the park—your goal is home-plate, but you might get hung up on 3rd !!! YOU’ve got to do your research, and stay up with things, or lose out.
Material cost + labor cost + overhead & profit; or sq ft x $ per sq ft
A lot of people try to get what they can’t afford, and they put that on the homeowner. Do you point them to the original proposal? You tell them how things are affecting the budget, but that doesn’t always help.
There is no formula; we break down the project in stages, i.e foundation, framing, electrical, etc.
We can use a fixed costs contract or a cost plus fee one. The budget has to be detailed with complete specifications to achieve the goals of the client.
I use a cost plus program for our budget to bid jobs.
It depends on the project and the level of detail that we are given. At some levels, we can look at historical data by square foot to see how much it would cost. However, if the client has done some designing, hired an architect, or already decided the structure, we can go into our databases to “fine tune” a budget. So we either use historical data, reach out to sub contractor community, or use our own database that we can pull from to plug in the holes and fill in the blanks.
I generate a SqFt price based on a similar project I completed previously, and I’ll give that over the phone as a “free estimate” and then I tell them what the proposal fee will be for me to send a guy out to take measurements, discuss preferences, and then count every Nail, Stick, Pipe, Wire, and Sheet of Drywall and add it all up. Proposal fee is credited back to them on the final invoice if they hire us to complete the work - this eliminates Tire Kickers and HGTV binge watchers.
Once he gets measurements and figure out material costs, We add 36% to materials to cover markup and sales-tax. This markup is our Fudge Factor… If we screw up, waste material, forgot to include something, this gives us margin for that mistake.
Then we make a task list… we break it down by trade… My foreman and I discuss how long each section will take to complete… We multiply that by our hourly rate.
At the end of 2015, we went through QuickBooks, added up all the expenses… in each category… from payroll and taxes, GL and WC, to postage, overhead, support staff, divided it by my guys working 30 Billable Hours per week, 50 weeks per year… figuring 10 hours per week traveling, doing equipment maintenance, loading and unloading materials, etc. Added something in for profit… and came up with the minimum hourly rate we had to charge to cover expenses and make a profit.
So now we have a SqFt number… we have a Marble Counting number… and then if I have a third reference point, I might compare that just to see where we are. If my marble Counting seems low, I’ll add to it… if it seems high, I’ll double check the math.
I think the books and software are CRAP… especially the exacto-miss garbage the insurance adjuster’s use. You can’t use those numbers and be profitable, in the current regulatory environment unless you are subcontracting guys who don’t mind losing money, or who don’t carry proper insurance and registrations. Do the math, figure out your business costs per hour… then get REALLY GOOD at knowing exactly how long if will take you and your guys to get stuff done.
I use a Construction Division related excel spreadsheet, and build estimates just like projects. I “try” not to “Square foot” it to the client, because there are many variables. Estimating is tedious at times, but I have found that it is worth it, so you’re not over or under pricing by representation. If I feel that the client is just “fishing” then I’ll give them a quote that incorporates a 30-40% spread, and that I know won’t get us into trouble if and when it goes to “hard bid.”
Typically the budget is set forth by our customer which gives us a guideline as to the customers cost objective. Often the anticipation of cost may not be realistic with the products requested so our job is to find out how a compromise can be made to fit the customers budget. We cost our jobs the old fashion way by adding up everything that is required for materials and labor with a fair margin to finalize our pricing. We pay our men a good livable wages and we expect high quality work which we do receive because we treat our men fairly. we will not be the least expensive put we will be competitive based on the quality ans design of our installs.
Experience has shown what margin is safe on what jobs but a great start point is labor plus material plus 40 percent. That’s 5 percent for additional overhead and 35 percent margin. Thanks Josh
I do a line-item estimate based on actual quotes from the subs and suppliers. There are no shortcuts to budgeting a project.
We have an intensive pre construction and estimating process.