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Adopting a Unit Cost System

Let me ask you a question -- is your remodeling company making a profit? If it's hard for you to answer that question, then you fit the profile of most remodeling contractors. The average contractor works hard, is a good craftsman, goes out of the way to satisfy customers, and has little or no idea if he is making a profit. Does this sound like you? If it does, the only way you can be sure you're making a profit is to take control of the numbers in your business.

A good place to start taking control of your numbers is during the estimating phase of a job. This is where the profits on a job are usually lost -- or given away -- before you even sink the first nail. If you are an average remodeler with an annual volume of $400,000 and you under-estimate your jobs by as little as 5%, you will "give away" $20,000 a year in profits. And that $20,000 will come directly out of your pocket!

The best way to control your estimating is to start using a unit cost estimating system. In fact, it is fair to say that until a company adopts a unit cost system, that company is no more than one person's ability to make up materials lists and estimate work, and it is not being run in a professional and businesslike way. Most successful contractors today use a unit cost estimating system, and they find it the most accurate and fast way to estimate.

Here are some basic steps you should follow in adopting a unit cost estimating system:

Buy one of the unit cost estimating manuals on the market (such as the HomeTech Remodeling & Renovation Cost Estimator). Do not even consider spending the tremendous amount of time required to develop a system from scratch. Pick a unit cost estimating manual that is published specifically for the remodeling industry. Also make sure that it's clear and easy to use. Some manuals contain so many items and so much information that it's hard to find what you need. An estimating manual that is too complicated soon becomes a reference book rather than an every-day estimating system.

Take the time necessary to become familiar with the system and its concept. It may take only a couple of hours to learn how to use a system, but if you do not do it, you have wasted your time and money, and your system will only take up space on your shelf. Some publishers offer toll-free help -- you should use it. Some publishers also offer seminars on how to do estimates using a unit cost system.

Try a few estimates using your old way of estimating and using the unit cost system, to see how they compare. You may also want to take three or four recent jobs and estimate them using the unit cost system, then see how the estimates compare with your actual costs. Once you feel confident with this new way of estimating, you can change over completely. Your goal is to use the unit cost estimating system on every job you bid.

Use your system on a regular basis even if some of the items that you occasionally use are not included, or a few of the prices do not accurately reflect your company's operation. No unit cost system can cover every geographical difference in every product, or reflect the particular efficiency or inefficiency of every company. Go ahead and put in the additions or changes yourself that will customize the system for you, and remember that your unit cost manual is part of an overall estimating system. A good estimating manual is effective for 80% to 90% of the items in an average estimate, and should be fully utilized on every job, no matter how large or small.

Go through the book and make the necessary adjustments for any prices you have negotiated with your subcontractors. Having pre-negotiated prices from your subcontractors at your fingertips will save you time on your estimates, as well as help prevent misunderstandings later during the production phase of the job. But be warned -- your subcontractors are going to be reluctant to give you prices ahead of time.

Keep comparing your estimated versus actual costs, to be sure that the unit costs in your manual are correct. If you find that the figure for rough carpentry, for example, is off by 10%, that does not mean the estimating manual is no good. It may mean that your company is particularly efficient in that aspect of the business, and you should adjust the figures in the manual accordingly. But one word of caution -- be sure your costs are accurate and that you have a track record through several jobs before making changes in your estimating manual. The last thing you need is a unit cost system that is accurate on some things and not others.

Although some publishers of estimating books send out updates on a quarterly basis, do not simply wait for them, particularly on major items such as framing or concrete. As soon as you get a price change from a supplier, check it against the materials costs in your unit cost system, and make any necessary changes. And remember that the real cost of materials is the price when you order them, not when you estimate them, so keep in close contact with your suppliers so you can anticipate price increases.

Any unit cost system must be check out constantly to be sure that all costs are kept up to date. Every job should be monitored to see how actual costs compare with estimated costs on each element of the job. If the actual costs are higher, then the unit cost should be changed to reflect that. As subcontractors change their quotes to your company, the unit cost system must be updated.

Now is the best time for you to adopt a unit cost system. Just pick one out and get started. And remember that even though no unit cost estimating system is automatically perfect, if kept up to date it can be a very comprehensive system that will save a lot of time, trouble and profits for your company.