What is the construction bidding process?
The construction bidding process kicks off the negotiations between contractors and the project owner. Essentially, a bid is an offer from a contractor to take on either the entire project or specific work within it, outlining a timeline and price.
Generally, there are five phases to the construction bidding process:
- Bid solicitation
- Bid submission
- Bid selection
- Contract negotiation
- Project delivery
Typically, a project owner will evaluate and compare bids based on specific criteria before awarding the contract to the winning bid. Bids are crucial documents and must be carefully crafted. A poorly written bid with missing details, inaccurate numbers, or an unprofessional presentation is likely to be rejected, resulting in a missed job opportunity.
On the other hand, a well-crafted bid can improve the chances of winning the contract and serves as the foundation for project planning and execution. It’s important to understand the differences between bidding, estimating, proposals, and quoting. In this article, we will focus on the difference between bidding and estimating.
Estimating involves calculating internal costs for labor, equipment, and materials, as well as determining the project’s timeline. From there, you can markup costs and ensure you’re set up for a healthy profit margin which you can use to arrive at a final bid price. While estimating costs is a vital part of the bidding process, there are several factors to consider. In this article we’ll discuss the best tips and strategies on how to bid painting jobs successfully.
How to choose the right job
Bidding shouldn’t be a guessing game. Simply trying to undercut everyone else’s bids isn’t a viable strategy. It’s not about getting any job; it’s about getting the right jobs that are achievable and profitable for your business. Rather than wasting time on incomplete or unprofitable opportunities, carefully scrutinize each project to determine if it aligns with your company’s expertise and financial goals.
While it may be tempting to intentionally bid lower than you should to beat other contractors, it’s important to remember that the main goal is to be profitable. Accepting unfavorable terms just for the sake of having a job will only result in financial difficulty in the long run. It’s always better to go after the right job rather than invest time, money, and resources into a paint job that won’t make you any money. Prioritizing your business and its financial goals is crucial in the bidding process.
To do this, you must know your numbers and understand your business. What are your strengths? Weaknesses? What are your financial goals? What type of jobs are you most efficient at? To answer these questions, you have to turn toward job costing.
Evaluate job costing data
Job costing is essential for understanding job-level profitability. It’ll tell you where you’re making your money or where you’re leaving profits on the table. Job costing will tell you if your profitability woes are due to labor inefficiency, fluctuating material costs, inaccurate pricing, poor estimating, or something entirely different.
Job costing provides valuable insights that guide your efforts toward enhancing your business. If the problem is labor, use that information to set new productivity goals or schedule different crews.
If materials are dipping into your profits, negotiate for better terms. If it’s pricing, try increasing your prices on a few upcoming painting bids to see how it impacts profitability. It’s a bit of trial and error, but it should always be calculated. You should always back your decisions up with data.
As you prepare to take on a new job, job costing will provide valuable insights to address most, if not all, of your concerns as a painting contractor:
- Can I turn a profit on these jobs?
- Have I accurately estimated the price?
- Are there ways to improve scheduling and increase efficiency?
By reviewing your performance on past jobs, you’ll find easily correctable mistakes, areas of improvement, and opportunities to improve your overall job level efficiency.
You’ll figure out where you overspent, why you overspent, and what you can do this time to avoid those same mistakes. This will help establish solid footing for creating a winning and profitable bid.
How do you bid on painting jobs?
Review the documentation
To truly understand the scope of a project, you must painstakingly examine every aspect of its specifications and plans. The importance of this step cannot be underestimated. A thorough review can be the determining factor in the success of the entire bid.
If you’re diligently reviewing, you will inevitably have questions or encounter gaps in your knowledge. Thankfully, you have a valuable resource at your disposal–RFIs. In the upcoming section, we will delve into how RFIs can assist us in filling in these gaps.
Ask questions (make an RFI list)
If you’re unsure about any aspect of the project details or contractor responsibilities, it’s imperative to take action by submitting a request for Information (RFI). Nothing is off the table here. If something doesn’t make sense to you, bring it up. However, before doing so, ensure that the information you seek isn’t already outlined in the project plans or contract documents.
An RFI should be used in the following situations for painting contractors:
- When design details are unclear
- When the materials specified are inadequate or incorrect
- When crucial information is missing
- When unexpected issues or obstacles arise during the project
- When there are inconsistencies in installation requirements, work site conditions, or timelines
During these early project stages, we recommend that you visit the job site personally. Use this time
to take as many pictures and videos as possible with a high-quality camera (an iPhone is perfectly acceptable). Capture anything and everything, ensuring you have enough coverage of the job site on one or two visits.
In addition, assess factors specific to the job site that might impact your bid, such as the height of the ceilings, which may require specialized equipment like ladders or lifts. Try to anticipate obstacles you’re likely to encounter as well. For instance, will the job site require drywall or electrical work that could impede your portion of the project? If so, get pictures, assess the situation, and draft subcontractor agreements as early as possible.
Obtaining accurate information is crucial for providing an accurate bid, so it’s important not to rush this process. Take your time, be thorough, and don’t hesitate to ask clarifying questions. Your understanding of the project and responsibilities directly correlate to crafting a winning bid. If you need assistance creating an RFI, refer to our RFI template for guidance on building a professional request.
Estimating material costs
In the painting trade, material costs can be deceiving. Tracking materials costs isn’t as simple as writing down the retail price of every gallon of paint you buy. Often, additional factors such as sales tax or disposal tax are easy to miss.
Ensure you’re including the entire ecosystem of costs that surrounds every ounce of paint. Including these often overlooked costs will go a long way toward improving the accuracy of the material costs on your estimates, which will, in turn, create a more substantial bid.
For small purchases like brushes, rollers, and tape, it’s sufficient to track expenses for 3-6 months (or better yet, an entire year) and then calculate an average percentage to allocate those costs across all jobs. For instance, you’d label these small purchases as “sundries” or something similar and put aside 1-5% of the total costs for those purchases.
It’s easy to fixate on the visible numbers on the shelf, but material costs should ideally make up no more than 15% of total job costs.
Square foot vs. Unit pricing
Two popular methods exist for estimating costs in the painting industry:
- Unit pricing
- Square foot pricing
Using unit pricing, painting contractors break down costs into units and assign a fixed rate per unit. This results in a base labor rate that can be applied to the entire painting project. It’s a system where a price is given for each task, such as painting a wall, ceiling, or trim. Whatever the task, the unit price is all-inclusive, such as $75 for one coat of paint on a standard-sized wall or $150 for one coat on a standard-sized ceiling.
On the other hand, square foot pricing is calculated by multiplying the total area of work by the labor rate per square foot. This method is excellent for quickly estimating costs in the initial planning stages, as it utilizes historical data.
However, it’s not always the best way to estimate a project for a commercial property since many factors outside square footage impact cost. Many painting contractors make the mistake of solely relying on square footage to estimate interior and exterior paint jobs.
They’re not to blame, as it’s a common industry practice, but it’s by no means a foolproof method. It can lead to conflicts due to varying paint prices and output. To avoid these issues, it’s important also to consider factors such as paint type, availability, and necessary coverage for ceilings, trims, and doors in the final bid.
Moreover, square foot estimating is best reserved for industry vets with a ton of experience to back up their numbers. Before you can confidently rely on this method, you must be able to answer tough job questions rather intuitively, such as:
- How many painters are needed for this type of job?
- How long does it take them to paint a 2,500 sq ft. house?
- How much paint does this type of job require?
- How much extra do you need to set aside for tools, equipment, or other costs for this type of job?
- Commercial paint job vs. interior paint job: Which job type are you most efficient in?
Once you know the efficiency of your crew and have years of historical data to back up cost assumptions, the square foot method will open up as a viable option. Until then, you need to track, organize, and evaluate your job costing data so that you can answer the above questions.
Example of square foot pricing:
| Size of house | Body color (Gallons) | Trim color (Gallons) | Total (Gallons) | Total cost ($50/gallon) |
|---|---|---|---|---|
| 1500 sq ft. | 8 | 2 | 10 | $500 |
| 2500 sq ft. | 12 | 3 | 15 | $750 |
| 4000 sq ft. | 20 | 5 | 25 | $1,250 |
Perform a quantity takeoff
An essential element of a painting job estimate, and therefore bid, is a quantity takeoff. Painting is a trade that demands a high attention to detail. A quantity takeoff will have you carefully identify and quantify every essential material for a project.
This can be achieved either through manual takeoffs, utilizing project plans and drawings, or by harnessing the speed and precision of takeoff software. However, accuracy is key in this process. It is far better to err on the side of overestimating rather than underestimating, as failing to order enough materials can result in costly change orders and project delays.
That is why it is wise for painting contractors to have a contingency fund, allowing for any unexpected events or waste that may occur. This fund should account for approximately 10-15% of the estimated quantities, and it is essential to include additional expenses such as taxes and delivery fees.
Request quotes from suppliers
Start this process as early as you can while performing your takeoff. With a list of all the materials needed, you should have what you need to start having these conversations. Be sure to research current market prices for every material on your list. Prices may vary depending on the manufacturer, brand, and quantity purchased.
Consider contacting two or three suppliers you deal with the most. However, don’t limit yourself when comparing prices. Be sure to check the prices you review against a standardized comparison.
A gallon of paint will range anywhere from $15 to $80, depending on the brand, quality, and contractor discount. This discount is your biggest opportunity to take advantage of the strong relationships you’ve built with suppliers, or if lacking, it should provide a glaring incentive for you to focus on building better supplier relationships.
For instance, a typical customer may spend $60 for a gallon of paint, while an experienced contractor may be able to secure the same gallon for $40 or even $30. This largely hinges on the relationship between the contractor and the paint store, as well as the volume of paint being purchased on a monthly basis. Opening up these conversations and putting in the work to secure these professional partnerships is always worth your time.
Estimating labor costs
Labor will likely be your biggest expense (as a percentage of revenue) for every job–usually accounting for 80-85% of total costs. For this reason, crafting a winning/profitable bid hinges on how well you can estimate labor costs.
Failing to account for labor burden is the first major pitfall to avoid. Labor burden entails the total cost that an employee has on your painting business. To understand the “full cost” of an employee, you need to consider the cost of wages, benefits, taxes, worker’s compensation, insurance, employer-specific taxes (FICA), and other labor-related expenses. All combined, these account for a worker’s full labor burden. If you need help gathering all of this head first to your payroll reports and workers’ comp and health insurance policy information.
Factors that will influence labor cost:
- Extent of prep-work
- Job site conditions such as difficult access points or steep surfaces
- Type of material (metal vs vinyl siding, color, number of coats needed)
- Crew size and experience
Once again, consistent job costing will be of immense help as it will clue you into past performance on similar paint jobs and reveal where you could have improved efficiency or altered scheduling for a more productive job.
Equipment
Equipment costs can vary depending on whether you own or rent it–this is especially true of commercial painting jobs. For rented equipment, direct costs such as rental and fuel should be attributed to the job, while indirect costs are usually minimal.
However, if you own the equipment, additional expenses such as depreciation, insurance, and maintenance must be considered, as well as the costs of loading, transporting, and unloading it.
To accurately determine costs, it is recommended to seek the help of an accountant to analyze and convert them into an hourly rate.
Subcontractor fees
Take into consideration any fees associated with additional subcontractors needed for the job. For example, you may need another team to work drywall or electrical. Put together a clear subcontractor agreement outlining the scope of work and price.
By bringing in extra subcontractors, you can save money and focus on your main strengths.
This will help you avoid taking on tasks beyond your capabilities. However, it’s important to carefully evaluate if their services are necessary to meet the project deadline. If so, carefully review bids and include these costs in your budget planning.
These costs can’t be ignored. In addition, they can’t be averaged out and spread across or added on top of other costs. It’s best to separate these costs into their own category.
Misc costs
These additional costs, such as indirect costs, are not included in labor, materials, equipment, and subcontractor fees. Although they may not have as much financial impact as direct costs (i.e., labor and materials), they’re equally crucial to factor into your cost breakdown. If left unchecked, these costs can quickly accumulate and jeopardize the profitability of a job.
Miscellaneous costs:
- Permits
- Bonds
- Business insurance
- Financing fees (loans/interest)
- Contingency funds
Identify a targeted profit margin & markup
You want to win the bid, but your ultimate goal as a painting business is to generate a profit. To do this, you must narrow down a profit margin goal and apply the appropriate markup percentage to secure job profitability.
To help find suitable profit margins, take the expected revenue for the job, subtract costs, and then divide that number by the projected revenue. Then, multiply that number by 100 to find your percentage.
You can use a margin/markup table to simplify this process even more. Margins and markups interact, meaning you can use one to help you determine the other.
| Markup | Margin |
|---|---|
| 5% | 4.70% |
| 10% | 9% |
| 15% | 13% |
| 20% | 17% |
| 25% | 20% |
| 30% | 23% |
| 33.33% | 25% |
| 40% | 28% |
| 43% | 30% |
| 50% | 33% |
| 55% | 35% |
| 75% | 43% |
| 100% | 50% |
Formulas:
- What you plan to charge – Cost = Profit
- Profit / Cost = Profit Margin
- Overhead + Profit = Total markup
Let’s say you’ve crunched the numbers and set a profit margin goal of 43% for this job. Now, assume you’re spending $2,000 on paint, materials, labor, and additional expenses. Using the formulas and chart above, you’d need to charge $3,509 at a markup percentage of 75% to achieve your desired profit margin goal.
Build your bid
After estimating all major job costs and performing a quantity takeoff, it’s time to put it all together. At this point, you should have individual line items for each major cost category. This will essentially work as your estimate. It’s from this that you can apply markup and adjust pricing as needed to build out the framework of your bid.
If you need to increase prices to hit your profit margin goal, do it. Just be aware that this may impact your chances of winning the job. This is an unavoidable trade-off. Don’t miss the forest through the trees.
You want to win the job, but your overall goal is to stay profitable. If you sacrifice profitability for the sake of winning the job, you’re missing the point. Pricing should always be intentional, so if you arrive at a number that is fair, accurate, and essential for achieving your financial goals, stick with it and be patient.
Make sure your bid covers the following elements:
- Bid price: A breakdown of the total cost of labor, materials, equipment, sub fees, and additional expenses for your construction project.
- Scope of work: This agreement outlines the contractor’s responsibilities, completion schedule, and specific methods, materials, and techniques.
- Schedule & payment terms: The schedule will outline deadlines and milestones, while payment terms will clarify when invoices will be sent for completed work.
- Contract terms: The bid must include details on the chosen contract type, warranties, insurance requirements, permits, and a clear plan for dispute resolution.
For more help, download our bid proposal checklist to ensure your bid is immaculate and ready to go before sending it off.
Submit and respond to questions
When submitting your bid, make sure to follow your client’s preferred method, whether it be through the bid site or via email. Your responses should be supported by accurate numbers at the ready in case you need to justify your cost estimates.
If you’re responding to an RFP, take the time to understand everything the client is giving you inside and out. They’re a clear indication of the exact needs of the project owner, so if your bid blatantly diverges from their requirements, you’re essentially taking yourself out of the running.
An RFP will typically include the following:
- General project information
- Contract type & details
- Submission requirements
The RFP will outline submission requirements, such as bid structure and delivery instructions, a firm deadline, and necessary qualifications such as experience, licenses, or certifications.
Read these requirements carefully–it could make or break your chances of winning the bid. If some time has passed and you haven’t heard back, don’t hesitate to reach out with a professional and courteous follow-up.
If you want to go the extra mile, ensure your documents and numbers are clear, brief, and well-organized. Remember to highlight your company’s qualifications, experience, and past success stories, as well as brand your materials with your logo and messaging. Additionally, be thorough in including all necessary documentation. And most importantly, submit your bid before or on the deadline.
Confidently build your business with Knowify
Whether your painting company handles interior painting, exterior painting, or both, every minute spent on administrative tasks is a minute away from doing what you love. Whether you need to improve your estimates and profitability or want a more efficient business overall, Knowify’s integration with QuickBooks Online (QBO) is a game-changer.
By seamlessly connecting bookkeeping with job-level management, Knowify eliminates the need for duplicate data entry. No more typing the same information into both platforms, wasting precious time, and increasing the risk of error.
Buy a subscription to QuickBooks Online with your Knowify subscription and get the lowest combined price available anywhere, guaranteed. Schedule a demo to find out more!