The Short Answer

What Is a Construction Bid?

Textbook Definition

A construction bid is a written offer to complete a defined scope of work for a stated price. The price must cover direct job costs, a share of company overhead, and a profit.

In Plain English

A bid is your price for a job. A good one pays for the job, pays to keep your company open, and leaves something for you. Most underbids forget the second and third parts.

Why It Matters

Why Do So Many Contractors Underbid?

Profit in construction is thin. In the National Association of Home Builders (NAHB) 2026 study of remodelers, which covers 2024, the average company kept a net profit of 6.3%. That was up from 4.7% in 2021. Gross profit was 29.9%, and operating costs took 23.6% of sales. Source: NAHB Eye on Housing.

Here is what that means in dollars. On $1,000,000 of sales, 6.3% is $63,000. If your estimates miss by just 5%, that is $50,000. Most of the profit is gone. The study covers remodelers only, so your numbers will differ, but the lesson holds for every trade: a small miss in the bid is a big hit to the profit.

Underbidding is rarely one big mistake. It is a handful of small things left out: a second dumpster, the permit fee, the extra trip to the supply house, and the cost of keeping your own company running. This is Failure #1 in the book.

Signs your bids are leaking:

  • You win most of the bids you send, and the wins do not feel profitable.
  • You build the price from the last job’s number, not this job’s costs.
  • Nobody on your team can tell you your overhead rate.
  • You add a flat 20% to cost and call all of it profit.
  • Change orders end up paying for mistakes in the original bid.
  • You finish jobs and never compare the bid to what the job really cost.
Three or more? Your bids are losing money before the job starts. The fix is a process, not a talent.

What It Looks Like

What an Underbid Looks Like

From the book · Failure #1 · A fictional example

Danny Pruitt runs Shiny Nail Remodeling. He wins a big kitchen over two established companies and tells his wife and bookkeeper, Carla, that night. Carla asks one question: “How much are we making on it?” Danny says, “Enough.” He believes it.

His number never included the two dumpsters, the permit and inspection fees, the plumber who had to move the sink and needed a day and a half longer because the slab had to be cut, the electrician for new circuits, or the three trips to the supply house. It also held nothing for Shiny Nail itself: the truck, the insurance, the phone, the software, Carla’s hours, or the eleven hours Danny spent on the phone with the homeowners and the cabinet supplier.

Danny and Carla are fictional characters in Top 5 Reasons Construction Companies Fail. The pattern is real.

The Fix

How to Bid a Construction Job in 8 Steps

Use the same steps on every bid, big or small. The routine is what protects you when you are busy and a customer is pushing on price.

  1. Know your overhead rate first.

    Overhead is what it costs to keep the company open when no job is running. Add it up for a year, divide it by a base such as direct job costs, and you have a rate. Our overhead rate guide shows how. Until you have this number, every bid is a guess.

  2. Walk the job and write the scope.

    Say what is included and what is not. Take photos and measurements. A clear scope is the best defense against the customer who assumes more is included than you priced.

  3. Price every cost bucket.

    Use the same buckets every time: labor with its payroll costs, materials with waste, subcontractors, equipment and rentals, permits and fees, dumpsters and disposal, and a small contingency. Get written quotes from subs, and check them with our subcontractor guide.

  4. Add your share of overhead.

    Multiply your direct costs by your overhead rate. This is the step Danny skipped. It is not extra profit. It is the cost of being in business.

  5. Add profit using margin, not markup.

    Markup is a percent added to cost. Margin is the percent of the price you actually keep. They are not the same number. The table below shows the difference.

  6. Set a walk-away number.

    Decide the lowest price you will accept before you send the bid, and write it on the bid sheet. When a customer pushes, you already know your answer. Passing on a bad job is a business decision, not a loss.

  7. Write down assumptions and terms.

    List the exclusions, how long the price holds, the payment schedule, and how extras are handled. Put retainage terms and your change order process in writing before you sign.

  8. Compare the bid to the actual cost.

    When the job closes, put the estimate next to what the job really cost, line by line. Use what you learn on the next bid. Job costing makes this possible while the job is still running.

Dr. Paul’s Insight

The lowest bid wins the job. It does not win the money. Dr. Paul sees the same pattern with contractors again and again: the ones who last are not the cheapest. They know their numbers well enough to say no. Fix the bid and half of the cash problems in the cash gap guide never start.

The Math That Trips Owners

Markup Versus Margin: Why 20% Is Not 20%

This is the most common pricing mistake in the trades. A markup of 20% does not leave you a margin of 20%.

Pricing methodHow it worksPrice on $100,000 costProfitMargin you keep
20% markupCost × 1.20$120,000$20,00016.7%
20% marginCost ÷ 0.80$125,000$25,00020.0%

To change a margin into a markup, divide the margin by one minus the margin. A 20% margin equals a 25% markup. The math is simple arithmetic, not a sourced statistic.

Worked Example: A Bid With OverheadDirect costs: labor with payroll costs $38,000, materials $30,000, subs $22,000, equipment and fees $6,000, disposal $2,000, contingency $2,000. Total: $100,000.Overhead at an example rate of 15% of direct costs: $15,000. Full cost: $115,000.Target margin of 10%: $115,000 ÷ 0.90 = about $127,800. Profit: about $12,800.The “cost plus 20%” shortcut gives $120,000. After $15,000 of overhead, you keep $5,000, or 4.2% of the price.Example rates only. Your overhead rate and target margin will be different.

Bid Sheet

A Bid Checklist You Can Use Today

This is a practical working checklist, not an industry standard. Edit it for your trade.

  • Scope written, with exclusions and photos.
  • Labor priced with payroll costs added, not just wages.
  • Materials priced with waste and delivery.
  • Subs quoted in writing, license and insurance checked.
  • Equipment and rentals priced for the real number of days.
  • Permits, fees, dumpsters, and disposal included.
  • Contingency added for the unknowns you can name.
  • Overhead added using your rate.
  • Profit added as a margin, and the walk-away number written down.
  • Terms written: payment schedule, retainage, change orders, how long the price holds.

Want these numbers in a spreadsheet? The construction business plan template includes an Excel model with editable bids, job costing, labor, and equipment.

Work With Dr. Paul

Three Ways Dr. Paul Helps Construction Owners

Read the page and fix it yourself, or get help. Here is where each option fits.

Business Consulting

For owners stuck in the cash gap, bidding blind, or running every job themselves. Dr. Paul works with you on bids, cash flow, job costing, and getting you off the jobsite.

See consulting and prices →

Business Plan Writing

For contractors applying for a loan, a line of credit, a bigger bond, or an expansion. Dr. Paul writes the plan and the financial projections for you.

Construction business plan writer →

Business Plan Template

For owners who want to build it themselves. A construction-specific Word plan plus an Excel model with editable bids, job costing, labor, and equipment.

Get the construction template →

FAQ

Bidding Questions

How do you price a construction job?
Add up every direct cost: labor with payroll costs, materials, subcontractors, equipment, permits, and disposal. Add your share of company overhead. Then add profit using a margin, not a markup. Write down what is included and what is not.
What is a good profit margin for a contractor?
It depends on the trade, the size of the company, and what is counted. NAHB’s 2026 study of remodelers, using 2024 data, found an average net profit of 6.3 percent and gross profit of 29.9 percent. Net profit there is after overhead and owner pay. Set your own target and test it against your real costs.
What is the difference between markup and margin?
Markup is the percent added to cost. Margin is the percent of the final price you keep. A 20 percent markup on a $100,000 job gives a $120,000 price and a 16.7 percent margin. To keep a 20 percent margin, the price is $125,000, which is a 25 percent markup.
Should I always bid the lowest price?
No. The lowest price wins the job and can lose the money. Set a walk-away number before you bid and pass on jobs that cannot reach it. Surveys suggest some owners will pay more for quality and reliability, but those surveys are small, so test the idea in your own market.
What should a bid include besides the price?
The scope of work, what is excluded, the payment schedule, how change orders and retainage work, how long the price holds, and your license information where your state requires it.

Start with the book. Call when you want a second set of eyes on a bid.

Get the Book on Amazon → Call or text (321) 948-9588

Keep Going

Related Construction Guides

A good bid connects to everything else in the business. These guides cover the next steps.

Construction Job Costing

Cost codes, weekly tracking, and a worked example of estimate versus actual.

Overhead Rate

The formula, the base choice, and a worked example.

What Is Retainage in Construction?

How the holdback works, who can hold how much, and how to collect it faster.

How to Write a Change Order

Six steps, a one-page sample, a script, and the Florida lien clock.

Competing With Bigger Contractors

The too-low test, what to sell besides price, and how to pick a lane.

Gross Margin vs. Net Margin

The two margins every bid has to hit, explained in plain English.
← Back to the GuideConstruction Business Guide

Sources

Where These Numbers and Rules Come From

Every figure on this page comes from a source below. Dollar examples labeled as examples are illustrations, not projections for your business.

Dr. Paul Borosky, DBA, MBA

Business Consultant, Author & Educator | 14+ Years | 1,000+ Clients Served

Dr. Paul Borosky, DBA, MBA is a business consultant, author, and educator, and the founder of Quality Business Plan. He helps small business owners across the United States and Canada, including contractors and specialty trades, with business planning, financial modeling, fractional CFO services, and the everyday problems of businesses that depend too much on their owners. He is the creator of Dr. Paul’s Organize-Plan-Grow™ Strategy, author of numerous published books on Amazon including Top 5 Reasons Construction Companies Fail, and publisher of over 1,000 business-focused videos on YouTube.

About Dr. Paul The Construction Book YouTube Channel

This page is for general educational purposes only. It is not legal, financial, tax, accounting, insurance, or other professional advice. Construction laws, licensing rules, and tax rules vary by state and change over time. Dollar examples are illustrations, not projections for your business. Shiny Nail Remodeling, Square-Up Contractors, and the people in them are fictional. For decisions about your own business, consult a qualified professional.