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How To Estimate Construction Costs
Executive Summary
- Construction cost estimates play an integral role in submitting accurate bids as well as setting the foundation for a successful project.
- Carefully assess the type of project you are performing, the scope, and the several variables involved so that you can proactively oversee all of the costs associated with your project for an accurate estimate.
- Core components of a thorough estimate include costs for materials, labor, equipment, subcontractors, and general overhead.
- Digital tools like PlanHub can streamline your efforts and help estimate costs from supplies to production.
The Guide To Estimating Construction Costs
The steps you take in preconstruction set the pace for the rest of the project. Estimating costs upfront helps avoid errors, prevent delays, and ensure overall success. Whether it’s compiling an accurate and competitive bid or scheduling your workforce, a detailed estimate paves the way forward for a successful project outcome.
Project owners must know how much their plan costs so they can ensure the project is realistic, while contractors must have a clear estimate so they can ensure they have the equipment and labor for implementing their takeoff. When estimating costs, it’s crucial to consider aspects like project scope, complexity, and market rates for labor and materials.
This guide highlights all the factors you should consider when determining how to estimate construction costs for your project. Once you get into the weeds, a cost estimation tool can be a beneficial resource for allowing you to visualize your needs more accurately.
Building the Baseline: Understanding Project Scope and Requirements
A diligent review of the project is the first step in preparing an appropriate budget roadmap, so consider the following as you move forward.
Reading Plans and Specs Effectively
Carefully review the project plans, drawings, and specifications of the project in tandem so you know exactly what is being asked of your company. An initial review goes a long way toward accounting for the correct material quantities, labor hours, subcontractor scopes and potential contingencies.
In your review, you should:
- Identify all project inclusions upfront so that you know what tasks are required and you can facilitate an accurate estimate for all services.
- Consider exclusions, which may include landscaping, hazardous materials, or permits, depending on the project, as these costs will be excluded from your estimate and the responsibility of another party, which should be clearly communicated upfront.
- Address trade overlap so there is no gray area over who covers which tasks, and you can develop an accurate estimate from the start.
Clarifying Scope with the Client or GC
Communication is key. Whether you are a contractor or subcontractor, be sure to discuss the project with your client or general contractor so you have a detailed picture of the project before building your estimate.
In this process, be sure to take the following steps:
- Clarify any questions about the plans and specifications you’ve received
- Discuss client priorities across scheduling, durability, and price
- Verify scope and project expectations to avoid scope creep or trade overlap
- Discuss any vagueness or ambiguity in project goals
Avoiding assumptions is crucial to ensuring a clear estimate and a strong start to the project. Air out any concerns by submitting a request for information (RFI) or holding pre-bid meetings to get on the same page.
Understanding Site Conditions:
Jobsite variables can quickly throw a project for a loop, so assessing the site conditions and the logistics for beginning the project is crucial. Consider all the following in your estimate:
- Site location and environmental or regulatory concerns
- Steps needed to prepare the site, like demolition or leveling
- The condition of the site foundation
- Access to the site for transporting materials and equipment
- Access to utilities like electricity and water
Breaking Down Construction Costs
A common pitfall is to fail to consider the complete picture of construction costs. While costs like labor and materials are obvious factors to remember, other costs, like permitting and transportation, can sneak up on you if you are not careful.
When building your estimate, consider all of these:.
- Direct Costs: These costs factor in all the labor, construction equipment, supplies, and subcontracted work needed to complete the construction itself.
- Indirect Costs: Indirect expenses can include equipment mobilization, supervision, permits, safety equipment, and temporary facilities.
- Contingencies and Risk Buffers: Prepare space in the budget for contingencies like overtime, weather disruptions, and damaged materials to protect margins against unknowns that could increase the budget.
Estimating Methods and When to Use Them
As you prepare for bidding and diving into the work, you have multiple estimating methods at your disposal, depending on the type of project you are working on and the stage you are at in completing it. The table below highlights the most common construction cost estimating methods.
Construction Cost Estimating Methods
Method | Description | When To Use It |
Conceptual Estimates | Using quick numbers to assess costs for a project at a high level based on past projects and expert judgment. | In early discussions, for assessing budget ranges, or for loosely estimating costs for one aspect of a project |
Square-Foot/Unit Pricing | Assessing direct costs based on multiplying the cost per unit or cost per square foot by the size of the project, using historical data and market rates. | Efficient for straightforward repeat work or standardized scopes |
Detailed Quantity Takeoffs | A line-by-line measurement of materials, labor, equipment, and other factors needed to complete a project. | When full design details are available, for budget validation, project bidding, and contractor estimates |
Subcontractor Bid Analysis | Gathering quotes from multiple subcontractors for a specified project scope and comparing prices to average all bids into a total project cost. | For competitive bidding or final pricing stages, to ensure accurate market pricing |
Core Components of a Detailed Estimate
Any detailed general contractor takeoff and estimation should consider all the following project components.
Material Costs
Upon reviewing the project scope, goals, and takeoff, consider all the materials necessary to complete the job at hand and list them out with net prices and estimated tax. Assess the exact quantities of materials needed for the project, including concrete, steel, lumber, and fixtures.
Properly predicting material costs is a significant part of estimations. However, market changes, shifts in demand, and fluctuating prices can make this difficult. “Volatility” and “uncertainty” are the key consensus terms for 2026 materials. The primary driver of this volatility is not just demand for materials, but policy and tariffs.
In a recent survey, 55% of affordable housing developers cited high construction costs as one of the most significant barriers to 2026 projects, while another 39% cited price increases from tariffs. When it comes to price expectations for 2026, developers can expect the following forecasts:
- Steel Price Forecast for 2026:
- Steel prices are “poised to recover in 2026,” bringing more stability.
- Global steel demand is forecast to increase by 1.3% in 2026. In Europe, a key overall market indicator, hot-rolled coil prices are projected to climb to €680–€700 (~$788–$810) per ton by the end of Q1 2026 following considerable volatility in 2025.
- Lumber, Copper & Aluminum for 2026:
- Specific 2026 price targets for these materials are less common, as the volatility is so high that analysts are focused on the drivers, like production and trade policies, rather than the price.
The key point is that tariffs on steel, aluminum, and copper are the primary source of uncertainty, causing potential price shocks and making long-term estimates difficult. This ongoing volatility requires consistent forward-thinking and adaptability.
So, given all this uncertainty, how do you maximize your chances of accurate material estimations?
Using digital takeoff tools can help ensure precision and current market pricing while streamlining calculations and making your estimation more efficient. Tools like the PlanHub Unit Cost Estimation Tool can help you build your digital takeoff and turn it into a detailed estimate for all the materials you need while categorizing them into each aspect of the job—all while factoring in both real-time costs and taxes.
PlanHub can also connect you with suppliers to help source the materials necessary to complete your project, allowing you to address all aspects of the preconstruction in one location. Together, these solutions ensure accuracy in your calculations and estimates while making all your operations more efficient.
Labor Costs
Labor costs can have wide variability depending on productivity rates, the members of the crew, and local wage variations. Take the time to review local market rates for professionals, consider what kinds of specialized tradesworkers you might need, and calculate how many hours may be necessary to complete the project.
All of the costs associated with labor should be factored into your estimate. These might include:
- Wages
- Taxes
- Insurance
- Union dues
- Employee benefits, like sick leave
However, it’s crucial to be aware of ongoing changes in labor costs. Labor costs in 2026 are expected to rise due to intense upward pressure from a worsening skilled labor shortage. Key labor trends to be aware of include:
- The industry is expected to require nearly 500,000 additional workers in 2026, up from 493,000 in 2025.
- Salary increase budgets are forecast at roughly 3.5%.
- Compensation for management positions, such as Commercial Project Managers, is projected to rise even higher, with an 8% increase expected in 2026.
These indicators all suggest the need for a wider space in your budget for labor costs going forward. Accurate projections for your workforce’s salary and wages are paramount to a reliable project estimation. The table below provides some valuable reference points as you prepare to build out your estimates.
2026 Salary Projections for Key Roles
Role | Salary |
Project Managers | $78,000 – $125,000+ |
Construction Superintendents | $72,000 – $110,000+ |
BIM Specialists | $70,000 – $95,000 |
Electricians (Commercial) | $65,000 – $95,000 |
HVAC Technicians (Commercial) | $60,000 – $88,000 |
Source: The Birmingham Group
Remember that unforeseen contingencies, like overtime and project delays, also carry the risk of inflating labor costs. Do your best to account for variability and contingencies in your estimate by building a level of flexibility into your budget.
Equipment Costs
Using your project takeoff and scope, sit down and consider the type of machinery you will need and how you plan to source it. Will you be renting equipment, or do you own it? Do you need to transport the equipment? Do you need any specialty equipment? These questions will all impact what goes into your overall costs. Don’t forget to consider the risks of maintenance and other easy-to-overlook costs, like gasoline.
Subcontractor Costs
Once you verify which phases of your project will require the support of subcontractors, you can begin managing bids while balancing price, reliability, and performance history. Review the quotes you receive and historical project data to build out your estimate.
Keep in mind, managing and reviewing bids can take considerable time and effort, eating into your profit margins. A subcontractor bid management tool can help you quickly solicit and review proposals to determine who is the best fit for the role while allowing you to jump into your projects faster.
Overhead and Profit
Finally, you and your team deserve to get paid for the work you do. Accounting for company overhead, insurance, and desired profit margin. Incorporate all your construction overhead costs into your estimate to ensure that the project sustains profitability.
Overhead costs may include:
- Travel time
- Indirect materials like nails and screws
- Power and electricity for tools
- Company insurance costs
Don’t forget to consider administrative time spent submitting bids for projects, so you can accurately assess your ideal profit margins.
Case Study: Southern Environmental Services Inc.
Southern Environmental Services Inc., a 31-year-old abatement and demolition company, was able to double its profits by saving time on bids and takeoffs. Before PlanHub, they juggled disjointed bid management and takeoff tools, taking two to three days of work per proposal.
After, they reduced bid times by 75% and nearly doubled the number of won projects within a year, bringing a 100% increase in revenue. Having a clear vision of each project and being able to estimate construction costs directly from takeoffs was a game-changer for workflows and overall business.
Estimating Strategy by Project Type
The type of project can alter the complexity of the job, the necessary permits or bonds to obtain, and the client’s expectations, all of which will influence your estimate.
Commercial vs. Residential
Commercial projects are often more complex than residential ones, as they involve permitting, code compliance, larger sites, and more complex structural systems, all of which you should research in advance. On the flip side, commercial projects may offer the benefit of discounts for bulk ordering. Meanwhile, residential projects are more straightforward, with smaller crews and less oversight, often resulting in lower costs.
Public vs. Private
Public projects often require higher costs than private ones, as they may have varying bid criteria, bonding requirements, and compliance standards to meet, which will factor into your accounting. For example, public projects may require:
- Payment bonds
- Performance bonds
- Bid bonds
These bonds and special permits may require additional costs to obtain and should be factored into your estimate. Typically, private projects may have more relaxed requirements, but they may enact their own unique requirements for custom materials or processes that may be worth considering in your estimate.
Self-Performed vs. Subcontracted Work
Choosing between shouldering aspects of a project or contracting them out can greatly influence your costs, scheduling, risk, and profitability. While outsourcing work allows you to avoid worrying about subcontractor takeoff and estimation, it can sometimes pose greater risk and give you less control over costs for materials and equipment.
Upon receiving the plans for the project, perform an initial review of which project areas can be conducted in-house and which will require contractors. Then, with a better understanding of where to focus estimating effort and margin potential, branch out further to determine the costs for each of these areas. In this process, gather subcontractor bids and historical estimates so you can factor this into your overarching costs.
Managing Profitability Beyond the Estimate
Your estimate provides a valuable resource for ensuring profitability, but only as much as you allow it to. Continue to ensure the estimate remains a useful guide for your pricing by looking at it as a guiding star.
Maintain profitability throughout the project by:
- Integrating Estimates Into Preconstruction: Continue to ensure that your estimate aligns with the project by continuing to reference it during scheduling and procurement.
- Maintaining Budget Control During Construction: Track your actual spending against estimated spend throughout the project, and make adjustments as needed.
- Using Change Order Pricing: Adapt for expansions in scope or changing conditions by maintaining clear communication with the client or general contractor and adjusting the contract price and schedule.
Common Estimating Mistakes and How to Avoid Them
The hefty task of estimating several different aspects of a robust construction project is easily prone to errors. Consider the following common mistakes so that you can avoid them:
- Incomplete Scope Review: Be aware of the risk of missing addenda and specification updates, and ensure a thorough review so you do not underestimate costs.
- Inaccurate Takeoffs: Always double-check measurements and quantities to ensure that you are ordering the correct supply quantities.
- Underestimating Labor or Productivity Issues: Consider factors that may cause project hiccups and increase labor costs, like weather, crew availability, and learning curves during labor.
- Ignoring Subcontractor Coordination: Maintain consistent communication with subcontractors and project partners to avoid cost overlaps or scope gaps between trades.
- Failing to Review Terms: Double-check your plan for payment schedules, retention, and liquidated damages clauses to ensure that you factor in all contingencies proactively rather than retroactively.
Digital takeoff tools can help avoid several of these crucial mistakes. By accessing real-time material pricing and performing calculations through pre-defined formulas, these tools allow for more accurate estimates with more reliable material and cost calculations compared to manual takeoffs. By pairing these tools with your expertise, you’ll be well-positioned to avoid risky pitfalls.
Mastering Construction Cost Estimation for Sustainable Success
Understanding how to estimate construction jobs accurately is crucial for avoiding delays and ensuring your projects can continue as planned. To effectively estimate your costs, be sure to take a high-level look at your project, including the scope, goals, and comprehensive takeoff.
As you navigate estimating your costs, connecting with subcontractors, and sourcing supplies, PlanHub can help. PlanHub is an all-in-one solution that simplifies the preconstruction process, from estimation all the way through project management and completion. Our digital takeoff and estimation tools, bid management solutions, and full collaboration suite can save users up to 75% of time on takeoffs compared to performing them manually.
Book a demo to discover all the ways you can use PlanHub to optimize your projects from preconstruction to completion.
