What Is The Formula For Construction Estimates?

Construction estimates calculate the potential costs of a construction project. This critical aspect of the process enables the construction stakeholders to determine whether the project is profitable. The estimates usually include all the direct and indirect costs, labor costs, contractor and subcontractor costs, material costs, and labor hours required to complete a project. Calculating effective construction estimates requires skills and experience. You are lucky today if you have wondered about the construction estimate formula. In this comprehensive article, we will share the formula for construction estimations. We will also discuss the critical component of the formula. In addition, we will also highlight the premium construction estimating services in NYC, such as My Virtual Estimator, to help you get the best estimation services. Let’s begin with the formula for construction estimates. 

What is the formula for Construction Estimates?

The basic formula for calculating construction estimates is:

Total Construction Cost = Material Cost + Labor Cost + Equipment Cost + Overhead Costs

Each formula component is calculated based on the project scope, marital quantities, labor hours, equipment needs, and desired profit percentages. Let’s break this formula down to better understand construction estimates. 

Key Components To Consider When Breaking Down The Formula:

Construction estimates are the total cost of any project. Therefore, we need to understand each cost component individually to understand the formula for construction estimates. Let’s break down this formula to get more accurate and authentic estimations. 

Material Cost:

Material cost or takeoff enables estimators to calculate construction estimates effectively. However, you can determine material costs by reviewing the construction documents and counting each item required to complete a construction project. The necessary materials are typically listed according to their requirements; for example, the quantities of tiles or doors, the area needed for flooring, the length of material, etc. Once you have classified the materials’ number, type, and requirements, the next step is to calculate the pricing from selected suppliers. After completing the material takeoff, you will have a comprehensive list of every material required to complete the project. This list can also help you determine the types of equipment needed to complete the project. 

Labor Cost:

You can determine the labor cost by multiplying the estimated labor hours by the hourly labor rate, considering different trades (e.g., electrician, plumber, carpenter). However, the labor hours are based on the crew’s estimated productivity. The best way to estimate labor costs is to analyze the historical data from past projects. Using the data from the previous project, you can avoid similar mistakes and calculate your labor more effectively. 

Equipment Cost:

For the equipment cost estimation, you need to consider three things: the type of equipment, the number of pieces of equipment, and the hours required to execute a construction job. If you own the equipment, you will have a low cost. On the other hand, if you require specific equipment, you need to consider how many hours you will need to finalize the tasks. The equipment costs are typically determined by estimating the number of hours the equipment will be required and multiplying it by the hourly rate to cover the cost. The equipment hourly rate should be based on the estimated annual costs divided by the hours needed throughout the project lifecycle. Lastly, the equipment costs of previous projects should be considered when generalizing the equipment cost. 

Overhead Costs:

In construction, you must account for direct project costs and additional expenses, such as indirect field and overhead costs. Indirect field costs are expenses required to support the project but aren’t directly listed in the bid. These include:

• Permits  
• Temporary offices or trailers  
• Site cleaning  
• Professional services  
• Equipment costs (depreciation, insurance, maintenance, taxes, and fuel)  
• Software  

These costs depend on their rates and the duration they are needed (e.g., the duration of a temporary office).

Overhead or general and administrative (G&A) expenses are the ongoing business costs, regardless of active projects. Examples include:  

• Office Rent  
• Administrative Salaries  
• Software Subscriptions  
• Utilities  
• Taxes  
• Depreciation  
• Insurance  

Contractors distribute overhead costs across all their annual projects to cover these expenses. Estimators calculate the total yearly revenue and overhead costs, then allocate a percentage of overhead to each project. This ensures that the business remains profitable and operational.

Profit Margin:

The profit margin is an integral part of the construction estimation formula. After successfully calculating all the costs, such as materials, labor, equipment, and overhead, you need to adjust the title to account for profit margins and contingencies. The profit margin is the money earned after the project’s completion. However, this money can be used for the continued growth of the construction stakeholders and is also essential for construction owners and investors. Contingency is a contract provision for expected overruns and waste in construction projects. Each construction business determines its minimum attractive profit margin by considering growth goals, market conditions, and more. Similarly, contingency percentages vary significantly across the industry, depending on the type of construction, company size, and project risk. Many construction businesses typically add 5% to 10% of the contract price to account for contingencies. You will have more accurate and realistic construction cost estimates at the end of all these cost estimations. With the actual numbers, you are prepared to win the bids and complete the construction projects within the given budget and time.

Bottom Line:

The construction estimates formula enables you to calculate all construction costs, such as materials, labor, equipment, overhead, and profit margin, effectively. Whether you are a construction manager or contractor, following the formula above can help you calculate the cost flawlessly. 

If you want professional construction cost estimation services in New York, My Virtual Estimator can help. With years of experience, they are the right people to contact. For all your construction estimation needs, call 845-999-1180 now! Don’t hesitate to book the prime construction estimation services today!