Learn important terms used in construction estimating.
- [Instructor] Before we begin, it's important that we use and understand the same terminology when recapping a bid. Most of these definitions are financial terms. It's important that you are on the same page with your company's financial team when discussing these items. Overhead, overhead are the fixed costs that a business pays to administrate or run the business. They are not the costs affiliated with a particular job or project. Some examples of overhead costs are the home office staff salary, such as payroll clerks and company officers, building and utility expenses, and maybe even rent costs, overall liability insurance and other general insurances, warehouse equipment, warehouse employees, and the cost of delivering materials.
These are all examples of overhead costs. Profit, profit is a reasonable amount of money the company expects to make above and beyond their overall costs. After all, that's one of the reasons we are in business, to make money. Markup, markup is the amount added to the cost price of goods to cover overhead and profit. So, markup is really overhead and profit combined. Cost versus price, this is pretty important.
Price is the amount of money a customer pays for that product or service. The difference between the price that is paid by the owner and the cost that is incurred, is the profit the business makes when the item is sold. For example, if a customer pays $1,000 for an item that costs the company $750 to produce and sell, the company's profit is $250. Labor burden, labor burden is the actual cost of a company to have an employee, aside from the salary the employee earns.
This is a part of the overall calculation of your hourly costs. Labor burden costs include benefits that a company must, or choose, to pay for employees included in their payroll. Sometimes, they are also referred to as fringe benefits. Although, fringe benefits are not normally mandatory, but they are an extra benefit supplementing an employee's salary. For example, company car, subsidized meals, or health insurance.