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How to Create Profitable Estimates: Part 2 - Calculating your Rates

Posted on December 15, 2018


In this series, we’re covering the basics of creating profitable estimates. In our first post, we discussed figuring out costs and profits and calculating effective hourly wage.

This time, we’ll walk through the best way to calculate labor and material production rates. Knowing these rates will give you a solid baseline for future estimates. The examples here refer to painting, but the guidelines can apply to other trades as well.

Labor production rates

Calculating production rates helps you consistently estimate how many hours a job will take and how much it will cost.

First, you’ll need to know how long it takes to do specific tasks.

As you’re painting the walls of a room, use a timer to measure how long it takes to prep, cut in, and paint. Divide the number of square feet of walls you painted by how many hours it took to paint. That will give you your wall painting production rate in square feet per hour.

A 10x10 foot room with 4 walls is 400 square feet. With your timer, you measure that it takes 2 hours, 51 minutes to prep, cut in, and paint the room.

To convert 2 hours, 51 minutes to hours only, divide 51 by 60 to get .85 and add 2. This gives you 2.85 hours.

400 square feet divided by 2.85 hours gives you a production rate of 140 square feet per hour.

Time other common tasks like painting baseboards, window frames, and doors, too. You’ll want to calculate the production rates in the same units you’ll use on your estimates. For example, you may quote walls and ceilings per square foot, baseboards and other trim per linear foot, and windows, frames, and doors by count.

Let’s say you measure windows by count. Using your timer, you find that one standard window takes half an hour to paint. This gives you a production rate of 2 windows per hour.

It’s a good idea to measure on more than one occasion. Timing can vary from job to job so measuring more than once and taking an average will give you a more accurate number.

Say you measure your wall production rates 3 times, and you calculate the production rates to be 140, 152, and 168 square feet per hour. You can add these production rates together and divide by 3 to get an average production rate of 153 square feet per hour.

If you estimate different types of work, you’ll want to know your production rates for each type because they may be different. A good example of this would be calculating separate rates for residential repainting and residential new construction.

Some industry associations have baseline rates that can be helpful for getting started. For example, the PDCA (for painters) has this cost guide. Talking with colleagues and sharing ideas about rates is another great starting point. Forums and private Facebook groups are also good sources for information sharing.

Material production rates

Material rates are the amount of material needed for a certain task. The amount of material can vary a bit from job to job, but having a general idea of how much you need will help you put together more consistent estimates.

How many windows does a gallon of paint cover?

If you’re painting windows using a quart or gallon of paint, how many windows can you paint with that quart or gallon? If you can paint 8 windows with 1 gallon of paint, the production rate is 8 windows per gallon.

Manufacturers can usually provide information on their usage rates. Keep in mind that those rates can also change depending on the job and how you measure the item. Rates may also vary depending on your market, and different materials used in different parts of the country. Paint quality, application method, new construction vs old, and other factors can also have an effect.

Putting it together

Now that you have your labor and material rates, you can combine them with your labor and material costs to predict the cost of future jobs.

You’re painting 700 square feet of walls.

Your labor cost is $35/hour, and you know from testing that you can paint an average of 153 square feet in 1 hour. With this information, you can predict that painting the area will take you 4.6 hours and cost $161 in labor.

The cost of the paint is $55/gallon. The manufacturer says the paint can cover 350 square feet per gallon. To paint 700 square feet, you’ll need 2 gallons of paint for a total of $110. After testing, you know that you typically use $20 in supplies like tape and plastic for a similar room.

Because you’ve got a good idea of your rates and costs, you can predict your costs for this job. $161 in labor + $110 in paint + $20 in supplies comes to a total project cost of $291.

Checking your rates

Once you start using your production rates to estimate jobs, look at your actual job costs to compare how close you got to your estimates. If you find that your actual numbers don’t line up, ask yourself these questions:

  • Did you work significantly more or less than you planned? If so, you’ll want to review your labor production rates and make adjustments if necessary.
  • Did you use more or less product than you planned? If so, take a look at your material production rates and change them if they’re no longer accurate.
  • Did you pay more for materials than you planned? If so, go over your material costs and make sure they match how much you’re actually paying.

There are a lot of factors that could contribute to your estimated and actual numbers being off. If your rates themselves are accurate, maybe there are underperforming or under-trained workers on your team or the types of surfaces for a particular project caused you to use more material. This is a great opportunity to have a conversation with your team about why the numbers are off and how to fix them.

Once you get your production rates dialed in you'll be able to accurately predict how much a job will cost. Then, you need to add a markup to cover your overhead and make a profit. We’ll talk about how to make sure you’re covering overhead and how to select a markup in How to Create Profitable Estimates: Part 3. Stay tuned!

What do you think is key to creating profitable estimates? Let us know in the comments, on Facebook, Twitter, or LinkedIn!