Setting Best Prices and Billing for Excavation Business

Pricing excavation work is bidding from takeoffs with a known cost per machine hour, plus allowances for the variables you can’t see (rock, water, haul-off). Billing is the discipline of getting paid on schedule with clear change-order language. Most operators eat 10 to 25 percent of their potential profit on these two things alone. Fix the pricing and billing system and the same machine that made $90k last year clears $120k this year.

Calculate True Cost Per Machine Hour

This is the foundation. Get it wrong and every bid is a guess.

The 120-hour assumption is the hidden lever in this whole table. Your payment, insurance, and overhead do not shrink when the machine sits, so a slow month at 80 billable hours pushes the same machine’s true cost up by $10 to $15 an hour, and an operator quoting from last summer’s busy-month math is silently bidding below cost in March. This is also why utilization tracking matters beyond hiring decisions: cost per hour is a moving number, and you should know yours each quarter, not once.

Now mark up: 1.7 to 2.3x for residential, 1.4 to 1.8x for commercial. Billable rate $98 to $189 per hour. Most starting excavators undercharge by 20 to 35 percent because they leave overhead and maintenance reserve out of the math. The commercial multiple is lower on purpose: a GC delivers weeks of continuous machine time with zero marketing cost, so you trade margin for utilization. The mix you choose is most of the gap between a single-machine business clearing $100k and one clearing $250k, and the operator-level numbers behind that are in how much profit an excavation business can make.

Bid From Takeoffs, Not Gut Feel

The difference between accurate and inaccurate bids.

1. Pull the site plan and grading plan. If you don’t have them, request them.
2. Calculate cubic yards of cut, fill, and haul-off. Use AGTEK, OnScreen Takeoff, or even a manual count.
3. Linear feet of trenching with depth and width specified.
4. Mobilization as a separate line item.
5. Allowances for rock removal, water encountered, unsuitable soil, dewatering. Each priced separately as unit cost.
6. Erosion control if required by permit.
7. Change-order language: anything outside scope is billed at $X per hour for machine, $Y per hour for operator, $Z per load for haul-off.

A clean takeoff-based bid wins over a “I think this is about $30k” verbal quote every time, even at higher pricing.

The reason it wins at higher pricing is worth understanding: a GC reading bids is pricing risk, not just dollars. An itemized bid with quantities, unit rates, and explicit allowances signals that you will not show up with change-order surprises, and that certainty is worth real money to someone managing a schedule. Vagueness reads as risk, and risk gets discounted or skipped. Two practical notes that belong in every bid: the 811 utility locate is free but takes two to three business days, so build it into the schedule rather than eating idle days, and 811 only marks public utilities. Put “locating of private utilities (irrigation, gas to outbuildings, septic lines) by owner” in your exclusions, because hitting an unmarked private line is the classic uninsured scope fight.

Allowances: The Profit Protectors

Three line items that protect you from job-killers.

• Rock removal: priced per cubic yard above an allowance. “First 25 CY of rock included. Additional rock at $185/CY.”
• Water/dewatering: “Dewatering pump rental included up to 24 hours. Additional dewatering at $XXX/day.”
• Haul-off: priced per load at known disposal-site rates plus trucking. “First 12 loads included. Additional at $XXX/load.”
• Unsuitable soil: “Replacement of unsuitable soil with engineered fill at $XX/CY.”

Without allowances, every surprise eats your margin. With them, surprises become billable extras.

Allowances also solve a pricing dilemma you cannot solve any other way. Without them you either pad every bid for the worst case (and lose work to tighter numbers) or bid clean and pray (and eat the rock). With them you bid tight and stay safe. Customers accept allowances readily when you frame them honestly: “I’m not charging you for rock we may never hit; you only pay if it’s actually in the ground.” That sentence has saved more excavation margins than any software. For the ops discipline that backs up good pricing, see how to successfully run.

After-Action Reviews: How Bids Get Sharper

Estimating skill is not a talent, it is a feedback loop. The operators whose bids are deadly accurate by year three all do the same unglamorous thing: when a job closes, they compare the bid to reality. Estimated machine hours against actual hours, estimated loads against the disposal receipts, the rock and water allowances against what the ground actually held. Fifteen minutes per job, done while it is fresh.

The compounding effect is the point. After 20 jobs you have your own unit-cost library: what a foot of trench in your county’s clay really takes, how many loads a typical basement actually produces, which soil maps lie. From then on you bid from your numbers instead of industry averages, which lets you cut padding where you are confident and hold firm where you know the ground bites. That is how the same machine clears more money each year without the rate going up a dollar.

Fixed Price or Time-and-Materials?

Customers will ask for both, so decide your default deliberately.

The working default: fixed price from a takeoff, with allowances for the unknowns and explicit hourly rates for change orders and standby. Reserve pure time-and-materials for emergency work and genuinely undefined scope (storm damage, exploratory digging), and note that T&M quietly caps your upside: bill by the hour and your reward for being fast is a smaller invoice.

Payment Terms and Billing Schedule

Get paid before the cash crisis arrives.

• Residential: 30 to 50 percent deposit at signing, balance on completion. Net 15 max.
• Commercial: progress draws monthly based on percent complete. AIA G702/G703 form. Net 30 standard, retention 5 to 10 percent held until project completion.
• Public/municipal: similar to commercial but slower (often net 45 to 60). Build it into your cash projection.

Don’t start work without a signed contract and the deposit cleared.

Run the retention math before celebrating a commercial win. At a 1.4x markup your margin is roughly 28 percent of the contract, so 10 percent retention means about a third of your profit sits in someone else’s account until project closeout, which on a long job can be 6 to 12 months after your machines left. Meanwhile fuel, wages, and the equipment note were paid in full, in cash, in real time. Price retention into the bid, chase it at closeout like the invoice it is, and never let one slow-paying GC hold more than one job’s retention at a time.

Collections Discipline

The work you bill is not the same as the cash you collect.

1. Day 1 past due: automated email reminder.
2. Day 15 past due: phone call from the office.
3. Day 30 past due: owner phone call.
4. Day 45 past due: intent-to-lien letter.
5. Day 60 past due: file the mechanic’s lien.

Mechanic’s liens have strict state-specific filing windows (often 60 to 120 days). Know yours. See how to grow for when to add a dedicated AR person.