More than Just Time and Material
Preparing a bid for a blasting project involves more than forecasting labor hours and materials costs. If you don’t account for hidden expenses, then your business may ultimately fail, even though you are working steadily.
This guide outlines a way to calculate a bid amount that will cover your costs and meet your target profit margin. It’s a formula that can be applied to virtually any contractor bidding process, and it looks like this:
You’ll also learn methods for calculating material and labor costs specifically for abrasive blasting projects, based on blast area, production rates and material consumption rates, and walk through the bidding process for a hypothetical project to illustrate how it all comes together.
But first, a few words about accounting: Accounting terms take on different meanings depending on the context. For instance, to make cost projections easier, I’ve included labor burden as part of direct labor, where your accountant might allocate it to overhead. The point is, don’t copy line items from your bid calculations to your income statement, and don’t substitute this article for advice from your accountant.
Let’s get started with some definitions…
Your Direct Material Cost is the cost of all materials expended during performance of the service, including media, additives, fuel for equipment; tarps, tape and other disposable containment materials.
Your Direct Labor Cost is the cost of the labor of any employees working directly on the project, including supervisors and project management. Direct Labor consists of wages/salary plus their labor burden. Labor burden is the cost the company pays to have the employees on the payroll, including taxes and employee benefits (pension costs, health and dental insurance, workers compensation, paid holidays, etc).
Direct Expenses are expenses that will be incurred during the performance of the service, including equipment rental, permits, landfill fees, water-drawing fees, transportation costs.
Overhead includes your indirect costs – the ongoing operational expenses that cannot be directly allocated to any specific project, including salaries for administrative and sales personnel, professional services, office supplies and equipment, internet and phone bills, marketing and advertising expenses, rent and utilities, taxes other than payroll taxes, banking fees, liability insurance, and more.
The financial gain (or loss) to the business owners after subtracting the amount spent from the amount earned.
Before we can forecast direct material and direct labor costs, there are two metrics to be calculated: effective production rate and material consumption rate.
Your production rate indicates how much time it takes to clean a surface according to specifications. It is expressed as square feet per hour or square metres per hour. Your production rate will vary from job to job, according to several factors:
- Surface preparation specifications. The project manager will normally indicate what level of cleanliness is required, often referring to SSPC or NACE standards. Your production rate for “brush off” of loose materials and contaminants will be higher than your rate to render a “white metal” surface (for steel).
- Required anchor pattern. All things being equal, a deep anchor pattern requires a faster-moving particle, requiring more air pressure and the right abrasive (ie. garnet instead of crushed glass).
- Nature of the coating/contaminant. How thick is the corrosion to be removed? How durable is the coating? Removing light scale will go quicker than blasting barnacles.
- Abrasive hardness. The harder and more angular the abrasive, the faster it will cut. A finer grade will generally scour faster than a coarse grade, due to more impacts per second.
- Equipment. A more powerful air compressor and larger nozzle will produce a broader spray pattern, allowing you to clean a larger area with every pass.
With so many factors, there’s no easy formula for determining your production rate. The best practice is to record your rate on every job – especially when you encounter new specifications, surfaces, contaminants, equipment and settings. Accumulating these baseline production rates will reduce guesswork and simplify the project scoping process.
Knowing your surface area and your production rate, you can calculate your blasting time: surface area divided by the effective production rate equals blasting time.
Note that we’re using effective production rate. Unless you’re blasting a big, flat surface, your effective production rate is going to be lower than your ideal production rate. A dissimilar surface with lots of different angles and shapes, or in hard to reach places, can take many times longer. Again, there’s no easy formula for factoring surface dissimilarity into your production rate; it’s a judgment call, informed by experience.
Let’s take a look at how a novice blaster can determine his effective production rate.
Joe is bidding on a bridge-blasting job. Specifically, he’ll be blasting the steel girders under a bridge. According to the specs, the steel needs to be prepared to white metal with a 2.5 mil anchor pattern for the coating to adhere to. This is new construction, so he only needs to knock off mill scale.
His equipment will be a Geoblaster 600 with a 375 CFM air compressor and a No. 8 nozzle. To achieve that anchor pattern, Joe selects a 30/60 mesh garnet. His limited experience (and records) indicates that his typical production rate to achieve that specification at those settings is 150 sq ft/hr*.
*This hypothetical production rate is for illustrative purposes only, and not intended to be a baseline rate of any kind. Actual production rates will vary according to many factors, including operator skill.
According to the documentation, the surface area of the bridge is 4000 square feet. Upon visual inspection, he notes that there are a lot of corners, bolts and extrusions on the girders, which means a lot adjustments to non-optimal blasting angles which will lower his production rate. He decides to adjust his production rate down 25% to 112 sq ft/hr. Dividing the area (1400 sq ft) by his effective production rate (112 sq ft/hr) he calculates a blasting time of 12.5 hours.
But Joe has never brushed off mill scale before and the surfaces are so dissimilar that knowing the actual area doesn’t inform much. He decides to do a test patch to determine his effective production rate.
He selects a significant section of girder with an average degree of contamination and records how long it takes to blast it to specification, using the equipment, abrasive and settings he intends to use on the project. It takes about 2:30 for the section. From that section, he can extrapolate how long it should take to blast the other 399 similar sections, about 16:40:00, 1/3 over his original estimate.
Working backwards, he can estimate his effective production rate to be 84 sq ft/hr, but having already estimated his blasting time, it’s a moot calculation.
Material Consumption Rate
The second important metric is the material consumption rate, which indicates how much material will be expended per hour of blasting. The material costs to track are media, additives, fuel for blasting equipment, and water (if there is a cost associated with it). Again, the best way to arrive at these rates is by keeping track of past performances with various equipment and settings, but you can also do specific tests to determine baseline rates.
CALCULATING YOUR DIRECT MATERIAL COSTS
For abrasive blasting projects, your Direct Material Costs consist of your Blasting Material Costs and your Containment Costs.
To find your Blasting Material Costs, multiply your material consumption rates by your projected blast time.
To find your Containment Costs, add up the costs of all the disposable materials to be used for containment, including tarps, tape, zip-ties, geo-textile membranes, filters, etc. Some of these materials – like tarps – will eventually wear out but may endure for several projects; the thing to do is allocate a portion of the expense to each project. Some containment materials – like clamps and posts – may last for years, in which case they are properly considered assets and should not be included in your containment costs calculations.
CALCULATING JOE’S MATERIAL COSTS
Joe knows that this equipment at these settings will expend the following/hour:
- 130 lbs of 30/60 garnet
- 15 gallons or water
- .15 gallons of rust inhibitor
- 4 gallons of diesel fuel
Knowing the project will take 16.67 hours of blast time, his total projected material consumption is:
- 2167 lbs of garnet @ $.30/lb = $650.13
- 250 gallons of water @ $0.02/gallon = $5.00
- 2.5 gallons of rust inhibitor @ $60/gallon = $150
- 67 gallons of diesel fuel @ $2.80/gallon = $187.60
For a Blasting Material Cost of $992.73
For constructing his containment, Joe decides he needs 20 translucent tarps, half of which he will throw out, and the other half he’ll be able to use on one more project, so he expenses:
- 15 tarps @ $15/tarp = $225
- 2 rolls of duct tape @ $8 = $16
- 3 packs of zip ties @ $4.00 = $12.00
- 500 sq ft of geotextile membrane @ $.20/sq foot = $100, which would probably last for 4 projects of this size, so he expenses $25 to this project.
So his Containment Costs amount to $278.
Joe’s Direct Material Costs
DIRECT MATERIAL COST: $1270.73
CALCULATING YOUR DIRECT LABOR COSTS
Your Direct Labor Costs include wages/salaries for any employees working on the project, including part time hours of personnel involved in project management, supervising, designing containment structures, etc.
Before calculating the Direct Labor Costs, we need to calculate the Labor Rate, which is the combined hourly wage + labor burden for all employees onsite.
Again, the labor burden is the cost the company pays to have the employees on the payroll, including but not limited to payroll taxes, pension contributions, health and dental insurance, workers compensation, and vacation time.
CALCULATING JOE’S LABOR RATE
The only employees on the job are Joe and his helper Fred. Explaining the components of the labor burden is beyond the scope of this article, and varies by geography, so we’ll set it at 30% of wages.
Joe $35/hr + 30% labor burden = $50/hr
Fred $20/hr + 30% labor burden = $28.50/hr
Assuming Joe and Fred are both occupied on the same tasks during the day, their Labor Rate = $78.50/hr.
Calculating the Direct Labor Costs is a matter of forecasting the hours to be spent at various tasks, multiplied by the Labor Rate. Here’s one way to categorize the tasks performed on a blasting job:
- Initial Setup
- Containment moving
- Man-lift moving
- Daily Set-up
- Safety Meeting/Orientation
- Daily Clean-up
- Job Wrap-up
This is the time spent on the nozzle.
Previously Joe calculated the blasting time for the job would be:
16.67 hrs @ $78.50/hr = $1308.60
How many times will you have to stop to refill the pot? One way to predict this is by looking to your media consumption rates and your pot capacity. If your media consumption rate is 130 lbs abrasive/hr and the pot holds 600 lbs of abrasive, then you’ll have to fill every 4.6 hours. Multiply that by long it takes to shut down, fill the pot, and get back on the nozzle again.
Previously Joe calculated the blasting time for the job would be:
16.67 hrs @ $78.50/hr = $1308.60
How long does it take for the initial setup of your containment?
3 hours @ $78.50/hour = $235.50
How many times will you have to move your containment? How long it takes to disassemble, move, and reassemble each time?
8 moves @ .5 hours/move = 4 hours @ $78.50/hour = $314
If you’re using a man-lift, how many times will you have to move your man-lift, and how long does that take?
16 moves @ .25 hours/move = 4 hours @ $78.50/hour = $314
Next, we’re going to find how many hours will be spent setting up and cleaning up each day. But first, we have to determine how many days we’ll be onsite by tallying up the hours for the tasks so far.
Initial setup 3
Containment moving 4
Man-lift moving 4
This amounts to 28.6 hours. Dividing this by the number of hours in your workday (8) gives you a rough idea of how many days the job will take – in this case, 4 days.
If a plant orientation is required and/or daily safety meetings, how long will these activities take?
Orientation: 2 hours x $78.50/hour = $157
Safety Meetings: .25 hours x 4 days @ $78.50/hour = $78.50
How long does it take from the moment you arrive on site until the moment you start blasting?
.5 x 3 days = 1.5 hours @ $78.50/hour = $117.75
Job Wrap up
How long does it take to collect debris/abrasive, disassemble containment, clean up the worksite and load your vehicle on the last day?
1.5 hours @ $78.50/hour = $117.75
How long will it take to dispose of the debris and spent abrasive at the landfill?
2 hours @ $78.50/hour = $157
If you are billing for mobilization time, how long does it take to load the vehicle in the morning and drive to the work site? How long does it take to get back to the shop and unload equipment?
.75 hours x 4 days = 3 hours @ $78.50/hour = $235.50
Now, Joe can calculate his Direct Labor costs:
CALCULATING JOE’S DIRECT LABOR COST
Blasting = $1308.60
Filling = $78.50
Initial Setup = $235.50
Containment moving = $314
Man-lift moving = $314
Safety Meeting/Orientation = $235.50
Daily Set-up = $157
Daily Clean-up = $117.75
Job Wrap-up = $117.75
Disposal = $157
Mobilization/Demobilization = $235.50
DIRECT LABOR COST: $3271.10 (41.67 hrs)
CALCULATING YOUR DIRECT EXPENSES
Now it’s time to add up the Direct Expenses you will be paying but passing on to the client.
What fees do you pay at the landfill to dispose of waste? Do you require a special permit to dump hazardous waste, and if so how much does that cost?
One-time fee $60
How much fuel will you expend driving your vehicle to and from the site? Do not include fuel expended during blasting operations, as that was factored into Direct Materials.
$20/day x 4 = $80
How much will you pay for renting equipment (ie man-lifts, compressors) used specifically on this project?
Man-lift: $200/day x 4 = $800
How much money will you allocate to the job for replacing hoses, filters, fittings, valves, nozzles (or a portion thereof)?
Miscelaneous Project-Based Expenses
Are any additional insurance or permits required for this project? If so , how much does it cost?
Lodging and Subsistence
Does your company need to pay for hotel and/or subsistence for employees?
Hotel: 3 nights @ $50/night = $140
Daily subsistence allowance: $30/day x 2 x 4 days = $240
We can now calculate Joe’s Direct Expenses:
JOE’S DIRECT EXPENSES
Equipment Rental $800
Lodging & Subsistence $240
DIRECT EXPENSES: $1230
CALCULATING YOUR OVERHEAD
Your overhead refers to ongoing operating expenses not directly allocatable to a specific project: those fixed costs you pay whether you are working in the field or not. Overhead includes (but is not limited to):
- Salaries for owner/general management, sales, accounting and legal personnel, office staff, etc. + their labor burden.
- Any expenses incurred during the execution of their work (supplies, computers, vehicles, computers, internet, phone bills, client entertainment, etc.)
- Banking (Fees and Interest)
- Association Fees
- Insurance (liability + workers comp)
Calculating depreciation. Assets experience wear and tear and ultimately become unusable. A fixed asset is anything that helps generate revenue with a life of longer than a year. Some assets, like land, are indefinitely useful and do not depreciate, but most have limited value that depletes during business operations (blasting machines, vehicles, etc). The formula for straight line depreciation can be used to give you an hourly depreciation rate for blasting equipment and vehicles.
Labor Cost Overhead Recovery
Failing to allocate a portion of your overhead to each project will get you in trouble. Using the Labor Cost Overhead Recovery method generates a flat dollar amount to add to your hourly Labor Rate.
First, examine your overhead costs from the past year and make a forecast for your overhead for the upcoming year, projecting growth (or not), inflation, and any other factors you deem relevant.
Next, forecast the amount of direct labor hours for the upcoming year (on revenue-generating projects).
Divide your projected Overhead Costs by your Projected Direct Labor Hours to obtain a flat rate that you can add to your Labor Rate (wage + labor burden) to allocate a portion of the overhead cost to the revenue-generating project.
CALCULATING JOE’S OVERHEAD
Projected Overhead for next year: $30,000
Projected # of Direct Labor hours for next year: 3 laborers x 8 hours x 5 days x 48 weeks = 5760 hours
$30,000 / 5760 hrs = $5.21/hr
Now, Joe can go back to his estimated total billable hours for the project (41.67), and multiply it by your Overhead rate of $5.21/hr
Projected Overhead = $217.10
JOE’S TOTAL COSTS
Direct Material Costs $1270.73
Direct Labor Costs $3271.10
Direct Expenses $1230
TOTAL COSTS: $5989.53
CALCULATING YOUR PROFIT
The difference between your total costs and your bid amount is your profit.
How much profit you charge will depend on how hungry you are to get the job, but it’s common practice to aim for % target profit margin, ie 20%.
Profit margin = Net profit/final bid price
To make your profit margin, you’ll need to mark up your costs. Calculating your markup may seem straightforward, but there’s a hitch in the math.
CALCULATING JOE’S PROFIT
Joe’s costs are $5989.53 and he’s aiming for a 20% profit margin. Instead of multiplying his costs by .20 and adding that amount to his costs, what he needs to do is add 20% markup on the final bid.
If Joe multiplied $5989.53 x .20, ($1197.90) then added it to $5989.53, he’d get $7187.43. But 20% of 7454.72 is $1437.48, not $1197.90, leaving him short of his target profit margin.
If his goal is 20% profit margin, the correct way to calculate Joe’s bid amount is to divide his costs by (100% – 20%), so:
$5989.53 / .8 = $7486.91
The final breakdown of Joe’s bid looks like:
Direct Material Costs = $1270.73
Direct Labor Costs = $3271.10
Direct Expenses = $1230
Overhead = $217.10
Profit = $1497.38
Bid Amount = $7486.91
There’s no industry-standard approach to forecasting costs. Experienced blasters may be able to get by on visual inspection alone, but if they don’t account for all of their expenses, including overhead, expected profits can quickly turn to losses.
Do you have a method, formula, tip or shortcut for producing a more accurate quote? Share with your fellow blasters in the comments below.
Legal disclaimer: this article describes one of many methods for estimating costs. It is suggested as general advice only, and is not a prescription for success. Neither Blast Journal nor it’s sponsors officially endorse any particular accounting method, and we cannot guarantee you will experience better results by adhering to these practices.