Most contractors estimate backward. We open a spreadsheet, guess a crew rate, mark up materials, and hope the year works out when the tax return arrives. That is not estimating. That is hoping.
Estimating for contractors only works after you know three things: how many production hours you actually have, what it costs to run the business whether or not a job exists, and how every bid recovers that overhead plus a real net profit. Budget first. Recovery second. The estimate last.
This guide walks that arc using the frameworks Michael Pletz teaches in the Budgeting and Overhead Recovery Workshop on the How to Hardscape Podcast (episode 356). It is a solo workshop built around a budgeting spreadsheet for owners who are not ready for full estimating software yet. Spreadsheet demo dollars below are illustrative workshop examples, not claims about any one company.
You can also use our resources to help you with the process of estimating including:
- FREE Pricing Landscaping Projects Course
- Overhead Recovery Spreadsheet
- How to Hardscape Headquarters Software
Start With Capacity, Not Wishful Hours
Before you price a patio, count the hours you can actually sell.
Build a season calendar from three inputs:
- Working weeks per year
- Working days per week
- Working hours per day
Multiply those and you get total working hours. Then subtract season-level unbillable time — shop cleanup weeks, end-of-season weeks you still pay for, rain-day minimums, and similar. What remains is production hours: time in the field producing work.
A practical habit from the workshop: carry forward last year’s actual weeks instead of inventing an optimistic season. If you ran 36 productive weeks last year, start there. Underestimate hours slightly rather than overestimate. You still pay people during shop weeks, so put those weeks in the budget.
Separate two kinds of unbillable time:
- Season-level unbillable belongs in the budget (shop weeks, rain policy, winter prep).
- Job-specific unbillable (drive time, breaks, lunch) belongs in estimating as an efficiency factor on each job.
Example rain policy math from the workshop sheet: five rain days with a three-hour minimum is 15 hours of season unbillable. If your policy is a full shop day, budget that instead. Either way, do not pretend those hours were available for billable production.
COGS vs Overhead: Put Costs in the Right Bucket
You cannot recover what you have not classified.
| Bucket | Also called | What belongs |
|---|---|---|
| COGS | Direct costs, cost of sale | Tied to a specific project; does not travel to the next job |
| Overhead | Office / indirect expenses | Stays with the business whether or not that job uses it |
COGS usually covers field labor, production equipment you assign to jobs, materials, and subcontractors. Overhead covers office labor, shop-only equipment, software, rent, marketing, tools below your capitalization threshold, and the rest of the general expenses that keep the doors open.
If a cost only exists because Job A exists, it is probably COGS. If the cost exists even when Job A never shows up, it is probably overhead.
Budget Field Labor — and Treat the Owner as an Employee
Owner-operators often skip the most important payroll line: themselves.
If you work in the field, put yourself in field labor only for field hours, at a fair-market hourly wage — what it would cost to replace you if you were hurt for six months. Your admin, sales, estimating, and bookkeeping time belong in overhead labor as salary, not in field COGS. Same person, two roles, two buckets.
Field labor is more than the wage on the cheque. Add burden: payroll tax, insurance, vacation, bonuses. Workshop demo math (illustrative): a $22/hour base with about $6/hour burden becomes roughly $28 fully loaded. Part-timers can override hours (for example, 800 hours) so the sheet does not assume a full season for every name.
Track field labor as a percent of revenue. In many hardscape shops it lands somewhere around 20–30%, higher when the owner is still deep in the field. The point is not a magic percentage. The point is knowing yours before you invent a crew rate.
Place Equipment Where Recovery Matches Reality
Every machine is either:
- COGS / production equipment — assigned on each quote (rate per hour or day) so jobs that use it pay for it, or
- Overhead equipment — recovered on every job through your overhead recovery method, even if that job never touches the skid steer.
Utilization and service mix drive the choice. A lean one-service shop with high utilization can put more equipment in overhead. A mixed shop — design-build that lives on heavy equipment versus lift-and-relay that barely needs it — should usually assign production equipment to COGS. Otherwise lift-and-relay customers subsidize a machine they never use.
Replacement cost is what matters for budgeting, not what you paid years ago and not what you could fire-sale the unit for tomorrow. Think: cost to replace today, minus expected resale after the years you will use it. Workshop examples (illustrative): a used truck around $20k with known kilometers per year and a future resale target; a dump trailer around $10k over ten years with a small scrap residual. Small tools under your local capitalization threshold (Michael uses an Ontario framing around $500) often sit in overhead general expenses. Put them somewhere. Do not leave them off the sheet.
Challenge 100% utilization claims. If the sheet says a machine is on site every production day, ask whether that is true. Equipment often sits around 10–15% of revenue in these budgets — verify against your books.
Materials and Subcontractors Need a Growth Plan
Pull last year’s materials and sub totals, then apply a realistic growth plan. Doubling crews does not automatically double materials cleanly — a second crew might look closer to 2× with an efficiency haircut. New services need their own volume assumptions.
Service mix changes materials share sharply. In Michael’s framing, lift-and-relay can sit near ~10% materials while design-build often runs closer to ~20–25%. Subs differ by division the same way.
Under pure labor-rate recovery, overhead recovery does not depend on perfect materials/subs budgets. Under multiple, dual, or single recovery, those budgets matter because markups ride on them — track and adjust mid-year.
Build Overhead Like the Business You Want Tomorrow
Overhead has three practical areas: labor, equipment, and general expenses.
- Overhead labor: owner admin salary plus non-producing staff (admin, salesperson, designer, estimator). Build fair-market pay from task hours × what you would pay a part-time outsourced person, not from inventing three full-time hats you cannot fill.
- Overhead equipment: shop-only machines, computers, and gear that never gets assigned to a job.
- General expenses: software, rent, marketing, under-threshold tools, bad debt (you can intentionally leave that at $0), and the rest.
Budget the business you want, including an owner’s salary goal. Reinvesting instead of taking full salary is fine when it is intentional. Accidental underpay of the owner is how shops look profitable on paper and broke in the owner’s personal account.
Stress-Test the P&L: Aim for About 10% Net
Once COGS and overhead are in, read the profit and loss like an owner, not like a tax filing.
- Gross profit = revenue − COGS
- Net profit = what is left after the owner is paid and every bill is covered
People who say they are “40% profitable” are often quoting gross. Net is the number that funds risk, equipment replacement, and the owner’s future.
Michael’s bar from the workshop: treat roughly 10% net or better as a good target. Below that, reopen the numbers. His risk/reward framing is blunt — if long-term index money sits near ~8%, why carry contracting risk for less?
The main lever on a weak net is often forecasted sales, but only if the plan is real: better efficiency, another justified crew, or a cleaner mix. In the workshop demo sheet, a weak ~5.8% net moved to about ~10.5% when the sales forecast moved from roughly $475k to $500k. That is an example, not a prescription. Inflating sales to decorate the P&L invents a labor rate the market cannot buy.
Watch COGS and overhead as percents of revenue so you see which side is eating the year.
Use DLER and MLER as Hire Gates
Greg Crabtree’s *Simple Numbers* / *Simple Numbers 2.0* ratios give you a salary-cap lens before the next hire:
| Ratio | Measures | Benchmark cited in the workshop |
|---|---|---|
| DLER (Direct Labor Efficiency Ratio) | Field / revenue-producing labor efficiency | ≥ 2.0 |
| MLER (Management Labor Efficiency Ratio) | Overhead / management labor efficiency | ≥ 3.0 |
A healthy DLER can carry a slightly soft MLER for a while and still show net. Fix soft ratios by raising realistic sales, adding justified field capacity, or cutting overhead salary load — not by hoping.
Before you add a field hire, re-check that DLER stays at or above 2.0 and net still looks acceptable. That is the salary-cap idea: every new wage has to fit the efficiency and profit story, the same way a sports team has a roster budget.
Choose an Overhead Recovery Method Before You Bid
When you quote a job, add employees, materials, equipment, and subcontractors. Do not line-item total company overhead on the proposal. Recover overhead through a method.
| Method | Core idea | Workshop take |
|---|---|---|
| Labor rate recovery | All overhead recovered through labor | Preferred for mixed shops (design-build, lift-and-relay, drainage) sharing crews; simplest to measure (hours only); COGS equipment still assigned but does not carry overhead |
| Dual overhead | Higher markup on labor + equipment; lower markup on materials + subs | Diversifies recovery; editable split (example: ~15% on materials/subs, remainder on labor and equipment) |
| Multiple overhead | Tiered markups across labor, equipment, materials, subs | Most flexible diversification; starter scale in the demo was in a ~25 / 15 / 10 neighborhood — verify on your own sheet |
| Single overhead | One flat recovery % on everything | Present so you understand it; Michael would not recommend it for most shops |
Labor-rate mechanics: recover by crew when crew makeup is consistent, or by employee when crew sizes differ. Divide overhead across those units, then build an average hourly rate that includes wage, overhead recovery, and net profit. On the labor-rate path, equipment rates typically carry net profit only — not overhead — because overhead already rides on labor.
Illustrative workshop comparisons (fake sheet numbers): labor-rate average hourly near ~$71; dual near ~$63; multiple near ~$64. A spread of roughly $7 per employee-hour looks small until you miss a day with three people for ten hours — about $210 of recovery materials markup may or may not save. Diversification is the point of dual and multiple.
Michael’s personal hybrid: labor-rate recovery for overhead, plus materials at retail versus contractor cost (optionally higher on warranty-heavy items like plants or slabs). Priority: labor rate and multiple ahead of dual; avoid single.
Turn Recovered Rates Into the Estimate
Now estimating is arithmetic, not guesswork.
- Take production hours and efficiency factors for the job (drive, breaks, lunch, site conditions).
- Apply your recovered labor rate (crew or employee).
- Assign COGS equipment hours or days at the rates your method produced.
- Add materials and subcontractors with whatever markup your chosen method requires.
- Confirm the job still supports the net profit baked into the rates.
If you skipped the budget and recovery steps, every “competitive” number you type is disconnected from capacity and overhead. That is how busy years still lose money.
If Your Rate Will Not Sell, Fix the System — Not Silence
When average hourly looks “too high” for the market, do not silently underprice. Work the list:
- Lower forecasted sales (accepts less profit — use carefully)
- Add realistic season weeks or hours
- Cut unbillable time / improve field efficiency
- Audit general expenses and idle overhead equipment (sell or rent)
- Improve the sales process and close rate
A very low close often means weak leads and excess ad spend; a ~90% close may mean price is too low. Price feedback is data. Silent discounting is how overhead never gets recovered.
How to Start This Week
- Write last year’s real season into a capacity sheet: weeks × days × hours, then subtract season unbillable until you trust production hours.
- Split every major cost into COGS or overhead. Put the owner in both field wage (field hours only) and overhead salary (admin/sales) at fair market.
- Decide equipment placement by service mix — assign mixed-shop production gear to jobs; do not tax lift-and-relay for unused iron.
- Build a P&L you will work toward. If net is under ~10%, change sales, mix, efficiency, or cost — on purpose.
- Check DLER (≥2) and MLER (≥3) before the next hire.
- Pick one recovery method that matches your mix (labor-rate for most mixed hardscape shops) and calculate average hourly and equipment rates from that method alone.
- Estimate the next job only with those rates, plus job-level efficiency factors. Compare the number to what you would have guessed last month.
If you want the full walkthrough of the spreadsheet and the judgment calls behind each tab, listen to the Budgeting and Overhead Recovery Workshop (How to Hardscape Podcast, episode 356). For live workshops and events, see howtohardscape.com/events.