How to estimate a construction job
Underbidding is the fastest way to work hard and still lose money. Here's how to estimate a job so the price covers your costs, your overhead, and a real profit.
An accurate estimate adds up four things: materials + labor + equipment/overhead + profit markup. Most contractors get the materials right but underestimate labor and forget to add enough markup. A healthy markup on most residential jobs is 15-25% on top of your true costs.
The estimating formula
Step by step
Why contractors underbid
The two silent killers are labor hours and overhead. It's easy to count materials because you can see them. Labor always takes longer than you think, and overhead is invisible — so both get shortchanged. The result is a job that looks profitable on paper but loses money in the field.
Markup vs margin
Don't confuse them. Markup is the percentage you add on top of your costs. Margin is the percentage of the final price that's profit. A 25% markup is only about a 20% margin. If you need a 20% margin, you have to mark up by 25%. Getting this backwards is a common reason contractors come up short.
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Describe the project and Orchamind builds the estimate — materials, labor, overhead, and the right markup — so you stop underbidding and start protecting your margin.
Try Orchamind free →Frequently asked questions
Add up five things: materials (plus 5-10% for waste), labor (hours times your fully-loaded labor rate), equipment and rentals, a share of business overhead, and a profit markup of 15-25%. The price that wins and pays you covers all five — most underbidding comes from shortchanging labor and overhead.
A healthy markup on most residential construction jobs is 15-25% on top of true costs. Remember markup is not the same as margin: a 25% markup yields roughly a 20% profit margin. If you need a specific margin, mark up by more than that percentage to actually hit it.
The two most common causes are underestimating labor hours and forgetting to include overhead. Materials are easy to count because they're visible; labor almost always takes longer than expected, and overhead is invisible, so both get left short. The job looks profitable on paper but loses money in the field.
Markup is the percentage you add on top of your costs. Margin is the percentage of the final selling price that is profit. They are not the same: a 25% markup equals about a 20% margin. Confusing the two causes contractors to add too little and come up short on profit.