by Michael Stone
The responsibility for compiling accurate estimates for a construction company normally falls onto the shoulders of the salesperson.
Some construction-related companies hire estimators to estimate, and sales people to sell. I personally believe this is a duplication of effort needed to get to the sale and it runs up the overhead expense. If possible, these two positions should be combined. If the salesperson/estimator is involved with the entire sales process, both the estimate and writing the contract, there will be fewer errors not only on the estimate sheet but also on the contract, the negotiating process, and the job.
We are not going to "teach" estimating in this article, you won't learn how to estimate a job in a short article. We have a class that teaches estimating. What we are going to do in this article is cover some estimating issues. Handling these issues properly can get you back in front of the customer quicker with more accurate construction estimates. That leads to a better presentation and more sales.
Estimating Starts With Good Plans
Any estimator must know how to read plans. And they must have a good set of plans to work from.
Without a good set of plans, it is virtually impossible to know if the customer's idea of what they want done matches your understanding of what they want done. It is almost guaranteed that your concept of the job will differ from the customer's without a good set of plans.
I was recently called as an expert witness to sort out a job gone bad. On my first visit to the jobsite, I asked to see the plans. "We don't have any plans," I was told by the owner, "we have conceptual drawings." I asked if I could see them and was told the contractor had the drawings. I asked if there was another set. The owner told me the contractor had the only set.
I asked how they could possibly hope for a job to be built with only one set of sketches, and those only conceptual. "The concept was on paper," the owner said. "There is no way he (the contractor) could not know what we wanted."
I bit my tongue, almost in two. The term "dream world" came to mind. Conceptual drawings are rough ideas only and hardly constitute a set of plans from which an accurate estimate can be derived or a job built. (And yes, the owner did take low bid on the job.)
You should not attempt any kind of a construction estimate without a set of accurate plans. Tell your prospective customer that unless and until they authorize you or someone else to do a set of plans that will pass the plan review at the local building department, the most you will give them is a very rough approximate for their job.
One of the biggest time-wasters is estimating by the old stick estimating method. For those new to the business, stick estimates involve a number of steps:
- List all the various parts of the job.
- List all the hours that it will take someone to complete each portion.
- List all the materials that will be used on each part of the job.
- List each sub-contractor that you will need.
- List all the other items you will have to purchase or rent to get the job completed, such as permits, rentals, port-a-potties, etc.
- Go back through your lists and put a cost on each item.
- Last, have a knowledgeable second party double-check your lists and your math (this step is the one few estimators bother to do).
These steps, properly followed, will result in an accurate job cost. Apply your markup, and you have a price. Unfortunately, because it is so time consuming, it is seldom done with care and the result is often a sales price that is inadequate to cover the cost of the job let alone the overhead and any profit required by the company.
Another major flaw with stick estimating is that it requires separate material and labor takeoffs (lists) before you can do the math. In reality, you don't need a material takeoff until you sell the job. Compiling one before you write a contract is a waste of time.
Unit Cost Estimating
Estimating should be done by unit cost only. It is much faster (as much as two times) than stick estimating, just as accurate, and gets you back in front of the customer sooner. You can't take three or four weeks with your quotation. You need to be back in front of your customers with a quote in 3-5 days, at most 7-10 days. Larger jobs (+$100,000) may take a day or two longer because you need to get quotes from your subs, but no longer than that.
Unit costing follows the following steps:
- Compile all the line items (assemblies) for that job.
- Attach a unit cost to each line item (assembly).
- Total your numbers and have them checked by a second party that knows what they are doing.
Apply your markup, and you have a price. Then get back to your customer with your quotation and move on with the sale.
There are a number of estimating books available with unit prices. Care must be taken, because many of these books are regional in nature (although they may claim they work everywhere). Their method of constructing a given project may be entirely different than the way you build your jobs. An example is the use of steel I-beams in the eastern United States. In the west we use glu-lam wood beams.
Pricing in many of the books is local, maybe regional. Several companies that publish estimating books will send a "modification factor" quarterly to correct their prices for your local area. Look at their book, count the number of items in the book, and multiply that by the number of towns in the United States. Tell me, how many people making phone calls to suppliers and subcontractors are needed to gather all those prices every quarter to keep everyone's price book up to date? In my opinion, you are getting the publisher's best guess on many of the prices. That's not a great way to cost your construction project.
If you decide to use one of these books, here is a quick trick to keep your book accurate for your area. When a job is complete, take the invoices and time accumulations from that job and compare them to the prices in your book. If the book price is higher, keep it. If the invoice price is higher, line through the book price and write in the job or invoice price. In 90 days, your book will be as accurate as it is ever going to be, but you need to do this on a regular basis.
I have used books from Craftsman Book Company for years and have always had good results.
Computerized Estimating Systems
In my 40-plus years in construction, one of the best improvements to estimating is the development of construction estimating software programs. The individual who insists on doing estimates longhand is open to errors. Doing estimates by hand is slow, out of date, inefficient and an irresponsible use of time. If I were the company owner or sales manager, I would not hire an individual for a sales and estimating position unless they were competent on an estimating software program or willing to learn and use one.
Regardless of the kind of work you do, today's customers want a quote in a timely manner. You can no longer take 10, 15 or 20 days to put an estimate together. The nice folks will go to another contractor to have the job done. Today's culture is "No, not tomorrow, I want it today!" Like it or not, that is the culture we operate in. If you want their business, comply with their time schedule.
If you are not up to speed on some type of computerized estimating system, it is time to change.
This article is an excerpt from Michael's book, Profitable Sales, A Contractor's Guide.
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Jason Scheurer replied on 02/18/10:
Michael and Devon,
you hit the nail on the head with this article. I am a firm believer in your software system and update it on a regular basis.
keep up the the great work.
bill davis replied on 02/28/12:
You are so right! i just started using the internet for leads. Asap I am going to purchase a software estimating package. I've wasted many a night doing estimates the old way and get nothing for my efforts. I am finally catching up to the techno age. Being 56 yrs old I remember when air nailers came to be and thought " huh, ...." well now its time to catch up in the techno world. thanks for the inspiration!