Estimating Profit & Contingencies

NOTE-- In 2000 we retired MacNail and BidMagic (our earlier estimating computer programs), and replaced them with Goldenseal estimating software. There are still die-hard MacNail users, so we keep its manuals available online. Goldenseal also includes accounting, job costing and project management. You can add percentage line items to Goldenseal estimates, to cover profit and contingencies.

Profit

Profit is the money you 'put in your pocket' at the end of each construction project. Determining a profit percentage is a tough business decision that involves some heavy marketing judgement. Typical profit percentages range from 3% to 10%.

Contingencies

Contingencies a the percentage in the MacNail construction estimating software that covers unexpected cost overruns--items missed in the estimate, extra work brought on by unusual conditions, and just plain old mistakes.

NOTE: Most design changes and unanticipated surprises should be added to the contract price as a change order. See MacNail Accounting for more about change orders.

A reasonable contingency percentage would range from about 2% for new work, on up to 6% or 8% for remodeling in older buildings.

To protect yourself from higher contingencies, limit the scope of repair work in your contracts. A clause such as 'repair or reinforcement of inadequate framing will be billed as an extra', will make your job much more pleasant!

You can also prevent many unpleasant surprises by handling difficult, unspecified, or unpredictable items as an allowance (see page 103).