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Building Profitable Estimates

Accurately estimating construction costs lies at the heart of a company’s long-term success, which is why the methods and tools that estimators use to arrive at their final bid are so important. Estimates must consider labor, equipment, material, subcontractors, and other direct and indirect costs, such as insurance, permits, and taxes. Omitted or incomplete items yield inaccurate bids – and inaccurate bids cost you money.

Your approach, if it is going to outpace the competition, must be focused on profitability. If an estimator bids too low, you could win the contract but lose money on the job; conversely, if the estimate is too high, your competitor may be awarded the job. Losing a job is disappointing, but losing money is worse, which is why profitability speaks louder than quantity. Taking the time to review your estimate process and ensure your estimators have all the tools they need to win the right at the right price is a critical component of growth. In today’s competitive marketplace, estimators need to have the right tools, the right skills, and the right mindset.

The Right Tools

Contractors are abandoning spreadsheets for specialized software that promises to eliminate the all-too-frequent-errors that come from manual entry. In addition to computational advantages, estimating software gives construction companies the ability to standardize their process, organize and execute effective collaboration, and produce consistent data. As adoption rates continue to climb, it will be up to contractors to make a choice – join the pack or fall behind.

The Right Skills

Technology isn’t the only tool in your toolbox. By building a trustworthy team, you can rest knowing your project is in good hands before the numbers start crunching. When hiring, look for professionals who can visualize various phases of the projects in detail. Candidates also should possess excellent organizational and communication skills; thorough knowledge of construction materials, processes and software; and the ability to understand drawings and specification documents.

No matter the skill level of your estimators or the methods they use to prepare bids, another independent party should thoroughly review their work for accuracy. Instruct managers to review estimates to verify that the projected gross profit aligns with company objectives and the current bid market.

The Right Mindset

The most successful estimators understand that composing a profitable bid must take into account how well the project aligns with the firm’s corporate strategy. Project selection must be based on optimization. If experience indicates that a specific type of project will take your company longer to complete, your estimator can account for it. If a project falls outside your company’s wheelhouse, your estimator can assess the risks involved and make a sound determination whether or not to proceed. A seasoned estimator with the right mindset can help your business grow by knowing which clients present the best opportunities.

When assessing a project, consider the type of client, project type and size, estimated time it will take to complete the build, and the distance from your home office. If a project fits your ideal criteria, the next step is to construct the bid. Deciding how much profit to build into a bid depends on an analysis of what has worked in the past. Your sweet spot is where mark-up and profitability collide. For example, if an aggregate view of past projects indicates that you have won several projects at 5% mark-up but could have won two-thirds more by marking the bid up by 4%, you might end up winning fewer projects but making more money overall. Optimizing your mark-up policy will help your estimators achieve optimal profitability.

We have helped many construction businesses find the right tools and people and adopt the best mindset to achieve growth. If you need help optimizing your mark-up policy or would like to talk to one of our professionals about improving your estimating process, give us a call today.