FIVE MYTHS THAT SLOW DOWN YOUR ESTIMATING
It's easy to understand why your estimating needs to be accurate, but the value of fast
estimating is sometimes overlooked. If you use the minimum 50% markup that you need in
order to make a profit and stay in business, you can expect your closing ratio to be one
in four or five, or less. This means that you not only need more leads and more sales
calls, you need to turn around your estimates FAST.
Perhaps the first complaint homeowners have about contractors is that when they call a
number of contractors, less than half even show up for the appointment, and less than half
of those actually get back with a bid. The time between your first and second call, on all
but the most customized jobs, should always be less than a week, and preferably no more
than 3 or 4 days. But at seminars I often ask, "How high is the pile of estimates
waiting on your desk?" The response is one of despair and a lot of shaking heads.
In order to estimate fast and accurately, you need a system. I believe your system should
use unit costs, but whatever method you use, you must approach it systematically.
There are five major misconceptions that keep many people from applying a system to their
estimating. Let's clear them up one by one.
Systematic estimating, or unit costing, will not work on highly custom remodeling jobs,
because every job is different. I hear this all the time from remodelers, particularly
those who do design/build and custom work. But in fact, even on the most custom jobs, as
much as 90% of all the specifications are standard. Even if you are building an elaborate
designer addition, you are still going to use the same foundation, floor system, wall
system, roof system, electrical and heating that you would for a standard addition. The
finishes on the interior and exterior walls might vary, but probably only within 5 or 6
selections.
If you can work up most of your estimate using standardized products and systems, and do
it quickly and accurately, then you will have time to spend on the customized aspects.
Starting from scratch on a so-called custom job is just a waste of your time.
I use my experience to estimate jobs, and just use unit cost estimating as a reference.
The better way to approach this is exactly the other way around: use a system to prepare
the basic estimate, and then use your experience as a reference for the judgement calls
that must be made.
A contractor in Chicago told me some time ago that for years he had used his own
experience as the basis for his estimates, and the HomeTech estimating book as a
reference. But in the past couple of years he's been using the estimating book as a basic
system and his experience as the reference, and his estimating accuracy has improved
markedly.
I can't bid electric, plumbing and heating, so I have to have my subs go out on every job
every time. Just as it is in carpentry, nearly 90% of subcontract work is standard. You
can get your subcontractors to give you pre-determined prices on all standard elements of
a job. Then you only have to call them on jobs with unusual or one-of-a-kind items. You
should sit down with your subs, using a unit cost book as a guide, and negotiate fixed
prices in advance for standard elements.
An additional advantage to this, beyond the speed of estimating, is that subcontractors
can actually reduce their prices to you, since they don't have to go out and estimate 4 or
5 jobs for every one they get.
Materials vary too much, and I have to price them out for each job. Here again, if you
pre-select the products and systems you sell, and standardize these products and systems,
you can develop a relationship with your suppliers to maintain prices and give you 30 days
notice on major changes. This will allow you to modify your costing system as necessary,
but in the meantime you can bid jobs using your material prices with confidence.
I have to do all the estimating, because my salespeople do not know enough about
construction. If you develop a unit cost system, you can teach anyone to estimate in a
short period of time. Of course, the salesperson's estimates will be checked. Especially
if you use Polaroid pictures, or one-hour photo developing, it is not difficult for
someone else in the office with more experience to double check the special requirements
of a job.
Of course, that's only the beginning. Estimating is said to be 80% science and 20% art.
The more speed you can put into the scientific 80% of your estimating, the freer you will
be to devote your attention to the legitimately time-consuming 20% that calls on the art
of your experience, intelligence and imagination.
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