Running the Business · Part 2
Estimating as a method: takeoff, labor units, materials, overhead recovery, markup vs. margin, and contingency
Every losing job was estimated by feel. This lesson replaces feel with a six-step method that produces the same price whether you are tired, rushed, or talking to a customer who says the other guy was cheaper: count the work, convert it to labor hours with units, price the materials at what they actually cost you, recover the overhead the job has to carry, apply the margin you need rather than a markup you heard, and add a contingency that matches the risk. It ends with a full worked example, a 50-gallon gas water heater replacement, priced from scratch, and the one arithmetic mistake that quietly cuts profit in half.
What the full lesson covers
- Takeoff first: count every fixture, fitting, foot of pipe, and task before any number is written. A price with no takeoff behind it is a guess.
- Labor is priced in units (hours per task) times a loaded labor rate: wage plus payroll taxes, workers' compensation, and paid non-billable time. A journeyman paid $38 an hour costs the business well over $50 an hour before overhead.
- Overhead is a real cost that every job must carry. Compute it as a dollar amount per billable hour from last year's (or this year's budgeted) fixed costs divided by billable hours, and add it to every labor hour.
- Markup and margin are not the same number. A 30 percent markup on cost is a 23 percent margin on price; to earn a 30 percent margin you must mark up 43 percent. Price with margin.
- Contingency is a percentage that matches the unknowns: near zero on a fixture swap you have done a hundred times, 10 to 20 percent on a repipe in a 1940s crawlspace.
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- 11Template: the estimate worksheet, blank and worked
- 12Template: the price-book starter. Forty service tasks, each with the line that builds its price
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