I can’t tell you how many contractors, plumbers, painters, electricians, woodworkers, cabinet makers, flooring contractors and specialty manufacturers I have worked with who leave a lot of money on the table because they don’t engage in formal estimating. So much money, that many of these business owners were either living hand to mouth or flat out losing money. Of course, when they called me in they thought they were making money but somehow never had any cash to pay bills or themselves.
You don’t have to be a management consultant to think that something was wrong. One of the things that I did for each of them was to institute a formal estimating process. This may have taken the form of making up a set of Excel estimating templates that covered a range of situations or setting up more formal estimating software and creating the processes around it.
Of course, getting all of the costs for estimating took some detective work. Some of the obvious things like labor and cost of materials were not too hard to figure out (as long as you don’t forget payroll taxes, fringe, an allocation for paid time off including vacations and holidays, etc.). Next, we have the proper allocation of space to work in, and money to maintain and replace tools. Then we have trucks that have to be insured, paid for, maintained, fuel, etc. worked out to a per job cost. Don’t forget overhead, advertising (the cost of getting that customer), and so on. If you leave something out or your estimates understate certain costs, you may not see the full improvement that you want.
And don’t tell me you have been doing since the invention of the wheel and you have it covered. I have not had a single client yet that did not see big improvements in profit with the methodical approach to estimating that I helped them with.
Once you have worked all of this out, the next challenge is to properly estimate how much of each resource you need for a specific job or order when estimating a new job.
Now, here is the biggest tip in this whole article: You must then track the actual hours used by sub-activity (e.g. prepping a room for painting) and the actual cost of materials and use of major equipment for each and every job. Enter this info at the completion of each job and compare it to what you estimated. Account for any change orders. USE THIS INFORMATION TO BETTER ESTIMATE THE NEXT JOB. After all, if you price too much, you will lose out to competitors when bidding. If you don’t charge enough, you won’t cover all your costs and make as good a living as you deserve.