To be a successful contractor, you need to ensure your estimates are as accurate as possible, so you don’t have to choose between charging more than promised or working at a loss. Books have been written about how to charge effectively – we strongly recommend you do your research on this aspect of being a business owner.
Even when you’ve done your research and know how much you need to make to turn a profit, you may still have a hard time thinking of everything you should include when calculating an estimate. Here are eight things you may be forgetting when you calculate what to charge for a project.
1. Travel time
Whether you’re a one-man show or have employees, you should know what hourly rate you need to make to turn a profit. When bidding on a project, estimate how many hours the actual work will take you, but don’t forget to add your travel time (and that of your employees) into that calculation.
2. Gas mileage and price
Don’t just count the mileage from your house to the project. Think about trips you’ll need to take to the hardware store to get or exchange materials. Calculate the cost of gas for the time of year and be sure you include that as well.
You shouldn’t expect a customer to foot the entire bill for a new tool you’ll need for a project, but it’s reasonable to charge a portion of the cost if you need a specialized or more powerful tool to get the job done. Also, think about wear and tear on your other tools.
4. Credit card fees
Many customers expect to be able to pay with credit cards but accepting them will generally cost you a nasty 3% of the total project price. If you’re willing to accept credit cards, decide before payment time if you’ll charge the customer the fee or if you want to add that 3% into your estimate, to begin with.
5. Permits and inspections
Be sure to include the cost of any permits or inspections you’ll need before you begin work on a job.
6. Business overhead
Be sure you know the overall cost of running your business and add a portion of that cost into every project. What do you spend on advertising, replacing broken equipment, vehicle inspections, and oil changes? Do you hire a lawyer or an accountant? How much do you pay to stay insured and licensed? Forgetting to factor these variables into your costs can add up to a huge amount of money at the end of the year.
7. Time you spend on the estimate
Don’t sell yourself short when you give estimates. Your time and expertise is valuable, so calculate the amount of time it takes not just to visit the customer and examine the project site, but also to calculate, type up, and format the final estimate document.
8. A buffer
It’s impossible to know what problems this project will have. The customer may change their mind partway through, you may run into mold or rot issues you weren’t expecting, or your supplier may not have the materials you need. In almost every business, it’s standard to add a 10–15% buffer to your estimate to cover unforeseen contingencies. This will protect you from loss and the customer from having to pay more than they expect, in the event you find you need it.
What to charge is one of the biggest concerns many contractors face because it’s impossible to know before starting work exactly what problems you’ll run into. A thoroughly prepared estimate will protect you and the customer and start you off on the right foot with your project.
What are the other hidden costs you include when coming up with your estimates? Tell us in the comments!