Top Mistake Contractors Make When Estimating Labor on Jobs

Estimating Jobs

It’s frustrating when you feel you’re doing everything right, you’ve covered all the bases you can think of, but you’re still losing. This can definitely happen as a contractor when estimating jobs.

After years of helping thousands of contractors with their estimating at SynkedUP, there are 3 common mistakes I see contractors make in estimating labor on jobs.

Today I’m going to dig into 1 of them. I’ll continue on to the other 2 over the next two weeks in my blog.

The frustrating part is that these 3 mistakes I’m going to dig into lurk under the surface, not super visible at first look.

It can feel like you’re doing everything right, you’ve done a budget, fixed your pricing, and properly doing overhead recovery, …and it’s still not working.

It still feels like you’re working your tail off, and when you check your bank account balance, you get a knot in your gut.

Every time I talk to a contractor that has already done a budget (fixing their pricing), but still struggling to make money, usually one or more of these 3 culprits exists.

So what are they?

Let’s get into them.

#1 Not estimating in full-day chunks of labor

When coming up with how many man-hours a job will take, it’s easy to do the figuring, or use a production rate, and take whatever number we get and roll with it.

The challenge happens when that number gives us a partial day of labor on the end. e.g. 5 and 1/2 days.

A lesson I’ve learned from experience is you don’t want to estimate labor in partial day chunks. You don’t want to do something like 5 and 1/2 days of labor on an estimate.

This can easily happen when bidding in man-hours.

Let’s say your calculation gave you 165 man-hours as your estimate for the labor.

Now let’s play out a hypothetical scenario.

Let’s say your crew size is typically 3 people on the crew.

Let’s say that on average your crew works 10 hours a day.

So that means you burn through about 30 man-hours per day of work.

Multiply that by 5 days, and you get 150 man-hours

6 days is 180 man-hours.

But you estimated the job at 165 man-hours, giving you 5 and 1/2 days.

But the reality is, when you finish that job up, and get back to the shop after lunch on the last day, rarely can you go produce more billable work that same day yet.

At best you can do some logistics and prep work for the next day.

What that means is your company only brought in revenue for that half day’s work produced.

What’s the problem with that? We only worked half a day…

Well, the problem lies in your overhead recovery.

That day that you worked half a day, still had a full day’s overhead expenses to cover.

This means your insurance, marketing, etc bills are still due, and when you calculate your hourly rate to a number that helps you accurately recover that overhead on each man-hour, it’s assuming you are working in full day chunks.

If you only work a partial day, you may have paid your employees for what they worked, but your business didn’t generate enough dollars to cover overhead for that day.

Do that too many times throughout the year, and you can create a deficit of many thousands of dollars by the end of the year.

So, what to do?

When estimating labor on your jobs, simply take your number of people on the crew X average hours worked per day = man-hours per day your crew works.

Then always estimate your jobs in increments of that number.

Meaning if you have 3 people on your crew, and work an average of 10 hours per day, that’s 30 man-hours per day.

Always estimate in 30 man-hour chunks.

If your production rate or calculations give you something like 165 man-hours for the job, round it up to 180. (e.g. 6 full days)

That way, regardless of whether you work a full day that last day or not, you are generating the revenue needed to cover all your overhead expenses that day.

Next week I’ll dig into the second mistake I see contractors making when estimating labor for jobs.

As a little homework for you until next week, watch this webinar I did on how to close more jobs in your sales process. More jobs that you want!

Drop me a reply or comment here with your thoughts on this point of estimating in full-day chunks of labor. Have you experienced this?

Until next time!

Cheers!