Most remodelers use historical job costs as part of their estimating process. Maryland-based Brenneman & Pagenstecher goes a step further, calculating labor costs as a percentage of a job's direct costs.
The theory is that the labor required to do two similar jobs should be roughly the same. “We've tracked most of the things we've built over the years,” explains Dean Brenneman, the firm's principal architect. “We start by breaking down the projects into job size — less than $100,000, $100K to $500K, $500K to $1 million, and over $1 million.”
Brenneman then breaks down labor costs for individual jobs within each cost category. In the $100-to-$500K category, for instance, the company had a history of 13 jobs with average labor costs of $281K. He then calculates the labor cost as a percentage of the direct job cost, before supervision, overhead, and profit are factored in. “We found that the labor cost ranged from 18.6% to 50.8% in that category,” Brenneman says.
Choosing the most accurate percentage for a particular estimate would mean deciding which of those 13 previous jobs had the most in common with the job under consideration.
Brenneman says that this is the trickiest part of the estimate. He has to consider how many weeks it took to finish a job, which crew worked on the job, and the pace of that crew. “Some of this is as much art as science,” he says. “But once we have that information, we can apply it to individual upcoming jobs and estimate the percentage labor cost based on what we've done in the past.” Brenneman says that his company has successfully applied the formula to approximately a dozen jobs during the past year. He says that it can be used to estimate any type of job, as long as there's a database of past work to provide a baseline for of the estimate's elements.
The only time the formula failed was when he applied it to a job where the homeowner was allowed to individually subcontract out for several sub-trades, including roofing and electrical work. In that instance, Brenneman says, his percentage numbers “just went out the window.”