Estimating home improvement costs requires specialized skills. You can’t price home improvement work the same way you’d price new construction. The proportion of labor expense is greater. There’s far more risk because there are far more variables and unknowns. An example will make this clear.

Hanging doors in new construction is a 1-2-3-affair. You know ahead of time exactly what’s required. You built the wall, installed the frame and know each door will fit right the first time. There won’t be any surprises. An experienced estimator can forecast the cost of hanging a door in a new home with a high degree of certainty.

Now let’s look at the same task on a home improvement project. First, remember that you may be hanging only one door. There’s no chance to improve the production rate on second or later doors. Installing this door is probably different from the last door you installed on a similar project and will be different from your next door installation.

Work starts with removing the old door. That’s probably not too hard — once you break through six coats of accumulated paint on the hinges. Let’s assume you work carefully and don’t damage the casing or trim. The next step is to install a blind Dutchman where the original hinges were attached. If the frame’s badly chewed up from years of neglect and abuse, you’ll have to remove and replace the entire frame. Don’t forget that the building has settled over the years. The frame has probably twisted out of plumb. More time will be needed to shim and level the frame.

Finally the door is installed and swings smoothly. But the job still isn’t finished. You have to paint the door to match and will certainly have to haul away the old door and the debris.

Every home improvement cost estimate comes with dozens of chances to make an expensive mistake. Surprises are inevitable and nearly all surprises will add to the cost, not reduce the cost. Estimating new construction is a snap by comparison.

If you’re an experienced home improvement contractor, you understand this already. Whether experienced or not, you know full well that accurate pricing is crucial to survival in the home improvement business. Unfortunately, most home improvement specialists have far less experience in pricing their work than in getting the work done. No wonder so many home improvement companies sink into obscurity.

But it doesn’t have to be that way.

The chapters that follow explain how to price each type of home improvement work. Emphasis will be on avoiding risk — pricing pitfalls that can turn any home improvement contract into a financial nightmare.

There’s no single way to arrive at the correct price for home improvement work. Neither is there a single correct price for most home improvement projects. But there are both good and bad ways to estimate prices and there are good and bad prices for any proposed job. Your task as a home improvement estimator is to produce consistently good estimates on most jobs. If you’re already doing that, congratulations. You don’t need this book. Return it where you bought it and get a refund. But if you’re not, information in the following chapters will make or save you many times what you paid for the book.

It’s accepted wisdom among home improvement specialists that sales people need authority to quote prices when closing a sale. When trying to wrap up a deal, there’s no substitute for having current cost information at your fingertips. That’s especially true on larger jobs where you’ve prepared detailed plans and a written estimate. The owner will have questions and suggestions that change the job specs. If you want to close the sale then and there, you better know how much to add or subtract for each change the owner wants.

Most home improvement companies authorize salespeople to quote prices from an approved list in a price book. That simplifies the salesperson’s job, eliminates most major errors, and saves the owner of the company from approving every item in every estimate. In our opinion, quoting from a price book is the only way to build sales volume in the home improvement business. That means every home improvement contractor needs a good price book.

Of course, the best price book for your company would be based on your actual cost experience — work done by your crews on your jobs with materials from your dealers and installed by your subcontractors. Since every contractor uses different crews, subcontractors and suppliers, every price book should be different. And, of course, prices in the company price book should be revised regularly to reflect current labor and material costs.

Having admitted that there’s no substitute for developing your own price book, we’ll suggest that you not bother. Most home improvement contractors don’t have the time or patience to maintain current installed prices for thousands of repair and remodeling items. Even if you did, spending hundreds of hours a year keeping a price book current would be a waste of time. Prices for home improvement work are usually negotiated on site. There’s little value in keeping a book of exact costs if you have to cut a special deal to close each sale.

Instead, we suggest that you let this manual serve as your company price book. Using prices in this book (and on the disk in the back of this manual) will eliminate most of the common estimating mistakes. If your labor costs are higher or if your crews aren’t as skilled as most tradesmen, you may have to increase the selling prices listed here to make a reasonable profit. And, of course, sometimes you’re going to have a job with costs that exceed what any reasonable estimate could have predicted. This manual isn’t a substitute for the exercise of good judgment. That’s always your job.

Cost Plus Markup Equals Selling Price

The figures in this manual show both costs to the contractor and a recommended selling price. The difference between your cost and your selling price is your markup. Markup varies widely, far more than either material cost or labor cost. You’re the final authority on markup. You decide what markup fits best — based on market conditions, your client, and the profit you feel is reasonable. Once you decide on the "right" markup, it’s easy to plug that percentage into the bid, assuming you use National Estimator.

Every construction contractor needs to distinguish between "markup" and "profit." Markup is what you add to estimated labor and material costs (usually called "hard costs") to find the selling price. Profit is what you have left when all bills have been paid. The two are very different. Profit is just the frosting on the cake.

Markup is also different from "margin." Figure 1-1 shows percentages of markup for various levels of hard costs. For example, if your markup on a $20,000 job is 50 percent, the selling price will be $30,000. The margin on that job is 33 percent, $10,000 divided by the selling price of $30,000. (Note the bottom row in Figure 1-1.) Margin is what’s left after hard costs are recovered, and includes profit.

Many successful home improvement contractors find they can stay in business if hard costs are 59 percent of selling price. Hard costs include material expense, subcontract costs and labor (including taxes and insurance). The other 41 percent of selling price ("margin") compensates the sales staff, covers overhead, supervision and contingency, and should yield a modest profit. From Figure 1-1, you can see that markup on hard costs has to be 70 percent to yield a margin of 41 percent.

To put this formula to work in your home improvement company, add 70 percent to your hard costs to find the selling price. Of course, some jobs need more markup and others can get by on less. A smaller job with more risk done for a demanding client may require greater markup. A larger job done mostly by subcontractors can usually carry a smaller markup.

Naturally, competition dictates markup. If you’re not getting enough work at 70 percent markup, maybe 70 percent is too much for your area. But remember that you shouldn’t have to bid remodeling work on a level playing field. New construction usually goes to the lowest responsible bidder. A creative salesman who follows the recommendations in this book has an advantage over lowball bidders who rely on price alone to sell their services.

This Book Works Two Ways

(not included with the eBook PDF version)
The disk in the back of this book has all the information that appears in the printed book, but with one advantage. The National Estimator program makes it easy to copy and paste these costs into an estimate (or bid) and then add whatever markup you select. Monthly price updates on the Web are free and automatic all during 2007. You’ll be prompted when it’s time to collect the next update. A connection to the Web is required. To get started with the National Estimator disk, insert it into any computer that uses Microsoft Windows. Then follow instructions on the screen.

Before installation is complete, you’ll be invited to watch Show Me, an interactive video guide to the National Estimator program. Show Me is designed to speed your mastery of National Estimator. You can also start Show Me at any time while using National Estimator. Click the question mark button at the right end of the tool bar. Then click Show Me Tutorial. The disk has to be in your computer when Show Me is running.

Estimates That Work Two Ways

This manual is designed for use by both the owner of a home improvement business and by company sales staff. Prices shown in this manual include both hard costs (labor and material) and a recommended selling price (usually based on 70 percent markup). Sales staff will use the selling price.

Figure 1-2 shows the last page of an estimate for the Stillwel room addition, including 70 percent markup. The company estimator created this estimate from a job survey prepared by a sales representative. Figure 1-2 is for company use and was created in the National Estimator program.

Figure 1-3 shows the last page of a proposal for the same job. This is what the customer sees. It was created by the Job Cost Wizard program. Both National Estimator and Job Cost Wizard are on the disk in the back of this book (not included with eBook PDF version). Notice that the total is the same in both documents, $54,638.03. Figure 1-2, the estimate, shows 70 percent markup on hard costs. Figure 1-3, the proposal, doesn’t show the markup at all. Instead, markup has been distributed proportionately throughout each cost item in the job. Job Cost Wizard does this distribution at the click of a button.

Once an estimate is finished in the National Estimator program and saved to computer disk, press CTRL your keyboard and tap the letter J to convert the estimate into a proposal in Job Cost Wizard. You can’t make changes in the Job Cost Wizard screen. But it’s easy to toggle back to National Estimator program (press ALT tap the TAB key), make a change, and then press CTRL-J once again.

Job Cost Wizard offers dozens of choices on what you show and don’t show in written proposals. Your bids can be long (full description for everything in the estimate) or short (only a summary of each category). You can show or hide labor and material cost detail. You can show or hide markup and profit.

Once work begins, you’ll want to monitor job expenses to be sure actual costs remain consistent with estimated costs. If you use QuickBooks Pro to pay bills and figure payroll, let QuickBooks do the comparisons for you. Job Cost Wizard exports the proposal to QuickBooks, where you can prepare progress invoices and track expenses against estimates.

The National Estimator program lets you change anything in the costbook or even add your own estimated costs. Make the National Home Improvement Estimator your collection point for all estimating and pricing information. Anything you add to the costbook shows up in red and can be migrated to later editions of this manual when available. The National Home Improvement Estimator starts out as your most useful estimating reference. What you add to the costbook will make it even more valuable.

Job Survey (Scope of Work)

Of course, neither a good price book nor a computer estimating program will solve all of your estimating problems. Computers seldom make mistakes in addition or multiplication. But nothing prevents you from making expensive estimating mistakes on your own. By far the most common estimating mistake will be omitting something essential to the job.

Get in the habit of completing an exhaustive job survey before beginning any estimate for home improvement work. Some of your estimates on a job may be too high. Other estimates on a job may be too low. With any luck, your over-estimates will roughly balance with your under-estimates, leaving the job total about where it should be. But the estimated price for anything omitted from a job survey is always zero. That's a 100 percent miss. It's hard to balance a complete miss with anything. A few of those can create a financial disaster.

Material Costs in This Book

Material costs for each item are listed in the column headed Material. These are neither retail nor wholesale prices. They are estimates of what most contractors who buy in moderate volume will pay suppliers as of mid-2006. Discounts may be available for purchases in larger volumes.

Add Delivery Expense to the material cost for other than local delivery of reasonably large quantities. Cost of delivery varies with the distance from source of supply, method of transportation, and quantity to be delivered. But most material dealers absorb the delivery cost on local delivery (5 to 15 miles) of larger quantities to good customers. Add the expense of job site delivery when it’s a significant part of the material cost.

Add Sales Tax when sales tax will be charged to the contractor buying the materials. In some states, contractors have to collect sales tax based on the contract price. No matter what your state (or county) requires, National Estimator can handle the task. Click Edit on the National Estimator menu bar. Then click Sales Tax.

Waste and Coverage Loss is included in the installed material cost. The cost of many materials per unit after installation is greater than the purchase price for the same unit because of waste, shrinkage or coverage loss during installation. For example, about 120 square feet of nominal 1" x 4" square edge boards will be needed to cover 100 square feet of floor or wall. There’s no coverage loss with plywood sheathing, but waste due to cutting and fitting will average about 6 percent.

Costs in the Material column of this book assume normal waste and coverage loss. Small and irregular jobs may require a greater waste allowance. Materials priced without installation (with no labor cost) don’t include an allowance for waste and coverage except as noted.

Labor Costs for installing the material or doing the work described are listed in the column headed Labor. The labor cost per unit is the labor cost per hour multiplied by the manhours per unit shown after the @ sign in the Craft@Hrs column. Labor cost includes the basic wage, the employer’s contribution to welfare, pension, vacation and apprentice funds, and all tax and insurance charges based on wages.

Supervision Expense to the general contractor isn’t included in the labor cost. The cost of supervision and non-productive labor varies widely from job to job. Calculate the cost of supervision and non-productive labor and add this to the estimate.

Payroll Taxes and Insurance are included in the labor cost. See the following section for more on the "contractor’s burden."

Manhours per Unit and the Craft performing the work are listed in the Craft@Hrs column. To find the units of work done per worker in an 8-hour day, divide 8 by the manhours per unit. To find the units done by a crew in an 8-hour day, multiply the units per worker per 8-hour day by the number of crew members.

Manhours include all productive labor normally associated with installing the materials described.

This will usually include tasks such as:

• Unloading and storing construction materials, tools and equipment on site.
• Moving tools and equipment from a storage area or truck on site at the beginning of the day.
• Returning tools and equipment to a storage area or truck on site at the end of the day.
• Normal time lost for work breaks.
• Planning and discussing the work to be performed.
• Normal handling, measuring, cutting and fitting.
• Keeping a record of the time spent and work done.
• Regular cleanup of construction debris.
• Infrequent correction or repairs required because of faulty installation.

Adjust the Labor Cost to the job you’re figuring when your actual hourly labor cost is known or can be estimated. The labor costs listed in Figure 1-5 will apply within a few percent on many jobs. But labor costs may be much higher or much lower on the job you’re estimating.

If the hourly wage rates listed in Figure 1-5 aren’t accurate, divide your known or estimated cost per hour by the listed cost per hour. The result is your adjustment for any figure in the Labor column for that craft.

Adjust for Unusual Labor Productivity. Costs in the Labor column are for normal conditions: experienced craftsmen working on reasonably well-planned and managed home improvement projects with fair to good productivity. Labor estimates assume that materials are standard grade, appropriate tools are on hand, work done by other crafts is adequate, layout and installation are relatively uncomplicated, and working conditions don’t slow progress.

Working conditions at the job site have a major effect on labor cost. Estimating experience and careful analysis can help you predict the effect of most changes in working conditions. Obviously, no single adjustment will apply on all jobs. But the adjustments that follow should help you produce more accurate labor estimates. More than one condition may apply on a job.

Use an Area Modification Factor from pages 18 through 26 if your material, hourly labor or equipment costs are unknown and can’t be estimated. Here’s how: Use the labor and material costs in this manual without modification. Then add or deduct the percentages shown for labor, material and equipment.

Equipment Costs for small tools and expendable supplies (such as saws and tape) are usually considered overhead expense and are covered by your markup. Equipment costs for larger equipment (such as a compressor or backhoe) should be based on the rental rate for the period needed. Equipment rental costs are included in sections where heavy equipment may be needed.

Labor and Material Costs Change. These costs were compiled in the fall of 2004 and projected to mid-2006 by adding a small percentage. This projection will be accurate for some materials and inaccurate for others. No one can predict material price changes accurately.

How Accurate Are These Figures? They’re as accurate as possible considering that the estimators who wrote this book don’t know your subcontractors or material suppliers, haven’t seen the plans or specifications, don’t know what building code applies or where the job is, had to project material costs at least six months into the future, and had no record of how much work the crew that will be assigned to the job can handle.

You wouldn’t bid a job under those conditions. And we don’t claim that all construction is done at these prices.

Estimating Is an Art, not a science. On many jobs the range between high and low bid will be 20 percent or more. There’s room for legitimate disagreement on what the correct costs are, even when complete plans and specifications are available, the date and site are established, and labor and material costs are identical for all bidders.

No cost fits all jobs. Good estimates are custom-made for a particular project and a single contractor through judgment, analysis and experience. This book isn’t a substitute for judgment, analysis and sound estimating practice. It’s an aid in developing an informed opinion of cost. If you’re using this book as your sole cost authority for contract bids, you’re reading more into these pages than the editors intend.

Use These Figures to compile preliminary estimates, when a "snap" bid is needed to close the deal, and when no actual costs are available. This book will reduce the chance of error or omission on bid estimates, speed "ball park" estimates, and be a good guide when there’s no time to get a quote.

Where Do We Get These Figures? From the same sources all professional estimators use: material suppliers, material price services, analysis of plans, specifications, estimates and completed project costs, and both published and unpublished cost studies compiled by both private and government agencies. In addition, we conduct nationwide mail and phone surveys and have the use of several major national estimating databases.

We’ll Answer Your Questions about any part of this book and explain how to apply these costs. Free telephone assistance is available from 8 a.m. until 5 p.m. Pacific time Monday through Friday except holidays. Phone 760-438-7828. We don’t accept collect calls and can’t estimate the job for you. But if you need clarification on something in this manual, we can help.

Labor Costs and Crews

Throughout this manual you’ll see a column headed Craft@Hrs. Letters and numbers in this column show our estimates of:

• Who will do the work (the craft code)
• An @ symbol which means at
• How long the work will take (manhours).

For example, in Chapter 4, page 69, you’ll find estimates for installing BD plywood wall sheathing by the square foot. The Craft@Hrs column opposite 1/2" plywood wall sheathing shows: B1@.016

That means we estimate the installation rate for crew B1 at 0.016 manhours per square foot. That’s the same as 16 manhours per 1,000 square feet.

Figure 1-4 is a table that defines each of the craft codes used in this book. Notice that crew B1 is composed of two craftsmen: one laborer and one carpenter. To install 1,000 square feet of 1/2" BD wall sheathing at 0.016 manhours per square foot, that crew would need 16 manhours (one 8- hour day for a crew of two).

Notice also in the table that the cost per manhour for crew B1 is listed as $30.35. That’s the average for a laborer (listed at $27.43 per hour) and a carpenter (listed at $33.27 per hour): $27.43 plus $33.27 is $60.70. Divide by 2 to get $30.35, the average cost per manhour for crew B1.

In the table, the cost per manhour is the sum of hourly costs of all crew members divided by the number of crew members. That’s the average cost per manhour.

Costs in the Labor column in this book are the product of the installation time (in manhours) multiplied by the cost per manhour. For example, in Chapter 4, the labor cost listed for 1/2" BD wall sheathing is $0.49 per square foot. That’s the installation time (0.016 manhours per square foot) multiplied by $30.35, the average cost per manhour for crew B1.

Figure 1-5 shows hourly labor costs components — base wage, typical fringe benefits, payroll taxes, insurance and the total hourly cost.

The labor costs shown in Column 6 were used to compute the manhour costs for crews and the figures in the Labor column.

It’s important that you understand what’s included in the figures in each of the six columns in the table. Here’s an explanation:

Column 1, the base wage per hour, is the craftsman’s hourly wage. These figures are representative of what many contractors will be paying craftsmen working on home improvement jobs in 2006.

Column 2, taxable fringe benefits, includes vacation pay, sick leave and other taxable benefits. These fringe benefits average 5.15 percent of the base wage for many construction contractors. This benefit is in addition to the base wage.

Column 3, insurance and employer taxes in percent, shows the insurance and tax rate for construction trades. The cost of insurance in this column includes workers’ compensation and contractor’s casualty and liability coverage. Insurance rates vary widely from state to state and depend on a contractor’s loss experience. Note that taxes and insurance increase the hourly labor cost by 30 to 35 percent for most trades. There is no legal way to avoid these costs.

Column 4, insurance and employer taxes in dollars, shows the hourly cost of taxes and insurance for each construction trade. Insurance and taxes are paid on the costs in both columns 1 and 2.

Column 5, non-taxable fringe benefits, includes employer paid non-taxable benefits such as medical coverage and tax-deferred pension and profit sharing plans. These fringe benefits average 4.55 percent of the base wage for many construction contractors. The employer pays no taxes or insurance on these benefits.

Column 6, the total hourly cost in dollars, is the sum of columns 1, 2, 4 and 5.

These hourly labor costs will apply within a few percent on many jobs. But wage rates may be much higher or lower in the area where you do business. We recommend using your actual labor cost rather than national averages. That’s easy with the National Estimator program. When copying and pasting any cost to your estimate, adjust the assumed hourly labor cost to your actual cost. You need do this only once for each trade. And you can make this adjustment at any time. Any change you make is applied to that trade throughout the estimate.

Area Modification Factors & Canadian Modification Factors

Construction costs are higher in some areas than in other areas. Add or deduct the percentages shown on the following pages to adapt the costs in this book to your job site. Adjust your cost estimate by the appropriate percentages in this table to find the estimated cost for the site selected. Where 0% is shown, it means no modification is required.

Modification factors are listed alphabetically by state and province. Areas within each state are listed by the first three digits of the postal zip code. For convenience, one representative city is identified in each three-digit zip or range of zips. Percentages are based on the average of all data points in the table. Factors listed for each state and province are the average of all data points in that state or province. Figures for three-digit zips are the average of all five-digit zips in that area. Figures in the Total column are the weighted average of factors for Labor, Material and Equipment.

The National Estimator program will apply an area modification factor for any five-digit zip you select. Click Utilities. Click Options. Then select the Area Modification Factors tab.

These percentages are composites of many costs and will not necessarily be accurate when estimating the cost of any particular part of a building. But when used to modify costs for an entire structure, they should improve the accuracy of your estimates.

If you have trouble using National Estimator, we’ll be glad to help, and we don’t charge you for it.

Free telephone assistance is available from 8 a.m. until 5 p.m. Pacific time Monday through Friday (except holidays). Call 760-438-7828.