Estimating & Bidding
An estimate that is too high loses the job; one that is too low loses money. This topic covers how contractors build accurate estimates, the difference between markup and margin, how to compute material quantities, and the common types of bids. The math principles here are universal.
Building an Estimate: Direct and Indirect Costs
A complete estimate accounts for direct costs — labor, materials, equipment, and subcontractors tied to the specific job — and indirect costs. Indirect costs include overhead (office rent, insurance, licenses, administrative salaries, and other costs of being in business that are not tied to one job) and profit (the return the company earns for taking on risk). A quantity takeoff — measuring the amounts of each material and unit of work from the plans — is the foundation. Estimators also add a contingency to cover uncertainty and waste factors for materials that are cut or lost.
Markup vs. Margin — Don't Confuse Them
Markup is a percentage added on top of COST: bid = cost x (1 + markup). Margin is profit measured as a percentage of the SELLING PRICE: price = cost / (1 - margin). These are not the same, and confusing them steadily erodes profit. Example: a job costs $8,000 and you want a 20% margin. Price = 8,000 / (1 - 0.20) = 8,000 / 0.80 = $10,000, giving $2,000 profit (20% of $10,000). If you had simply added 20% to cost, the price would be only $9,600 and the actual margin just 16.7%. Always know which figure a problem is asking for.
Quantity Math and Unit Conversions
Most estimating math is careful unit conversion. For concrete, get all three dimensions into feet, multiply to get cubic feet, then divide by 27 to get cubic yards (27 cubic feet = 1 cubic yard). Example: a slab 27 ft x 30 ft x 4 in thick = 27 x 30 x 0.333 = 270 cubic feet = 10 cubic yards. Areas are length x width (square feet); a 'square' of roofing = 100 square feet. The most common mistake is mixing inches with feet, so convert first, then calculate.
Types of Bids and Contracts
A lump-sum (fixed-price) bid gives one total price for a defined scope — good when the scope is clear, but risky if quantities are uncertain because the contractor absorbs overruns. A unit-price bid sets a price per unit (per cubic yard, per square foot) and pays for the actual measured quantity — ideal when quantities are unknown. A cost-plus bid reimburses actual costs plus a fee, and is often used when scope cannot be defined up front; a guaranteed maximum price (GMP) caps the owner's exposure. Choosing the right bid type for the situation is itself a risk-management decision.