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Estimating Fundamentals

It's a good idea every so often to go back to fundamentals, and remember why you are doing things the way you do. This is true in estimating for residential remodeling and construction as much as anything else. It may also be true that there are some of you reading this column who haven't had much experience estimating, and could use a good understanding of estimating fundamentals. So here we go.

Why do you prepare an estimate in the first place? Because you need to know what a job will cost you before you can decide what price to charge a customer, and you have to quote a price and get agreement from the customer in order to get the job.

You are a professional contractor who wants to stay in business, and provide good quality work and service, so you need to charge at least 50% mark-up over your costs. Because so many remodelers have no idea what the economics of the business really are, they charge unrealistically low prices. Therefore, you can expect to sell only about one out of every four or five proposals you submit (if you sell more than that, you are probably not charging enough!).

Partly because today's customers expect a prompt response to their request for a proposal, and partly because you don't want to spend too much time on proposals that never turn into jobs, you need to estimate quickly.

So here you are, with an estimating system that quickly and accurately tells you what it will cost you to do a remodeling job. You apply a single, professional mark-up percentage to sell the job to your prospective customer. What does your system look like?

It is certainly not the "guesstimate" method that all too many contractors use, when they look at a job and quote a price without ever using pencil and paper. There is no place in a professional operation for this approach, which depends totally on experience, intuition and plenty of good luck.

The kind of estimating system I'm talking about doesn't use the old-fashioned "stick method" either. The estimator prepares a material list stick by stick by stick (that's how it got its name). Then the estimator decides how long it takes to do the labor. Then subcontractors are called to look at the plans or the job and give a firm price. So long as nothing is left out this can be very accurate, but it takes an unacceptably long time to complete.

I think the most professional, accurate and efficient estimating is done with a "unit cost system." Don't get me wrong -- unit costs are not ballpark figures. Every element of the job is identified, but you have pre-determined unit costs for each element. For example, a unit cost for drywall material includes the cost of wallboard, nails, corner beads, spackle, tape and even sandpaper, and allows a normal waste factor. Using this kind of unit cost is a lot faster and at least as accurate as the stick method.

A unit cost for labor is based on actual past experience and includes the natural inefficiency of the remodeling business. You know about that -- it means time to go to the lumberyard and pick up materials; stop for coffee; bring the tools from the house and get set up; lay out the project; take coffee breaks; talk to the customer, and so on.

Don't worry, you do not have spend six months of your life working out what the unit costs are for all the items of remodeling your company does! Do not even consider spending the tremendous amount of time required to develop a system from scratch. There are a number of unit cost estimating manuals on the market, such as the HomeTech Remodeling and Renovation Cost Estimator. Find one that is clear and easy to use, get to know it, and make it work for you on every estimate.

Unit cost estimating works with your subcontractors, too. If you send a plumber or electrician to look at every job you bid and get only one of four or five, not only is it time-consuming and inefficient, but your subs will start charging you for sales and estimating. Better to sit down with them and agree on a pre-determined cost for the standard tasks they do, and use those costs to prepare your estimates (make sure these are the costs used in your estimating manual). Then you call the sub on a job only when it has been sold.

When you start using unit cost estimating, spend some time to get familiar with how your manual works. 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. Some publishers offer toll-free telephone help and estimating seminars -- take advantage of these.

Use your system regularly, even if some items are not in the manual, or a few of the prices do not accurately reflect your company's operation. Go ahead and put in the additions or changes yourself that will customize the system for you, and remember that the manual is part of your overall estimating system. A good estimating manual will take care of about 90% of the average remodeling job -- and do it in as little as 20% of the time it would take using the stick method!