3 key factors in estimating

Produce quality estimates with good margin by including three key factors: materials, overhead, and logistics.

Money is the measuring stick by which we gauge our estimating accuracy. Often times at the end of the job I would look at what I owed versus what was invoiced and the margin wasn’t nearly as high as anticipated. Sure, I would still make profit, but I didn’t understand how I could never hit my estimated profit. One more truck of material, a break down, longer than expected truck time, all cut into my margin at different times.

1

You need to be very accurate on your material estimates and understand that each time you undershoot material estimate you cut into profit. Adjust your material estimate to a realistic number rather than one that you think sounds good to the customer. Use your experience as a guide and don’t solely trust the numbers. Even though you estimate quantity to be x amount of yards, experience may tell you that you always are 10-15% higher than calculated when using a certain type of material. Don’t factor in material that you have left over from other jobs either. You need to charge as if you are buying the material at current rates for the specified job. You often won’t have as much material as you thought and will need to purchase more, thus cutting into margin. Remember to mark up material at least 10% as well. This is on top of the 10% overage that you have estimated for the job. Never anticipate cutting a corner to save on material cost. If you are doing a driveway for example you may be tempted to skip the geotextile fabric in the estimate . Once you are out doing the work, you find that you encounter wet unstable soil that you didn’t think was there. Now you are going to have a hard time telling the customer that you didn’t do your due diligence and need to purchase geotextile fabric to complete the job. Oh, by the way, that will be an extra thousand dollars for your driveway. The customer might just go ahead and tell you to kick rocks.

They are not going to eat cost for your lack of preperation. Now you are stuck doing a job with no margin or much less than hoped for.

2

Factor number two is overhead. Even as a small one man operation there is overhead involved and it was surprising to me how much it actually was. Overhead was a fairly simple thing for me to track. At the end of the year I reviewed my quickbooks and totaled the amount of overhead costs. That total divided by gross profit was able to tell me how much my overhead was expressed as a percentage of gross income. If you are like me though and don’t really work in terms of percentages I broke down my overhead costs into a daily rate. How much was insurance, repairs, maintenance, advertising, etc. costing me per day? That still was not overly useful to me since I don’t work every day of the week nor do I do much, if any, work in the winter time. I figure that I am able to work for 20 weeks out of the year on average and took my overhead costs and divided it out by 110 days that I work per summer. That is saying that I work every other saturday which is mostly the case. I try to bid my jobs so that I can make x amount of money per day worked. Adjusting estimates to factor in correct overhead was the way I increased profit the most.

3

The third factor that cannot be overlooked is logistics. How far of a drive is it for trucks to bring material to site? Is it a particular time of the year when traffic is adding to the travel time significantly? Is there construction on the route? Will you have the full disposal of employees for the task? Is there going to be down time between stages of the project? These logistical issues are usually predicatable, if not preventable, with proper planning. Be sure to run the project through in your minds eye before undertaking the task and see what kinds of things are going to slow progess. Can they be prevented by changing the workflow? If you are moving large quantities of material from a nearby pit you need to have the path established and know as closely as possible how long a round trip is going to take. Six extra minutes per truck over estimated turns into one hour after ten trucks have round tripped. Time is money. Be as diligent as possible.

When estimating factor in materials, overhead, and logistics on top of everything else and you will find that you start being much more predicatable in your job margin. Be sure to log and track job costs to help aid in the estimating process in the future. Over time you will be able to hit projected margins far more often and with less effort. Don’t forget that each new employee or piece of equipment has the potential to change one or all of these factors.