Construction Estimating or Construction Guesstimating–You Decide

Far too many contractors are losing their businesses these days because they just aren’t preparing their estimates in a way that guarantees they will make money off each of their jobs! Here’s a technique to discover how you can start making money consistently on every single one of your projects.

Many contractors, when estimating a job, will look at, for example, an 8 foot wall and say to themselves, “that will take me only about a day to complete and about $250 in materials.” A month later, the contractor will look at another job with a 12 foot wall and say to himself, “that will take me only about a day to complete and about $250 in materials;” notice a problem here?

Is he estimating or guesstimating? Is he right or wrong on the 8 foot wall? Is he right or wrong on the 12 foot wall? Will he ever know? Actually, he probably will when he finds out that he in fact has less money than he started with at the end of the job; or, for that matter, never got the job to begin with simply because his pricing was too steep.

Contractors that prepare their estimates based on measurable units are the ones that are consistently making money. This approach will inevitably work for any kind of construction business; whether you are a general contractor, home builder or remodeling contractor --the principles are all the same.

For instance, when you’re taking off a wall, your costs should be based on either per linear foot or per square foot of wall. If you're doing a wall, let's say that you think it’s going to take an hour of production per linear foot and we believe the materials are going to cost us $12.50 per linear foot.

So, that means for an 8 foot wall you have a labor time of 10 hours and a material cost of $100.00. Here's what's great about this; when the job’s done (on a large job you'd measure weekly) you look back and review how long it took and how much it cost. Let's say it only took 8 hours (8/10ths of an hour per linear foot), but it cost $150 ($15 per linear foot of wall) for the materials. You’ve learned something here that you would then apply to your future estimates.

Now, this is assuming that this was a just a standard job and nothing out of the ordinary happened. Based on what you've learned, you would modify your estimating so you're not making the same mistakes over and over again. This is a continual process that you need to follow to stay on top of your costs.

If you think about it, it's very much like driving. You don't just get in, point the vehicle in a direction and drive. You're continually making adjustments to the direction you're going. The same thing is true when it comes to estimating. Estimating is the crucial link to the success of contractors, and you've got to make adjustments or you'll end up running into a wall... and that’s going to cost you!

Porter Keadle Moore, LLP is a founding member of ProfitCrew, an association of accountants and business advisors dedicated to helping construction companies build profitable businesses. For information, contact Adam Polakov at apolakov@pkm.com or visit www.pkm.com.