Include Profit & Overhead Costs in Renovation Project Estimates

Grow your contracting business and stand out from the competition: use Sweeten’s guide to include profit & overhead in your bids

Estimating overhead and profit are important parts of any project bid. However, underestimating overhead costs on a project often cuts into the profit. Sweeten outlines how to manage the cost of your business within a renovation project estimate.

Sweeten matches general contractors with high-quality home renovation projects, vetted for readiness and appropriate budget. Contractors pay only when they win a project. Budgets start at $15,000 and average over $100,000.

How does Sweeten work with general contractors?

• Sweeten matches general contractors with high-quality home renovation projects, vetted for readiness, and appropriate budget.
• Contractors pay only when they win a project.
• Budgets start at $15,000 and average over $100,000.

Project Estimating Tip 1: Estimating Overhead

Indirect overhead

Ongoing, or indirect, overhead items keep a business running long term.  There are a number of indirect or ongoing costs. These may include: 

• Salaries and benefits for employees
  
• Office costs, such as rent, utilities, supplies
  
• Vehicle costs
  
• Insurance
  
• Marketing costs, including Sweeten fees
  
• Professional services including accountants, attorneys
  
• Software licenses
  

Think of these expenses as the “cost of doing business” as they allow you to get in the game and operate a successful business. For that reason, many general contractors spread these costs evenly over a number of projects by incorporating them into their overhead and categorizing them as marketing. Others build it into their overhead on a project to project basis. It’s a key decision a contractor needs to make when they’re running their business. Ultimately, it’s a personal decision! The important point is to treat these fees as business expenses, and not as a reduction in profit.

Direct overhead

Direct overhead costs are costs for specific projects. Here are some examples:

• Equipment rental
  
• Job site utilities
  
• Additional insurance, when required
  
• Manpower for non-labor charges, such as accepting deliveries and ordering materials
  
• Project marketing expenses
  • For example, the fees for Sweeten’s services provide business development and marketing, opportunities for free photography/blog and social media promotion, peace of mind, and consumer protections for clients that are designed to help our GCs win.
    

Include anything that does not fall under materials or labor that affects the project.

Project Estimating Tip 2: Presenting P and O Estimates

Some contractors lump profit and overhead costs together. However, separating the two offers an opportunity for the contractor. Most clients don’t understand the expenses of running a business. Many people assume the profit and overhead number is mostly profit—and they will try to get the GC to reduce it. Separate the two, and it could lead to a better understanding of what is behind the estimate. It explains the cost of doing business.

One helpful strategy is to list some of the overhead items that benefit the client.  They will appreciate the transparency and help them understand what they’re paying for. Offering this could separate the contractor from other firms bidding on the project. The client should know if the GC will purchase more insurance or special equipment to make the project successful. 

Project Estimating Tip 3: Estimating Profits

Many GC’s use a standard profit percentage for their renovation project estimates. It is a fairly common practice for GCs to increase or decrease the percentage based on different job factors. A contractor might reduce their profit margins if it looks like the project will run very smoothly. Perhaps a client already has materials on-site, so changes or delays due to delivery issues are unlikely. Some of Sweeten’s GCs will give a small discount on profit to lock in the job.

However, the reverse is also true! Projects that appear more difficult for some reason. For example, projects where the clients have a difficult time making decisions and you anticipate delays.  Those types might include a higher profit margin in the bid. This will give you a cushion to fall back on when problems crop up. 

Project Estimating Tip 4: Change Orders and Options

Changes happen on many projects. Account for your cost by including profit and overhead items in the change order procedure. Above all, be sure to be upfront with this practice in the initial contract you sign with the client.

The same is true if options, or add-ons, are included in the estimate. Include the profit and overhead in the renovation project estimate for the add-on. In those cases, the profit and overhead are combined with the estimated costs. 

Beat the competition with fair, profitable renovation project estimates

We hope our guide to adding profit and overhead costs to your renovation project estimates was helpful! Knowing how to do this strategically is a crucial step in growing your contracting business.

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An often-overlooked tool to help grow a contracting business? Social media. Sweeten gives an easy-to-use social media guide to creating or updating your accounts for maximum effect.

Sweeten matches general contractors with real renovation projects that have a minimum budget of $15,000 (and Sweeten contracts only pay when they win a project!) Learn more about Sweeten’s working relationship with general contractors.