Estimating & Bidding: Securing Profitable Work

Winning a bid that bankrupts you is worse than losing the bid. Accurate estimating and disciplined bidding are the lifeblood of a construction business.

The Core Components of a Bid

A bid is not a guess. It is a mathematical calculation of risk, cost, and desired profit.

1. Direct Costs

These are costs directly tied to the specific project. If the project doesn't happen, these costs don't exist.

• Materials: Concrete, lumber, fixtures, etc.
• Labor: Wages paid to field workers (plus labor burden - taxes, Workers Comp).
• Equipment: Rentals or depreciation allocation for owned equipment used on site.
• Subcontractors: Work outsourced to trade specialists.

2. Overhead (Indirect Costs)

These are costs incurred to keep the business running, regardless of whether you have active projects. This is where most contractors fail.

• Office rent, utilities, and software.
• Salaries for estimators, office managers, and the owner (if not billing to a job).
• General Liability Insurance, vehicle insurance, marketing.

Overhead must be allocated as a percentage across all bids based on projected annual revenue or direct costs.

3. Profit Margin

Profit is the reward for taking the risk of business ownership. It is what allows the company to grow, invest in new equipment, and survive economic downturns. Profit is not your salary.

Markup vs. Margin

Concept	Formula	Example (Cost = $1,000)
Markup	(Price - Cost) / Cost	20% Markup = Price of $1,200
Margin	(Price - Cost) / Price	20% Margin = Price of $1,250

If you want a 20% margin, you must divide your cost by (1 - 0.20), not multiply by 1.20. See our calculator on the homepage.

Common Estimating Mistakes

Frequently Asked Questions