You're bidding below your own overhead
If the overhead percentage in your estimating template is lower than what you actually run, every job you win loses money before a single hour is worked.
Most estimating templates use an overhead percentage somebody set years ago at a different revenue. Overhead does move down as you grow, but only when the indirect costs hold flat while revenue climbs. Usually they don't hold flat. Your bid sheet keeps quoting the old percentage while the ledger tells a different story.
Three moves, in order
Step 03: Overhead calculation
What indirect cost really comes to at your size, and the rate your estimating template should be using.
Other problems step 03 solves
Other things that go wrong
Contractors who had this
What owners ask
Am I bidding too low construction?
If the overhead percentage in your estimating template is lower than what you actually run, every job you win loses money before a single hour is worked. Most estimating templates use an overhead percentage somebody set years ago at a different revenue. Overhead does move down as you grow, but only when the indirect costs hold flat while revenue climbs. Usually they don't hold flat. Your bid sheet keeps quoting the old percentage while the ledger tells a different story.
Which part of the system fixes this?
The step is number 03, overhead calculation. What indirect cost really comes to at your size, and the rate your estimating template should be using. It's drawn from chapter 3 of CONTROL: The Construction Financial Operating System.
Is this normal for my trade?
Across the 48 trades that publish a figure, net profit at $1M–$5M averages 7% before taxes. If you're well under that and this page describes your month, the two are usually the same story. The published average tells you where the pack is, and your own job costing tells you where you are, which is the number that pays payroll.
Where do I start?
Calculate your real overhead rate from last year's numbers, not from the template.
Can I fix this without touching anything else?
You can try, and it doesn't hold. Step 03 depends on step 01, job cost structure and step 02, equipment cost basis. Install it ahead of those and it produces numbers the field won't trust, which is worse than the problem you started with.
Wrote CONTROL, the 8 step system behind these figures. More about the author.