My partner is bogged down with estimates. We spend too much time estimating and the payoff is low. Without a detailed estimate, we don’t know the job cost to quote to make a profit. We need to focus on more sales. My partner usually plays a big role in generating leads. I’m worried that the quoting effort will bog us down as we pursue more sales.
Thoughts of the Day: Having an efficient way to estimate the cost of doing business is essential. Form a team to work on estimating. Consider alternatives to a laborious upfront approach.
Build the foundation
Build the foundation for a pricing model. Read up on when and why different approaches to estimating get used. Figure out what makes the most sense for your business.
Knowing how accurate an estimate is compared to the actual outcome, will help to price future proposals. Reduce risk by looking at similar completed projects.
Base assumptions by tracking the material and labor needed to perform specific tasks.
Add up direct costs and subcontractor fees tied to a specific project. Determine the amount of downtime/hour of uptime, and time off/hour worked. Build a formula to add that in. Assign specific labor groups and related costs to specific types of work. Create standard calculations for the amount of wasted material per task or project. Keep in mind that some projects may have greater amounts of waste and some less. Come up with a formula for allocating overhead expenses to projects.
Create a formula to calculate the desired amount of profit and a slush fund for contingencies. Price in extra dollars for overages based on history. If there is no history, price in extra dollars for the learning curve.
Use the selling process to gather information needed to build an accurate estimate.
Make information easier to share. Ask your sales team to document needs, concerns, approach to the budget. Use a standard form. Consider the time needed to put together an estimate. Plan in time for the estimator to review notes, ask questions, gather additional information, and test assumptions.
Build a new estimating model and then test it. Use it to price similar types of completed jobs. Focus on similar jobs that were successful and profitable. Compare with a similar client under similar conditions.
Teach other people to use the new estimating system. Get input from sales and labor/material costs. Add in the formula for profit and contingency funds. Use input notes to build new estimates.
The goal of estimating is to reduce uncertainty. Recognize, however, that some degree of uncertainty is inherent. Know when good enough is just that, good enough. Use that approach to simplify the process. Move the owner from estimator to reviewer of others’ estimates. Convert the owner’s freed-up time to help get and close more sales.
One estimate may not be the right approach. Note when the project implementation goes on too long. Consider simpler estimates to start, review, and re-price as the project unfolds. Debate the best approach to staying within budget. Bring together people from the shop floor, inventory management, and sales. Use change orders to document additions to the original estimate based on client requests.
