There’s not much that’s more vital to the success of your business than estimating construction costs accurately. If you’re right, you make a profit. If you’re wrong, you lose money.
You know competitive bidding is a balancing act. If you bid too high, you may lose the job. If you bid too low, you’ll wish you had. We’ve compiled 10 tips to improve the accuracy of your project proposals and avoid the pitfalls that keep contractors up at night.
1. Create a comprehensive checklist.
- 1 1. Create a comprehensive checklist.
- 2 2. Anticipate price fluctuations.
- 3 3. Determine equipment needs accurately.
- 4 4. Check and double check subcontractor quotes.
- 5 5. Include operation costs and project support.
- 6 6. Ensure hourly rate for specialty labor is accurate.
- 7 7. Utilize the unit cost method instead of stick estimates.
- 8 8. Use experts in areas where you lack expertise.
- 9 9. Review past projects.
- 10 10. Take advantage of technology.
Not all jobs are the same. That’s why it’s so important to have a comprehensive checklist that incorporates everything you need for any and all jobs you do and cost estimates you have to make. Instead of starting from scratch every time, all you need to do is reference your master checklist and check off the items specific to the job you are estimating.
Another thing you need is a set of plans drawn up by you and your client. Every facet of the project should be included, and the client should be required to sign off on it. All too often, contractors think they know what the customer wants when the customer has an entirely different vision. The result will be unsatisfactory to everyone, and you will end up trying to please the customer with expensive do-overs.
2. Anticipate price fluctuations.
It’s important to pay close attention to material pricing because prices will fluctuate depending on a variety of factors. This is especially important today. According to Ken Simonson, chief economist for Associated General Contractors of America, “Contractors are experiencing unprecedented intensity and range of cost increases, supply-chain disruptions, and worker shortages that have kept firms from increasing their work forces.”
You need to ask yourself the following questions:
- Is there a high demand for specific products or materials?
- Are you doing custom work?
- Will there be specific delivery challenges?
- Do seasonal limitations affect prices and logistics?
- Will you need a turn around time that exceeds what’s normal for the manufacturer?
You also need to understand product availability and factor in scheduling delays and the cost implications if materials aren’t ordered by the deadline dates. If the architect has selected materials you’re unfamiliar with, you’ll have to learn about installation, any additional labor required, and how the scheduling and pricing deadlines will affect the job.
3. Determine equipment needs accurately.
Your construction estimate must include the equipment necessary to complete the job, and how various pieces of equipment will interfere with each other in the areas of size and capability. You will have to determine whether it makes more economic sense to use your own equipment or rent.
You may also have to double-check your schedule to make sure the necessary equipment will be available for the job and not in use at another site.
4. Check and double check subcontractor quotes.
You have to evaluate your subcontractor’s quotes in the same way you do your own. It’s a good idea to compare more than one subcontractor’s pricing for materials and labor. Do not accept cost plus bids. You need a subcontractor willing to give you a firm quote based on the scope of the project.
5. Include operation costs and project support.
The cost of labor isn’t just how much your workers earn. In addition to taxes and benefits, you have to factor in things like union contributions, tools, trucks, cell phones, and a lot more. You have to add your overhead and administrative staff. You have to take weather into consideration as well as the productivity of your workers and downtime for training and personal emergencies.
6. Ensure hourly rate for specialty labor is accurate.
You have to factor in state and federal payroll costs in addition to regular wages and benefits when establishing an hourly rate for specialty labor or skilled craftsmen. After you have that rate, you can figure the additional crew members needed and establish a crew rate.
7. Utilize the unit cost method instead of stick estimates.
According to Michael Stone, author of Markup and Profit, unit cost estimates are much faster and just as accurate as stick estimating, which is time-consuming and complicated. Customers won’t wait two or three weeks for you to get back to them. You have to get in front of them within two to three days for most jobs.
Use the following steps to establish the unit cost:
- Assemble all the line items for the job.
- Give each line item a unit cost.
- Total the numbers, and get someone who knows what they’re doing to double check the numbers for you.
- Add your markup, and you have the price.
8. Use experts in areas where you lack expertise.
Estimating cost details in areas where you have expertise is the easy part. What comes back to bite most contractors is underestimating or omitting entirely crucial items they’re unfamiliar with.
This is where you need to check and double check your numbers. Don’t be afraid to contact an experienced subcontractor or consultant to get the cost information you need.
9. Review past projects.
Check out actual costs for past projects that are similar in scope and size to the one you’re estimating. Check out what worked and what didn’t. Of course this tip presumes you’re tracking your actual job costs and breaking them down. If you’re not doing this, now is the time to start.
10. Take advantage of technology.
There are a lot more tools available for estimating construction costs today than there were even a few years ago. If you’re not taking advantage of the latest technology, you should be.
Automatic calculations make quoting faster and easier. Instead of spending your valuable time sitting at a desk scratching away with pencil, paper, and an old fashioned calculator, try using the newest software packages to give you accurate estimates in a fraction of the time. This leaves you free to meet with new clients, manage crews, and grow your business.
CostCertified is a first-of-its-kind platform that offers contractors and their clients an interactive construction cost estimating experience that works for both. This technology can be a game-changer when it comes to growing your business and increasing your profit margins.