How to Estimate Construction Costs

Accurate estimating wins profitable jobs. Here's how to build estimates that protect your margins.

The Estimating Process

1. Review - Understand the project scope
2. Takeoff - Measure quantities from plans
3. Price - Apply costs to quantities
4. Markup - Add overhead and profit
5. Review - Check for errors and omissions
6. Submit - Send your bid or quote

Types of Estimates

Conceptual Estimate

• When: Early planning, no detailed plans
• Accuracy: -30% to +50%
• Method: Cost per SF, historical data
• Use: Budgeting, feasibility

Preliminary Estimate

• When: Schematic design
• Accuracy: -15% to +25%
• Method: Assemblies and systems
• Use: Design decisions, financing

Detailed Estimate

• When: Construction documents ready
• Accuracy: -5% to +10%
• Method: Full quantity takeoff
• Use: Final bidding, contracts

Cost Components

Direct Costs

Costs directly tied to the work:

Indirect Costs (Overhead)

Costs not tied to specific tasks:

Pricing Methods

Unit Pricing

Cost per unit of measurement:

• $3.50 per SF for drywall (installed)
• $450 per EA for interior doors
• $2.25 per LF for baseboard

Best for: Repetitive items with consistent costs

Assembly Pricing

Cost for complete systems:

• $12 per SF for complete bathroom
• $85 per SF for office buildout
• $150 per LF for storefront

Best for: Preliminary estimates, design-build

Crew-Based Pricing

Calculate from labor productivity:

• Crew of 2 installs 500 SF drywall/day
• Daily cost = $800 labor + $200 material
• Cost = $1,000 / 500 SF = $2.00/SF

Best for: Detailed estimates, self-performed work

Building Your Estimate

Step 1: Review Documents

Read thoroughly:

• Plans (all sheets)
• Specifications
• Addenda
• Bid instructions

Note:

• Unusual requirements
• Specified products
• Quality standards
• Schedule constraints

Step 2: Complete Takeoff

Measure all quantities:

• Use takeoff guide for details
• Organize by CSI division or trade
• Document assumptions
• Note items needing clarification

Step 3: Get Material Prices

Sources for pricing:

• Supplier quotes (most accurate)
• Price lists from vendors
• Historical costs (adjust for inflation)
• Pricing databases

Step 4: Calculate Labor

For each task:

1. Determine production rate (units per hour)
2. Calculate hours needed (quantity / rate)
3. Apply labor rate (wage + burden)
4. Add for supervision and breaks

Labor burden includes:

• Payroll taxes (7.65% FICA)
• Workers comp insurance (varies by trade)
• Benefits (health, retirement)
• Paid time off

Typical burden: 30-45% on top of wages

Step 5: Get Subcontractor Quotes

For work you'll sub out:

• Send bid invitations with full scope
• Set clear deadline for responses
• Get at least 3 quotes per trade
• Verify scope matches your takeoff
• Check sub references and insurance

Step 6: Add Equipment Costs

• Rental rates for needed equipment
• Fuel and maintenance for owned
• Delivery and pickup charges
• Operator costs if not in labor

Step 7: Calculate Overhead

Job overhead (typically 5-15%):

• Project manager time
• Site supervision
• Temporary facilities
• Permits and fees
• Safety equipment
• Cleanup and trash

General overhead (typically 5-10%):

• Office rent and utilities
• Administrative staff
• Insurance (liability, property)
• Vehicles and fuel
• Professional services
• Marketing

Step 8: Add Profit

Typical profit margins:

• Competitive bid work: 5-10%
• Negotiated work: 10-15%
• Design-build: 12-20%
• High-risk projects: 15-25%

Step 9: Review and Adjust

Before submitting:

• Does total make sense? (cost per SF check)
• Any items missing?
• All alternates priced?
• Exclusions clearly stated?
• Terms and conditions included?

Common Estimating Mistakes

Underestimating Labor

Problem: Used production rates from ideal conditions Solution: Factor in site conditions, learning curves

Missing Scope

Problem: Didn't price something shown on plans Solution: Use checklists, have someone else review

Wrong Quantities

Problem: Takeoff errors multiplied through estimate Solution: Verify takeoff, spot-check calculations

Outdated Pricing

Problem: Used old prices in volatile market Solution: Get fresh quotes, add escalation

Insufficient Contingency

Problem: No buffer for unknowns Solution: 5-10% contingency on most jobs

Quick Sanity Checks

Use cost-per-SF benchmarks to verify:

If your estimate is way off these ranges, investigate why.

Estimating Software Benefits

vs. spreadsheets:

• Automatic calculations - Reduces errors
• Price databases - Current pricing
• Templates - Faster estimates
• Audit trail - Track changes
• Reporting - Professional output

Tips from Estimating Pros

1. Visit the site - Photos don't show everything
2. Read the specs - That's where surprises hide
3. Ask questions - Use RFI process
4. Document everything - Protect yourself
5. Know your costs - Track actual vs. estimated
6. Build relationships - With subs and suppliers
7. Review systematically - Don't rush final check

Next Steps

• Creating Quotes - Build professional estimates
• Price Lists - Manage supplier pricing
• Win More Bids - Improve success rate