Revenue Leaks (Episode 2): Underquoting Labor — The Silent Profit Killer

Most contractors know exactly how much they spend on materials. You track the cost of tile, shingles, valves, panels, lumber, chemicals, or refrigerant without missing a beat. But when it comes to labor, even experienced field service professionals slip up. Not because they don’t understand the work, but because labor estimating is one of the most deceptively tricky parts of running a service business.

Underquoting labor occurs when the hours it actually takes to complete a job exceed the estimated hours. And here’s the tough part: you often don’t realize you’ve underquoted until the job is done, the numbers get tallied, and the margin is already gone. This is why labor estimating mistakes quietly drain revenue across industries—flooring, roofing, plumbing, HVAC, fencing, landscaping, electrical, remodeling, and cleaning.

Labor is your biggest cost driver. If you underestimate it even slightly, it cuts straight into your profit. Not once, but every single time the job repeats.

This episode breaks down how labor gets underquoted, what it costs you, and what workflows help contractors stop this leak for good.

What Underquoting Labor Really Means

Underquoting labor isn’t always obvious. You’re not intentionally lowering labor to win a job. Most of the time, it happens because the estimate doesn’t reflect actual field conditions. Maybe you assumed the layout would be straightforward. Maybe you forgot to add travel. Perhaps you expected two techs to move faster than they did. Sometimes it’s as simple as relying on experience rather than updated job data.

Regardless of how it happens, the result is the same: your team spends more hours than what was quoted, and you either absorb the cost or damage customer trust by adjusting the final invoice.

The mistake often goes unnoticed until you start comparing job cost reports, hearing techs mention that tasks took longer than expected, or noticing margins slipping on jobs that used to be profitable.

Section 1: How Labor Gets Underquoted

Even the most seasoned contractors fall into familiar traps. These are the most common reasons labor gets underestimated.

1. Rushing Estimates

When you’re juggling site visits, customer calls, and scheduling, it’s easy to breeze through an estimate. Rushed estimating leads to guesses instead of actual calculations. A few overlooked hours here and there quickly stack up.

2. Underestimating Job Complexity

Jobs rarely follow the simplest path. Older homes hide wiring or plumbing surprises. Uneven subfloors demand leveling. A fence replacement turns into a complete post reset because of soil issues. Complexity adds time, and unless you factor it in from the beginning, it eats into your margin.

3. Not Dividing Labor into Task Categories

Estimating “8 hours of labor” doesn’t give you much accuracy. Breaking labor into specific tasks—demo, installation, prep, cleanup, travel—gives you a realistic view of total hours and helps prevent costly missed steps.

4. Using Outdated Labor Rates

Costs change. Wages rise. Market demand shifts. But many contractors keep using the same labor rate year after year. If your labor rate doesn’t reflect current wages or overhead, you’ll undercharge without realizing it.

5. Ignoring Travel, Setup, and Teardown

Job hours don’t start when the tool hits the material. They start when the truck rolls out. Travel, unloading tools, setting up, and cleaning the site are labor too. When these aren’t included, you lose billable time on every job.

6. Not Accounting for Unexpected Tasks

There’s always something: stuck valves, rotten decking, surprise debris, extra prep, or waiting for access. You can’t predict every detail, but you can add a buffer to cover standard unexpected work.

7. Relying on Gut Feelings Instead of Data

Experience is valuable, but it’s not a substitute for actual job costing data. When estimates rely on memory rather than numbers, labor hours are often understated.

Section 2: The Financial Impact of Underquoting

Many contractors underestimate how damaging a small labor mistake can be. Here’s why it adds up fast.

A Simple Example

Let’s say you underestimate every job by just one hour.

If your labor rate is $70 per hour and you complete:

• 3 jobs per day

• 5 days per week

That’s 15 hours per week underquoted. This equals $1,050 lost per week.

Multiply that across 50 weeks of work:

$52,500 lost annually — from underestimating a single hour per job.

And that doesn’t include overtime, missed opportunities, or rescheduling delays caused by running over the estimated time.

Margins Shrink Fast

If you quoted a job expecting labor to cost $1,200 but it ends up taking $1,500 worth of time, you lose $300. You either eat that cost or frustrate the customer by revising the invoice.

Multiply that across dozens of projects, and it becomes a serious revenue leak.

Scheduling Gets Thrown Off

Underquoted labor causes:

• Delayed start times

• Spill work to the next day

• Pushed appointments

• Tech fatigue

• Reduced capacity for new jobs

Your team ends up working harder, not smarter.

Your Team Feels It

When jobs run over, techs absorb the frustration. They end up working late, rushing to finish, or scrambling between jobs. Over time, this leads to burnout, mistakes, and lower morale.

Underquoting labor doesn’t just hurt your profit. It strains your entire operation.

Section 3: Common Warning Signs You’re Underquoting

You might already be underquoting labor without realizing it. These signals are almost always tied to estimating issues.

1. Jobs Consistently Run Over Estimated Hours

If the job report shows a pattern, it’s not a field problem—it’s an estimating problem.

2. Teams Work Unpaid Overtime

When overtime doesn’t match customer invoices, your margin is taking the hit.

3. Extra Visits Become Routine

Finishing a job in two visits instead of one means labor was underestimated from the start.

4. Margins Are Thin on Standard Jobs

If simple or repetitive jobs produce lower-than-expected profits, your labor estimates are off.

5. Techs Say Jobs “Took Longer Than Expected.”

This is one of the clearest signs your estimated labor time isn’t realistic.

6. Customers' Question Labor Totals

When labor isn’t clearly explained, customers get confused or push back.

If you’re seeing any of these signs, it’s time to update your labor estimating practices.

Section 4: Breaking Labor into Realistic Categories

Better labor estimating starts with a better structure. Instead of lumping labor into one number, break it down.

1. Standard Labor

Tasks that techs perform regularly: installations, repairs, replacements, cleaning, and routine maintenance.

2. Specialized Labor

Anything requiring a higher skill level: electrical panel work, structural adjustments, and advanced HVAC diagnostics.

3. Add-On Tasks

Small but essential items like trim removal, debris disposal, patches, material pickup, or equipment setup.

4. Premium or Complex Tasks

Custom fabrication, high-access areas, multi-level homes, crawlspaces, tight spaces, or fragile surfaces.

5. Travel Time

Travel isn’t free labor. It needs to be estimated and billed—especially for large distances.

6. Site Prep, Cleanup, and Teardown

You can estimate three hours perfectly, but if you forget one hour of prep and one hour of cleanup, the job goes over.

7. Material Pickup Labor

If your team stops for materials, that’s labor. Too many contractors forget this.

8. Job-Specific Variables

Every job has conditions that add time:

• Access issues

• Heavy furniture

• Weather delays

• HOA restrictions

• Older structure complications

Categorizing labor this way helps create detailed, predictable estimates and avoids surprises on-site.

Section 5: How to Quote Labor More Accurately

Here’s a practical workflow contractors across all trades can apply immediately.

1. Use Historical Job Data

Look back at how long past jobs took, not just how long you thought they took. This is the most reliable way to stop labor estimating mistakes.

2. Review Labor Hours by Job Type

Break down jobs by category:

• Standard installation

• Emergency repair

• Full replacement

• Remodel-based work

• Seasonal jobs

Different job types follow different time patterns.

3. Build Standardized Labor Times for Common Tasks

List your top 20 most frequent tasks—valve replacement, room painting, fence panel installation, duct cleaning, thermostat install, subfloor prep—and assign baseline labor times.

This helps estimators produce consistent, reality-based quotes.

4. Add Travel and Prep as Separate Line Items

Instead of leaving travel hours “hidden,” make them part of the estimate. Customers understand it better, and your labor hours stay accurate.

5. Include a Margin for the Unexpected

Add a small buffer for unknowns—nothing excessive, just enough to cover common surprises. This protects your margin and reduces disputes.

6. Update Labor Rates Regularly

Contractor labor rates should be reviewed every 6 to 12 months. Costs rise naturally:

• Fuel

• Insurance

• Supplies

• Overhead

• Skilled labor wages

If your rates don’t keep up, your profitability drops.

7. Use Clear Communication Templates for Techs and Estimators

Many labor estimating mistakes happen because field teams and office teams aren’t aligned. Create simple templates for:

• Job notes

• Scope clarifications

• On-site discoveries

• Change order requests

When everyone follows the same process, estimating becomes more accurate.

Section 6: Avoiding Labor Disputes with Customers

A big part of labor cost management is communicating clearly so customers understand what they’re paying for.

1. Be Transparent About What Labor Includes

Explain that labor covers:

• Skill

• Time

• Travel

• Prep

• Cleanup

• Tools and equipment use

• Safety measures

Clarity reduces pushback.

2. Explain the Value Behind Skilled Labor

Customers don’t always know the difference between a simple task and a complex one. A little education builds trust.

3. Send a Pre-Job Breakdown

Even a simple breakdown helps customers see what’s being done and how long it will take.

4. Use Digital Approvals

Before starting, confirm:

• Scope

• Labor estimate

• Possible add-ons

• Conditions that could change costs

This helps avoid confusion later.

5. Document Changes During the Job

If something unexpected comes up, document it immediately. Take photos, update hours, and communicate changes before proceeding.

Customers appreciate transparency, and your team avoids awkward end-of-job negotiations.

Conclusion

Underquoting labor doesn’t just cut into your profit—it affects scheduling, team morale, and customer satisfaction. The good news is that it’s completely avoidable when you structure your estimating process and rely on accurate job costing.

Small changes lead to major improvements:

• Break down labor into detailed categories.

• Use historical job data.

• Standardize labor hours

• Add travel, prep, and cleanup.

• Update labor rates regularly.

• Build a clear communication workflow.

Once you tighten this part of the business, jobs become more predictable, margins improve, and your team works with less stress.

Next up in the Revenue Leaks Series: Episode 3 — Losing Money on Follow-Ups: A Workflow Issue?