Estimating is where trade skill meets arithmetic, and contractors lose money at the arithmetic far more often than on the tools. The good news: every defensible bid is built from the same five ingredients. Get honest numbers for each and the price justifies itself — to you and to the customer.
1. Labor — with burden, not bare wages
Crew hours times the wage is the paycheck, not the cost. Payroll taxes, workers' comp, liability insurance, benefits, and the paid days off where wages flow out but no work comes back add 30–50% on top. A $28/hr carpenter typically costs $36–42 per hour actually worked. Estimate the hours honestly — including punch list and cleanup — and multiply by the burdened rate, not the wage.
2. Materials — with a waste allowance
The delivered price plus an allowance for offcuts, breakage, warped boards, and the piece you cut twice. Framing lumber commonly runs 5–10% waste; tile and flooring 10%+ once patterns and cuts are involved. If you use 8% more material than the takeoff, you're buying 8% more than you billed for unless it's in the bid. Material also carries a hidden cost most estimates skip: the time to order it, pick it up, and handle it — that's labor hours.
3. Subs, equipment, and fees
Subcontractor quotes at their price to you, equipment rentals and fuel, permits, inspections, and the dumpster. These are real job costs even when they don't feel like "your" work. Many GCs also mark up sub work 10–25% for the coordination and warranty risk they carry on it — at minimum, it must flow through your overhead and margin like every other cost.
4. Overhead — every job carries its share
The truck payment, insurance, phone, software, advertising, and the estimates you don't win all cost money whether or not this job exists. Recover overhead as a percentage of direct cost — total a year of business costs, divide by a year of direct job costs, and most small contractors land between 10% and 20%. Leaving overhead out of a bid doesn't make it go away; it just makes the job pay for it out of your profit.
5. Margin — on the price, not the cost
Applied last, and applied correctly: a 20% margin means cost ÷ 0.80, not cost × 1.2. The difference sounds pedantic and is worth real money on every single bid — here's the full explanation.
A worked example
Say you're bidding a deck build. You estimate 80 crew hours at an average wage of $28 with 30% burden; materials are $4,500 delivered with 8% waste; an electrician sub is $800 for the hot tub circuit; rentals and fuel are $350, and permits plus the dumpster run $600. Your overhead runs 12%, and you want a 20% margin.
| Line | Math | Amount |
|---|---|---|
| Labor (incl. burden) | 80 hrs × $28 × 1.30 | $2,912.00 |
| Materials (incl. waste) | $4,500 × 1.08 | $4,860.00 |
| Subcontractor | — | $800.00 |
| Equipment, permits & disposal | $350 + $600 | $950.00 |
| Direct cost | $9,522.00 | |
| Overhead | 12% × $9,522 | $1,142.64 |
| Break-even cost | $10,664.64 | |
| Bid price | $10,664.64 ÷ 0.80 | $13,330.80 |
| Profit | $2,666.16 |
Notice what "wage times hours plus materials" would have produced: $2,240 + $4,500 + $800 + $950 = $8,490 — and a contractor who bid $9,500 on that basis feeling generous would actually be working for less than break-even. The burden, the waste, and the overhead aren't padding. They're the parts of the cost that don't show up on a receipt with the job's name on it.
Do this in 30 seconds instead
The free job cost calculator runs this exact math — with a margin sensitivity table — in your browser. The full Excel workbook adds line-item estimates, your real labor burden, a customer-ready proposal sheet, and win-rate tracking.
Free Job Cost Calculator Full Workbook — $29The mistakes that quietly eat bids
- Bidding bare wages. If you've never computed your burden, calculate it — most contractors find labor costs 30–50% more than the paycheck.
- Quoting markup and calling it margin. Costs you 3–8% of revenue invisibly, on every job.
- Forgetting drive time, pickup runs, and punch list. Anything the customer's job consumes belongs in the estimate.
- Not tracking wins and losses. If you win 90% of bids you're too cheap; below 20%, too high or bidding the wrong customers. You can't tune what you don't measure.