To calculate how low you can bid without losing money, you must first identifysix items. They are:
- 1. Your estimated burdened labor costs: hours it will take to complete the job;
- 2. Your estimated subcontractor costs: actual bid from a subcontractor;
- 3. Your estimated material costs: actual material costs;
- 4. Your estimated miscellaneous costs: all other costs needed to complete the job;
- 5. Your estimated overhead costs: the amount of overhead allocation needed for the time duration of the job; and
- 6. Your estimated slippage: the difference between your estimated and actual bid margin. Use slippage based on historical records at your company. Including this ensures that you break even on the job.
Once you have these six items, calculate the bid amount by adding items 1, 2, 3, 4, and 5 togetherand adding or subtracting your slippage, depending on whether or not it's a positive or negative number. This is the lowest amountthat you should bid. Any bid that is lower than this amount will be a loss to you.
Your estimated net profit will be very low or zero, so you do not have any room for error. Therefore, material and subcontractor bids (items 2 and 3) should be based on firm quotes. Consider having trade contractors visit the site to fully understand the scope of their work so that they do not miss anything.