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. |
