4 Steps to a Successful Residential Bid Every Construction Manager Should Know (But Most Don’t!)

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Experts are telling homeowners to get lots of bids before selecting a contractor for their remodel. And it makes sense—when buying something like a car, smart buyers use Edmunds, Kelley Blue Book, and Consumer Reports before making a decision. They should use the same diligence while choosing a contractor for a remodeling job.

Residential construction bid

But with that in mind, it’s incredible how few remodelers get the bidding process right. Many miscalculate the number of hours, the cost of materials, or forget to plan correctly for subcontractors.

To avoid these issues, follow these four steps to have a successful residential bid every time.

Step 1: Get to know the house.

Residential construction bid

via Michele Turbin, Flickr

Getting to know the house is essential to getting your bid right.

For example, Scott Gregor says, “The best way for me to get acquainted with a house is to have a set of drawings, and a walk through. If I can’t have drawings then a simple scope overview of what the pain is, why are you renovating, what are you trying to fix etc are all ways for me to get up to speed on a house. When it comes to communication, the more open and transparent you can be with me, the more I can give you an honest assessment or response on how to remodel your home.”

While it’s obvious your firm needs to demonstrate it has a sound knowledge base and work process creating a bid without a walk-through is bound to lead to miscalculations.

Having a quick walk-through helps contractors understand the client’s exact specifications. They should use this time to ask questions, get to know the client, and determine whether or not they will be a difficult customer to work with. Seek out areas where you will need to use subcontractors, and be sure to ask for any mock-ups or drawings the client might already have.

Step 2: Calculate the tangible costs of the job.

via Ken Teegardin, Flickr

via Ken Teegardin, Flickr

Homeowners are turning more and more to free online remodeling calculators. Luckily, contractors have far more powerful tools available to them.

Given the complexity of any construction job (between guesstimating man hours to budgeting for materials), contractors should invest in construction estimating software to help reduce the speculation that goes into creating a bid. An additional benefit is that if there is a change to the job, it’s very easy to adjust a column with this software as opposed to redrafting the entire bid.

When determining the raw cost, make sure you consider:

  • HVAC needs
  • Subcontractor fees
  • Materials
  • Cost of labor
  • Sitework (such as demolition and hauling)
  • Preventative care
  • Finishes
  • Specialties
  • Equipment
  • Furnishings

Step 3: Make sure you make money!

man and Woman Handing Over Cash For House Keys Inside Empty Room

If you did this job asking just for the raw cost of the job, you would undoubtedly lose money.

Overhead fees must be included in the bid. If you want to be able to pay for new tools and construction branding and marketing, you must substantially mark up your final price.

By how much?

Greg Flenniken from Flenn Homes says, “I would say most builders are around the 15-25% range.”

According to Construction Programs and Results INC, “The typical remodeling contractor will have overhead expenses ranging from 25% to 54% of their revenue–that means every $15,000 job could have overhead expenses of $3,750 to $8,100.” With these figures in mind, mark up your bid to actually return a profit.

According to the National Association of Home Builders, most remodelers only have a 3% margin. Don’t fall into the same trap that so many contractors make in an attempt to win a bid by undervaluing their services. It’s not worth it.

Step 4: Present your bid.

Businessman signs contract behind home architectural model

Don’t be tempted to send your bid in the mail or over email. Pitch your bids in person.

Leland Finley, a Missouri-based contractor, explained it best to Remodeling, “[Presenting in person] gives new customers an opportunity to ask questions and gives me an opportunity to explain the bid.” Explaining the bid in-person alleviates the possibility of miscommunication relating to the bid itself—and attaches a face to the final number.

Instead of handing the bid packet over to the client and waiting for them to read it, walk through the itemized list with them. Explain why what costs how much and any reason your figures might be different from another contractor’s.

More?

Avoid the temptation to go below margin to compete with other people’s bids—getting caught up in “winning” a contract is how all-too-many construction companies lose money on jobs.

Are there other tips that I missed? Suggestions from your experience? Leave your thoughts and comments below!

Looking for Construction Management software? Check out Capterra's list of the best Construction Management software solutions.

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Rachel Burger

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Rachel is a former Capterra analyst who covered project management.

Comments

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I agree with most of your points, and being on the other end of service consumption, I believe we should make sure that the job is done right. I hired Kitche-n-Catch for the task of my home remodel. I don’t know about the background story, but I found their work to be the best. They worked like its their home too and it should have the absolute best of everything in a reasonable budget. After seeing their efforts and work, I think its fair for them to charge a little extra for their services. Even though they didn’t, they were pretty affordable.

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Hi Rachel, loved the content of this blog. Thanks for the share. I could not agree more on some of the points you mentioned above. The best part was calculating the tangible cost of the job.

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You can also call your local building department for a referal. That’s if they are allowed to give you some names. I myself was referred from the head building official for an addition. They see all the good/bad work..

[…] software offers both electrical and plumbing estimating functionality. It is well-adapted to new residential construction, multi-family building projects, remodeling, and lighter commercial and industrial work. It […]

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Yes This is great article and really helpful for every construction manager.

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I completely agree, people like to abuse the free estimate tag and shop harder than they need to when they don’t get the price they want right away. I hope everyone does start charging for estimates, I don’t mind losing a little profit on a job, but I hate my time being wasted by someone who might not even start the project because all three of their estimates were ‘too high’

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The very first sentence in your article is why I now charge to go see every job that I have not had a prior relationship with. I agree with ‘Scott’ that human nature wants ‘something for nothing’ and especialily when it comes to remodeling it can’t be done.

Do I lose jobs by charging a modest fee for traveling to a home to access the ‘scope of work ‘ that needs to be done? Maybe. Does my closing rate increase over the ‘free estimate’ model? You bet.

I have been in business for over 35 years and I am seeing a shift away from the ‘Free Estimate’ model in my industry, except in the very limited scope jobs.

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Rachel, I don’t know who you are or where you found the quote I made but it was used out of context to make your point and maybe you should do a better job of researching to make sure your information is accurate. I do believe clients flock to get the lowest price, we all do but they should also be careful who is giving them that pricing. ALSO, this contractor is going to possibly be in their home for 6 months or more and could either be the right choice or painfully the wrong choice. In my experience, you get what you pay for. As for your # 2, the internet can be woefully misleading and there is a lot of bad information there. There are no bluebooks in contracting and the ones like Remodeling Magazines average takes many aspects into consideration for pricing and are usually low. Ultimately find a trusted, referred contractor your friends or neighbors or co-workers have used and had success with. This works the best, and if you can’t find any of the above, then contact a local Builder’s association or contact other trades like plumbers and electricians and ask them for a referral. They will gladly refer someone that pays and does honorable work.

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Great article. I especially like your tip to present the bid in person – that does seem to add a personal, professional touch to the whole process. Thanks for the tips!

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Hello Rachel,

Great article! I read it to my husband, as we are an electrical contractor, woman owned business. He has steps 1-3 down very well. It is step 4 that gives him the biggest hurdle. We specialize mostly in commercial electrical. It is difficult to get appointments to go over a bid in person (which I agree is the BEST way to win the bid). Do you have any suggestions as to how to better explain and qualify our proposals to our competitors? Any suggestions are greatly appreciated! Thanks!

Shey

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