Different Economic Conditions

Builders in any area will experience changes in costs as the local economy ebbs and flows. In fact, many "regional differences" are really the result of localities being in different phases of the boom/bust cycle.

NOTE-- We retired the MacNail and BidMagic estimating programs in 2000, and replaced them with Goldenseal construction estimating software. Goldenseal is an integrated program that also includes accounting, scheduling and contract writing. We keep these instructions online for our die-hard BidMagic MacNail users! Adjusting Goldenseal estimating software for changing economic conditions, is similar to that for our older programs.

In general, you can expect to see the following price variations at different points in the cycle:

Recessionary depths

Bidding will be extremely competitive, and profit margins will need to be slim to nonexistent, maybe even negative. Subcontractor prices will be low and competitive. Labor costs will typically be low, since the selection of employees is better and you can get the cream of the crop. Material prices may or may not drop.

You may want to use lower overhead and profit percentages, and fudge factors of less than one-- just so you can stay competitive. With luck you'll be able to drive a harder bargain for labor and subcontractors, and make up the difference-- or at least establish good working relationships so you can survive the economic recovery (see the next section).

Rising economy

Bidding becomes less competitive. Subcontractor and labor prices will start to rise as the demand for them rises. This is the easiest time to "lose your shirt", since you'll probably still be bidding "close to the bone ", and can get caught by the rise in prices that takes place between bidding and actual construction.

This is a good time to insist on firm bids from your subcontractors, and to cash in on the good relationships that you cultivated in leaner times. When estimating, use fudge factors of 1 or higher, and figure in an inflation allowance to account for rising costs.

Boom times

Much less bidding competition, and more opportunity for fat profit margins. Good labor and subcontractors are hard to find, resulting in increased costs. There may be sharp price rises because of material shortages-- especially in volatile items such as copper, cedar and plywood.

Use fudge factors of greater than one, and watch costs carefully!

Falling economy

Ironically enough, you will often make the most money during a falling economy-- you'll be completing profitable contracts negotiated during the less competitive boom times, and you can take advantage of reduced costs because of the increased availability of good labor and subcontractors.

Use fudge factors of 1 or maybe slightly less in your construction estimating software, and keep your eye out for good new employees!