There is a particular kind of pain familiar to anyone who has been in residential construction long enough. You work your backside off putting together a tender price, submit it, and then hear nothing. Or worse — you win the job and spend the next three months wondering how you underpriced it so badly.
Pricing a residential construction tender is not rocket science, but it does require a disciplined approach. Here is how to do it properly — so you price to win work you actually want to do, at prices that make it worth doing.
Step 1 — Understand exactly what you are pricing
Before you even think about numbers, get completely clear on scope. Read everything — architectural drawings, structural drawings, specifications, engineer's notes, and any addenda. Identify anything unclear, missing, or contradictory. Scope confusion is the number one cause of underpriced residential tenders.
Before you price, ask questions. A concise clarification list sent to the builder or designer is not a sign of weakness — it is a sign of professionalism. The clarifications you receive become part of your tender and protect you from scope creep later.
Step 2 — Do a proper quantity takeoff
Non-negotiable for anything beyond the simplest jobs. A proper takeoff means measuring every item in your scope directly from the drawings — not guessing, not relying on rule-of-thumb approximations, and not copying last year's similar job and hoping for the best.
- Floor areas, wall areas, and ceiling areas — these drive material quantities for most trades
- Linear lengths for wet areas, thresholds, and trim items
- Openings — doors, windows, and penetrations that affect quantities and labour
- Waste allowances appropriate to your trade and the specific job conditions
- Difficult areas requiring additional labour — high ceilings, tight access, complex geometry
Step 3 — Calculate your direct costs accurately
Materials
Price from your current supplier pricing, not from memory or last year's rates. Material costs move regularly, and a project that takes several months to complete could see significant movement between tender and construction. For fixed-price contracts, that risk sits with you.
Labour
Labour cost is not just the hourly rate of yourself or your workers. It includes superannuation (currently 11.5 percent), workers compensation premiums, leave entitlements, payroll tax if applicable, tools and consumables, and vehicle costs. A tradie who costs you $40 per hour in wages typically costs your business $55 to $65 per hour all-in. Pricing on the bare wage rate is a common and expensive mistake.
Step 4 — Add your overhead allocation
Every job needs to contribute to your business overheads — the costs that keep you running whether you are on a job or not. Calculate your annual overhead cost and express it as a rate per billable hour or a percentage of revenue. Then apply it to every tender. The costs you are recovering include:
- Accounting, insurance, and professional services
- Estimating costs including any external services used
- Administration time — quoting, invoicing, managing the business
- Equipment ownership, maintenance, and depreciation
- Downtime between jobs — you cannot bill every working hour
Step 5 — Apply your margin
Know the difference between markup and margin — because confusing the two is how you end up underpaying yourself consistently.
- Markup is the percentage added to cost to reach price. A 20 percent markup on $10,000 costs gives a $12,000 price.
- Margin is gross profit as a percentage of price. That same $2,000 profit on a $12,000 price is a 16.7 percent margin — not 20 percent.
Residential subcontractors in Australia typically operate on gross margins of 15 to 25 percent. Know your minimum acceptable margin and do not go below it — not even for work you really want.
Your minimum price formula: Direct costs + Overhead allocation + Desired margin = Tender price. If you cannot win work at that number, the answer is to find ways to reduce costs or improve efficiency — not to compress your margin until there is nothing left to compress.
Step 6 — Review before you submit
Does the total feel right for the scope involved? Does it pass the gut-check from your experience on similar jobs? If something seems off — high or low — find out why before you submit, not after you win. Also check your site-specific assumptions: access conditions, material delivery distance, noise or working hour restrictions. These things cost time, and time costs money.
Step 7 — Present professionally
The way your tender looks matters. A professional submission with a schedule of rates, clearly stated inclusions and exclusions, and your company details presented neatly says something about how you run your business — before you have set foot on the job. Builders choose subcontractors they can rely on. A polished tender is your first opportunity to demonstrate that you are that kind of operator.