How To Make A Construction Estimate: Step-by-Step Guide

Creating an accurate construction estimate is essential for winning bids, managing budgets, and ensuring your projects remain profitable. A well-prepared estimate not only outlines costs but also builds trust with clients by showing transparency and professionalism. 

In this step-by-step guide, we’ll walk you through the entire construction estimating process from reviewing bid packages to finalizing a proposal.

In this guide, we’ll cover:

• The importance of accurate construction estimating
• Step-by-step process for preparing a construction estimate
• Turning an estimate into a professional bid proposal
• Types of construction estimates explained
• Profit margin calculation examples
• Writing estimates for construction jobs
• Using templates, spreadsheets, and software effectively

The Importance of Accurate Estimating

For contractors, project managers, and small business owners, accuracy in estimating can mean the difference between a profitable project and a financial loss. According to Procore, even minor errors in cost breakdowns can result in significant overruns.

Studies show the average cost estimation error rate in construction projects ranges from 5–10%. That margin can determine whether your company covers its costs or risks debt.

Accurate estimates:

• Build trust with clients by showing professionalism.
• Help secure financing and manage cash flow.
• Provide clarity to project managers and teams on scope and resources.
• Reduce disputes during the construction process.

For more startup guidance, read how to start your construction company.

8 Steps in Construction Estimating

1. Review the bid package

Gather all drawings, design documents, and specifications. Missing details at this stage often lead to costly change orders later.

2. Conduct a site visit

A physical visit helps you assess real conditions like access, utilities, and environmental factors that might affect costs.

3. Perform a material takeoff

Measure quantities of materials required. Using an excel spreadsheet or work estimate format ensures accurate tracking. For residential building projects, include materials like concrete, steel, lumber, and fixtures.

4. Solicit pricing from suppliers and vendors

Contact suppliers for updated quotes. Use proposal templates or excel templates to standardize submissions. Competitive pricing ensures accuracy and transparency.

5. Evaluate labor requirements

Calculate how many workers are needed, their rates, and hours. Use construction industry data from Construction Coverage or BLS to benchmark.

For example, BLS data shows the average hourly wage for construction laborers in 2023 was around $23, while Construction Coverage reports that regional differences can push labor costs as high as $35 per hour in urban markets. Using these benchmarks helps construction managers set realistic labor budgets.

6. Determine insurance and bonding costs

Include liability insurance, worker’s comp, and bonding fees. Contractors often overlook these when preparing an estimate form.

7. Calculate overhead and indirect costs

Overhead includes office expenses, equipment depreciation, and project management software. Indirect costs may include utilities or security.

8. Account for profit and contingency

Finally, add a percentage for profit margin and contingency. A 5–10% contingency buffer is common.
Try our Profit Margin Calculator to finalize margins.

Turning an Estimate into a Bid Proposal

Once you’ve completed your construction estimate, convert it into a professional proposal. Use a proposal template or job estimate templates for consistency. Make sure your bid includes:

• Client details
• Scope of work
• Itemized cost breakdown
• Project timelines and milestones
• Terms, insurance, and bonding details

Pro Tip: Check out our Construction Estimate Template for a polished format.

You can also explore related guides:

• Construction Workers Salary in 2025: How Much They Make by State & Hour
• How to Get Your General Construction License in the US by State
• Construction Insurance: How to Choose the Right Coverage & Save in 2025. 

Types of Estimates

Choosing the right type of estimate depends on the stage of the project and the level of detail required. Understanding these types ensures project managers and general contractors apply the correct level of accuracy and transparency for each situation.

We’ve broken it down: 

Source: American Society of Professional Estimators (ASPE) // AACE International, Recommended Practice 18R-97 (Cost Estimate Classification System)

Calculating Construction Profit Margin

A construction estimate must also evaluate profitability. Profit Margin = (Net Profit ÷ Revenue) × 100. Knowing this percentage helps project managers understand if a job will truly add to the bottom line or create unnecessary risk.

Example 1: Small Residential Job

• Revenue: $50,000
• Costs: $40,000
• Net Profit: $10,000
• Profit Margin: 20%

Example 2: Larger Commercial Project

• Revenue: $2,000,000
• Costs: $1,750,000
• Net Profit: $250,000
• Profit Margin: 12.5%

As these examples show, higher revenue doesn’t always mean higher profitability. Smaller residential building jobs can sometimes yield stronger margins than larger projects with tight bids. 

Industry benchmarks suggest healthy construction profit margins typically fall between 10% and 20%, though they can vary by project type, location, and competition.

Pro Tip: Use our Profit Margin Calculator to simplify the math and compare different scenarios.

How to Write an Estimate for a Construction Job

When writing an estimate form, make sure your document is detailed, clear, and easy for clients to understand. A well-written estimate shows professionalism and reduces the chance of disputes.

1. Include client and project details. Specify the project name, location, and a summary of the work involved.
2. Provide an itemized cost breakdown. Break down materials, labor, equipment, and any subcontractor costs. This transparency helps clients see exactly what they are paying for.
3. Add timelines and schedules. Outline when the work will begin, major milestones, and the expected completion date.
4. Attach supporting documents like design drawings, specifications, or a work estimate format. These give clarity and help align expectations.
5. Clarify payment terms and conditions. State deposit requirements, installment schedules, and methods of payment (check, transfer, etc.).
6. Note exclusions and assumptions. Clearly define what is not included in the estimate, such as permits or client-supplied materials.
7. Provide a signature section. Both parties should sign to confirm agreement before work starts.

For more insight, read more in our How To Estimate Construction Jobs? Step-by-Step Guide.

Use Construction Estimate Templates

Templates save time and reduce errors by giving contractors a consistent format to follow. They also help ensure no critical details are missed during the construction estimating process.

Options include:

• Excel templates with formulas for automatic calculations, great for smaller residential building projects or quick revisions.
• Job estimate templates and proposal templates for standardization across multiple or similar projects and teams.
• Free Estimate Generator to create quick and accurate estimates online.
• Construction cost estimate templates tailored for specific project types such as house construction or commercial builds.
• Excel sheets and spreadsheets that integrate directly with accounting systems, making it easier to track revisions.

Using these templates not only speeds up your work but also adds professionalism and consistency to every estimate and proposal you deliver.

Benefit from Construction Estimating Software

Manual spreadsheets can work, but software improves speed, accuracy, and collaboration across teams. 

Some studies have even shown that estimating software reduced their admin time by 30%. Reports from the Get It Right Initiative also note that digital estimating tools help project managers reduce error rates and improve transparency with clients.

Benefits include:

• Faster cost breakdowns with automated calculations.
• Integration with accounting tools like QuickBooks for seamless financial management.
• Professional estimate forms and proposal templates ready to send.
• Cloud-based storage, so project managers can access estimates anywhere.
• Easier revisions when scope or design changes occur.
• Improved collaboration, as team members can work on the same estimate form or excel sheet in real-time.

Try Invoice Fly’s Estimates App for a contractor-friendly solution that combines speed, accuracy, and professionalism.

Deliver Accurate and Profitable Construction Estimates

Accurate construction estimating ensures your company wins profitable jobs and avoids financial strain. By following a clear process, using job estimate templates, and leveraging construction estimating software, you can create estimates that impress clients and protect your margins.

Need an estimating solution for your small business? Try Invoice Fly’s Estimates App — It’s free!

For more startup guidance, read how to start your construction company.