Project Estimating: A Contractor's Complete Guide

Project estimating is how contractors turn a client’s vision into a number they can build a business around. Get it right and you win profitable work. Get it wrong and you’re either leaving money on the table or building a job that bleeds cash from day one.

This guide breaks down every major estimating type and method used in residential remodeling and commercial construction, when to use each one, and how to build estimates that actually protect your margin.

Quick Answer

Project estimating is the process of forecasting the cost, time, and resources required to complete a construction project. The three main estimate types are:

Rough Order of Magnitude (ROM): Used early, accuracy within 25-50%
Budget Estimate: Used during planning, accuracy within 10-25%
Definitive Estimate: Used for final bids, accuracy within 5-10%

Accuracy improves as design detail increases. A square-foot ballpark on day one becomes a fully itemized bid by permit submittal.

What Are the Three Types of Construction Estimates?

Understanding the type of estimate a client is asking for changes everything about how you prepare it. Many contractor disputes start because a client heard a rough number and treated it as a firm price.

Rough Order of Magnitude (ROM)

This is the “ballpark” estimate given before full design or scope is defined. It answers the client’s first question: “Is this even possible in my budget?”

ROM estimates carry a wide variance, typically plus or minus 25 to 50 percent. That range is not a weakness, it is honesty. You are working with limited information.

Example: A homeowner calls about converting a detached garage into a guest suite. You know the structure is roughly 400 square feet. Without visiting the site or reviewing drawings, you quote $60,000 to $120,000 based on your regional knowledge of ADU conversion costs. That spread is intentional and appropriate at this stage.

Budget Estimate

Budget estimates come after initial design meetings, site visits, and preliminary plans. Accuracy tightens to within 10 to 25 percent. These are used by clients to secure financing, get HOA approval, or decide between competing design options.

Example: After a site visit and reviewing the architect’s preliminary floor plan for that same garage conversion, you now know the electrical panel needs an upgrade, there is no existing plumbing to the structure, and the client wants heated floors. Your budget estimate narrows to $88,000 to $110,000.

Definitive Estimate

This is your actual bid, built from final drawings, specifications, and vendor quotes. Variance should be under 10 percent, often under 5 percent with experience. Definitive estimates are what you submit to win a contract and what you build your schedule from.

Before you reach the definitive stage, run through a Pre-Construction Checklist to make sure every line item has been addressed and nothing has been assumed away.

What Are the Main Estimating Methods?

The method you use determines how you build the number, not just how precise it is. Most experienced contractors use different methods at different project stages.

Square Foot Estimating

You assign a cost per square foot based on project type and regional data, then multiply by the project size. It is the fastest method and the backbone of ROM estimates.

Project Type	Low (per sq ft)	High (per sq ft)
Basic bathroom remodel	$150	$300
Kitchen remodel (mid-grade)	$200	$400
Room addition (wood frame)	$175	$350
ADU conversion (garage)	$150	$300
Full gut renovation	$100	$250

When to use it: Initial client consultations, phone inquiries, pre-design feasibility checks.

When not to use it: Complex projects with unusual site conditions, historic renovations, or anything where your square-foot assumption does not capture the actual scope.

Unit Cost Estimating

You price each line item individually: so many linear feet of trim, so many square feet of tile, so many fixtures. Each unit has a material cost and a labor cost attached.

Example: A tile bathroom floor estimate using unit costs:

80 sq ft of 12x24 porcelain tile at $4.50/sq ft: $360 material
Tile installation labor at $8.00/sq ft: $640 labor
Uncoupling membrane at $2.00/sq ft: $160
Grout, thinset, spacers, misc: $80
Subtotal: $1,240

Add your markup (typically 20 percent) and the client sees $1,488 for that floor.

Unit cost estimating is the workhorse of definitive bids. It is slow to build but easy to defend when a client questions a line item.

Assembly Estimating

Assembly estimating bundles related tasks into pre-priced “assemblies.” Instead of pricing each piece of a bathroom vanity installation separately, you price “bathroom vanity install, 36 inch double sink” as a single assembly that includes demo, rough plumbing, cabinet setting, countertop, fixtures, and finish work.

This method is faster than pure unit cost estimating and more accurate than square-foot estimating. Many estimating software platforms are built around assemblies.

When to use it: Mid-level design-build bids where you have enough scope detail to define assemblies but want to move faster than line-by-line pricing.

How Does Estimating Accuracy Improve Over Time?

Think of it like framing a house. You snap chalk lines before you lay sill plates. You measure twice before you cut once. Estimates follow the same logic: accuracy grows as information grows.

The accuracy staircase:

Phone call with client (ROM): 30-50% variance
Site visit, no drawings (ROM+): 20-30% variance
Preliminary design completed (Budget): 10-25% variance
Full plans and specs (Definitive): 5-10% variance
Vendor quotes locked in (Definitive+): 2-5% variance

The trap many contractors fall into is delivering a definitive-sounding number at the ROM stage. That number becomes an anchor in the client’s mind. When the real bid comes in higher, you are negotiating against yourself.

Always label your estimates by type. “This is a preliminary budget estimate, subject to revision after final plans” protects you legally and sets the right expectation.

What Labor Rates Should You Use?

Labor is where estimates fall apart most often. Material costs are easy to verify. Labor varies by crew, region, complexity, and site conditions.

Standard hourly labor benchmarks:

Role	Low	High	Typical
Carpenter (finish)	$20/hr	$45/hr	$32/hr
General laborer	$15/hr	$35/hr	$22/hr
Tile setter	$25/hr	$55/hr	$38/hr
Electrician (journeyman)	$45/hr	$90/hr	$65/hr
Plumber	$50/hr	$100/hr	$72/hr

These are field rates, not what you charge the client. On top of field labor, you carry workers’ comp, payroll taxes, and benefits, which typically add 25 to 35 percent to raw wages. Factor that burden into your cost before applying markup.

How Do You Apply Contractor Markup Correctly?

Markup covers your overhead and profit. It is not the same as margin. A 20 percent markup on a $10,000 job means you bill $12,000. Your margin on that job is 16.7 percent, not 20 percent.

Most residential remodeling contractors run markup in the 10 to 50 percent range depending on:

Job complexity and risk
Overhead load (office staff, trucks, insurance)
Local market competition
Client relationship and repeat business potential

A standard kitchen remodel for a repeat client might carry 20 percent markup. A one-time gut renovation with unknown site conditions might carry 35 to 40 percent to cover risk.

Worked example: Kitchen remodel markup

Direct material cost: $18,000
Direct labor cost: $12,000
Subcontractor costs: $8,000
Total direct cost: $38,000
Markup at 25%: $9,500
Client price: $47,500

Use the Construction Cost Estimator to model these numbers in real time and see how markup percentage changes your final price.

Pro Tips From the Field

Do not estimate from memory. Every job you have built has priced-out data in it. Build a reference library of your own historical costs by project type. Your kitchen gut from 2024 is better data than any national database.

Separate demo from new work. Demo costs are unpredictable. Old tile, hidden rot, asbestos floor prep, and structural surprises all live behind your demo budget. Price it as a separate line and add contingency.

Price owner-supplied material jobs carefully. When clients supply their own tile, fixtures, or cabinets, your labor quote is still on the hook for problems. Cracked tiles with no extras, fixtures missing hardware, and custom cabinets with wrong dimensions all become your problem on the job site. Charge accordingly.

Get sub quotes in writing before the bid. A verbal number from your plumber is not a number. If your plumber is not available when the job starts, you are repricing that scope at spot rates.

Use a scope of work document. Ambiguity costs money. The Scope of Work Generator helps you lock down exactly what is and is not included in your bid before the contract is signed.

Common Estimating Mistakes That Kill Profit

1. Forgetting general conditions. Site setup, dumpster rental, portable toilet, temporary power, final clean, and permit fees are real costs. They are easy to forget on fast bids and painful to absorb when left out.

2. Using national averages for local bids. Labor markets are local. A carpenter rate from a national database may be $15 off from your actual crew cost. On a $60,000 job with 400 labor hours, that gap wipes out your profit.

3. Not revisiting the estimate after scope changes. Clients add items throughout design. If your estimate is not updated to reflect those additions, you are building scope you did not price.

4. Underpricing to win. Winning a job at zero margin means you are financing the client’s remodel out of your own pocket. Walk away from clients who want you to eat your overhead.

5. Missing the inspection gap. Roughed-in work often requires inspection before close-in. If the inspector is backed up two weeks, your crew sits idle unless you have scheduled around it. Build that float into your timeline and carry the cost.

Frequently Asked Questions About Project Estimating

How accurate does a construction estimate need to be? It depends on the estimate type. ROM estimates are acceptable at 25 to 50 percent variance. Budget estimates should be within 10 to 25 percent. A definitive bid submitted for contract should be within 5 to 10 percent. Read more in our guide on how to estimate construction jobs.

What is the difference between an estimate and a bid? An estimate is an approximation. A bid is a firm offer to complete defined work at a stated price. Bids carry legal weight once accepted. Estimates do not, though the line blurs when clients treat ballpark numbers as commitments.

Should I charge for detailed estimates? Many experienced contractors charge for detailed estimates, especially on larger projects. A definitive estimate on a $200,000 kitchen addition can take 15 to 20 hours to prepare properly. Your time has value. Design-build firms commonly charge an estimating fee that is credited toward the contract if awarded.

How does contingency factor into project estimating? Contingency covers unknown site conditions, material price swings, and scope creep that was not foreseeable at bid time. Residential remodeling projects typically carry 5 to 15 percent contingency depending on project age and condition. New construction carries less. Gut renovation of a 1950s home carries more.

What is the fastest way to improve estimating accuracy? Track your actuals against your estimates on every job. When a line item comes in over budget, document why. Build a project-specific post-mortem after close-out. Within a year of disciplined tracking, your estimates will reflect your actual cost structure rather than guesswork. See our deep dive on cost estimating for a full framework.

Ready to Estimate Faster?

Accurate estimating is a skill that compounds over time. Every job you price, every variance you track, and every post-mortem you run makes the next estimate sharper.

If you want to skip the spreadsheet setup and get to accurate numbers faster, Try EstimationPro free to generate professional estimates from job photos, voice notes, and site walkthroughs in minutes.

For contractors who want to build estimating habits that actually stick, Try EstimationPro free and see how the right tools turn field experience into consistent, defensible numbers.

Measure twice, cut once. The same rule that protects your lumber protects your margin.