Reviewing Q3 Results Before You Price Q4 Work

The fourth quarter starts October 1. That is ten days away, and the cost of the summer's work is already on the books: labor, materials, subcontractors, and the overhead those jobs had to carry. Those numbers should shape what you bid next.

This is not a tax article. It is a pricing article. Q3 tells you whether the work paid. Q4 is when that answer should change the next number you put on paper.

The pre-October checklist says to compare summer bids to final costs before the next round of bids. This piece is the how: what a bid-to-actual review looks like on one job, how to sort the misses, and the three moves each miss can lead to.

Why the Review Has to Happen Before the Bid

By late September there is enough closed work in the file to see a pattern. Tracking a job while it runs tells you what it is doing; that is the subject of tracking job profitability while the job is still running. A closed job can tell you something a running job cannot: exactly how far the estimate was from reality, line by line.

If Q4 pricing ignores that, the next 90 days repeat the same thin jobs at the same numbers. The bid is where the margin was decided, and the only place it can be decided differently is the next bid.

The Bid-to-Actual Review, One Job at a Time

Take a summer job that is closed or close to it. Put the original estimate beside the final cost, one line per cost type. Here is what that looks like on a job that was bid at $180,000 with a planned 15% gross margin.

The bid:

• Labor: $60,000 (1,500 hours at a $40 loaded rate)
• Materials: $55,000
• Subcontractors: $30,000
• Equipment: $8,000
• Direct cost: $153,000, leaving $27,000 of gross profit, or 15%

The actual:

• Labor: $69,600 (1,740 hours)
• Materials: $58,300
• Subcontractors: $30,000
• Equipment: $9,500
• Direct cost: $167,400, leaving $12,600 of gross profit, or 7%

The job missed by $14,400. That single number is what most owners stop at, and it is the least useful one on the page. The split is the point: $9,600 on labor, $3,300 on materials, $1,500 on equipment, and nothing on subcontractors. Each of those lines has a different cause, and each cause leads to a different correction.

Do this on every closed summer job, not just the one that hurt. The pattern across five or six jobs is what tells you whether a miss is the job or the business.

Sort Every Miss Into One of Four Buckets

A miss on a cost line has one of four causes. Naming which one is the whole review.

• Work you gave away. Extras performed at the customer's request and never priced. In the example, 100 of the 240 extra labor hours were an add-on that was done and never billed, $4,000 at the loaded rate. That is not an estimating miss, and cutting the price to match it would be the wrong lesson. It goes back to the change-order process, covered in why change orders quietly make or break job profitability. Remove it from the variance before you read the rest.
• A one-off. The $1,500 on equipment was a rental extension while a job waited on a stalled inspection. It cost real money, but it does not belong in the next estimate unless stalled inspections are now routine.
• The new normal. Materials came in 6% over the bid because prices moved between the estimate and the purchase. If current supplier quotes are at the new level, the next bid uses the new level.
• An estimating error. After removing the unbilled extra, labor still ran 140 hours over, about 9%. If that is one job, note it. If three summer jobs in a row show labor 8% to 10% over, the labor input in the estimate is wrong, not the crews.

The first bucket is fixed by billing. The second is ignored. The third and fourth change the next estimate. Only after sorting do you know what the review is actually telling you.

Re-Bid the Same Job With What You Now Know

The test of the review is to price the same job again today, using the corrected inputs and the same 15% target margin:

• Labor: 1,640 hours at $40, or $65,600 (the 9% labor miss now built into the hours)
• Materials: $58,300 at current quotes
• Subcontractors: $30,000
• Equipment: $8,000 (the rental extension left out as a one-off)
• Direct cost: $161,900

To land at 15% gross margin, divide direct cost by 0.85: $190,500 in round numbers. That is 5.8% above the $180,000 that won the job in the spring. Adding 5.8% on top of the old bid would have produced the same number by accident this time and the wrong number every other time; the correction lives in the inputs, not in a flat markup on a stale cost base.

How much margin the job needs to carry its share of overhead, and how to work that break-even number out from your own overhead and capacity, is covered in when to turn down work that keeps you busy. What matters here is that the target is set before the bid, and the inputs underneath it are the ones Q3 just corrected.

Three Moves, Not One

A corrected estimate can lead to three different bids. Most owners only consider the first.

Raise the price. Bid the $190,500. If the customer or the market will pay it, the job carries its cost and its margin. A bid you lose at the right price is information about the market, not a reason to go back to the old number.

Tighten the scope. If the market will not move, the scope can. Take the items that ran long out of the base bid and price them separately: a specific finish, site work that depends on conditions nobody can see yet, an allowance that becomes a change order when it is used. A $180,000 bid on a narrower scope can hold its 15% where a $180,000 bid on the old scope cannot. The point is to stop absorbing the part of the work that the summer proved you could not price.

Pass. If the job cannot be priced to carry its cost and cannot be narrowed, the review has done its job by saying so. Q4 is a short window. A slot filled in October with a thin job is not available in November for a better one.

The move that is never on the list is copying the last winning bid because it won. Winning proves the customer liked the number. The bid-to-actual review is the only thing that proves the number was right.

A Short Q3-to-Q4 Pricing Review

• Pull every summer job that is closed or nearly closed
• Put the bid next to the final cost, one line per cost type
• Remove unbilled extras from the variance and send them back to billing
• Sort what is left: one-off, new normal, or estimating error
• Correct the inputs, re-bid the job on paper, and compare to the price that won it
• Decide, per job type, whether Q4 bids need a higher price, a tighter scope, or a pass

How KDM Accounting Services Can Help

At KDM Accounting Services, we help Florida contractors use the year's actual numbers before they price the next stretch of work. We can:

• Bring the books current through the summer
• Organize recent job costs by job and by cost line, so the bid-to-actual comparison exists
• Help you see which jobs left enough after costs and overhead
• Give you a clearer file before Q4 bids go out

We do not set your prices. We help you see whether the last quarter's work can support the next quarter's bids.

Price Q4 From What Q3 Actually Cost

The last 90 days of the year should not be bid from memory. They should be bid from the summer that just happened. If the work was thin, fix the price, the scope, or the mix before October fills the calendar.

If you want help reviewing Q3 results before you price Q4 work, contact KDM Accounting Services. We'll help you look at the numbers while there is still time to use them.

Related reading

• What Contractors Should Tighten Up Before October 1
• Tracking Job Profitability While the Job Is Still Running
• Why Change Orders Quietly Make or Break Job Profitability
• When to Turn Down Work That Keeps You Busy
• What Your Overhead Costs — and What You Can Cut
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