Estimating Construction Profitably: Developing a System for Residential Estimating

By Michael C Stone

Estimating the cost of a project is critical to your business success. If done correctly, your company will be profitable. If done wrong, you'll lose money. 

Michael Stone, a successful construction business consultant and trainer, shares his years of hands-on experience estimating residential projects in this manual. 

When

• Language: English
• Publisher: CONSTRUCTION PROGRAMS & RESULTS INC
• Release date: Jul 1, 2022
• ISBN: 9780979508363

Book preview

Estimating-Construction-eBook.jpg

Estimating Construction

Profitably

Developing a System for

Residential Estimating

by Michael C. Stone

Blank copies of forms listed in the Appendix are available for download at

www.MarkupAndProfit.com/EstimateSheet

Copyright © 2022 by Michael C. Stone

Publisher:

Construction Programs & Results, Inc.

2818 NE 292nd Avenue

Camas, WA 98607

360.335.1100

Find us on the web at: www.MarkupAndProfit.com

Editor: Devon Stone

Cover design: Adam Sonnek, Windmill Graphics, WindmillGraphicsVanc.com

Line drawing: Michael C Stone

Legal Notice

Nothing in this book is intended to be, or may be construed as, legal advice. I am not an attorney. You must consult an attorney before using any suggested language or any other information contained in this book to determine if it conforms to your state laws or your particular situation.

Notice of Rights

All rights reserved. No part of this book may be reproduced or transmitted in any form by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. For information on getting permission for reprints and excerpts, contact [e-mail]

ISBN 978-0-9795083-6-3

Acknowledgements

We want to thank our many subscribers and friends who provided input. In addition, we want to thank the friends who agreed to review our first draft. They took time from their busy schedules to read it and share their thoughts on what was good, what wasn’t good, and what was missing. Their input was invaluable and much appreciated. Our reviewers:

Tim Faller, Senior Consultant and Master of Production, Remodelers Advantage Inc

Milt Rye, Owner/Estimator at Ethan Home Repair & Remodeling, LLC in Stanwood, Washington, www.EthanHomeRepair.com

Matthew Smith, Owner of Mapleridge Homes in Quebec, Canada, www.hmrh.ca

Bob Williams, Owner of Star Construction Company in Groveland, Massachusetts, www.starconstructioncompany.com

Table of Contents

Acknowledgements

Introduction

Chapter 1 - Estimating Requires a System

Chapter 2 - Basic Methods of Estimating

Chapter 3 - A System Requires Checklists

Chapter 4 - Things to Know Before You Estimate

Chapter 5 - Collecting Information Requires Tools

Chapter 6 - Your Estimate Sheet is the Primary Checklist

Chapter 7 - Estimating Labor

Chapter 8 - Estimating Material Costs

Chapter 9 - Estimating Subcontractor Costs

Chapter 10 - Estimating Other Costs

Chapter 11 - Reviewing Your Numbers

Chapter 12 - Know Your Accuracy, Adjust Accordingly

Chapter 13 - Evaluate Difficulty, Adjust as Needed

Chapter 14 - Subs or Employees?

Chapter 15 - Allowances

Chapter 16 - Estimating: Long Hand or Software?

Chapter 17 - Estimating Challenges

Chapter 18 - Traps to Avoid

Chapter 19 - Alternatives to Estimating

Chapter 20 - Formulas: A Starting List

Appendix

Resources

About The Author

Introduction

Over the years I’ve heard from many contractors who wanted to get better at estimating. Some were general contractors building either remodeling or new home construction, some were specialty contractors, and others were performing service or maintenance work. They all had a desire to make as much profit as they could from their work, and they knew that better estimating was key.

That’s why we wrote this book. It’s a guide to estimating; or more accurately, a guide to creating your own estimating system. When you have a system of estimating that you follow, consistently, you’ll do a better job of estimating. When you do a better job of estimating, your jobs will be more profitable.

Estimating is the process of taking what you know today to project what will happen in the future, but you aren’t in charge of the future. There are millions of variables that are outside your control. A consistent system combined with diligence and focus, and a little common sense, will get your estimating error factor down under 2%. That’s a reasonable error factor because no estimate is perfect.

When you establish a system of estimating and follow it, you’ll do the same thing, the same way, every time. When you do that it’s easier to look at every aspect of a job from top to bottom, beginning to end, and not miss anything.

Estimating is a job; it isn’t a hobby. It’s work. It takes dedication, focus and practice to get it right. It’s not about the numbers, it’s about the discipline of finding and following your system.

While I’ve been in this business a long, long time, my focus has been on residential remodeling with some new homes and commercial work thrown in for good measure. I’ve stuck to what I know best. However, this book was written to show you a system of estimating regardless of the type of work you’re estimating. The system matters, the type of work doesn’t.

This book doesn’t guarantee a profit on the jobs you estimate from this point forward, and it doesn’t guarantee perfect estimates. It’s up to you to do the work.

I’ll cover a lot of details in this book; take what works for you. If you want to get better at estimating, however, one thing isn’t optional, and that’s checking each estimate against the actual job costs of the job when complete. It’s a critical part of estimating because it’s how you improve your accuracy. You’ll learn from both the good numbers and the bad.

When your estimated costs are reasonably accurate and you’re using the correct markup for your business, you can be confident that you’re charging the right price for your work. The right price gives you enough money to cover all job costs, overhead expenses and make at least 8% net profit.

I’ve taught classes on business management, estimating and sales to contractors in 46 states and 3 Canadian provinces, with the goal of giving them the tools to build a more profitable construction-related business. I hope this book provides you another tool you can use to strengthen your business.

Chapter 1 - Estimating Requires a System

Estimating isn’t a difficult task, but it’s critical to your business success. If done correctly, your company will be profitable. If done wrong, the money you lose can take your business under.

The process of estimating is what I call donkey work. Donkey work is boring; donkey work is doing the same thing over, and over, and over. It’s repetitive. It gets old. It gets very tiresome. It can be a real pain in the assets.

When something is boring and repetitive, it’s easy to want to give it short shrift. How do you combat that reaction to estimating? By setting up a system that you follow on every job. When you do the same thing, the same way, every time, your estimates will be more accurate and much closer to the actual job costs. Additionally, doing the same thing the same way every time speeds up the process. It allows you to keep your focus on your estimating process rather than getting caught up in the mental game of disliking what you’re doing.

The purpose of this book is to help you discover an approach to estimating that helps you estimate without having to think about the process. An orderly approach makes estimating easier and more accurate. A disorderly approach makes you waste time and forget things that need to be included. That’s when your jobs lose money.

Since you’re reading this book, I assume you’ve decided to improve your estimating skills. You want your estimates to lead to more profitable jobs. Can I get a promise from you that you’ll put into practice the materials and ideas I share? At least give it a try. Don’t decide whether something will or won’t work until you’ve given it an honest try. Give it your best effort for three or four months. In that time, you’ll have jobs completed and you’ll be able to see for yourself if your profit margins improved. You’ll know for sure if it’s working for you.

Who Is This For?

This book is for those estimating remodeling, new homes, specialty work, or light commercial. You might be an estimator working for someone else, or you might be the business owner who also does the sales and estimating for your business.

I’m going to speak as though you’re estimating a remodeling project because it generally requires more details. If you’re estimating new homes or specialty work, it’s easy to adjust accordingly because the process is the same whether you’re estimating a whole house remodel or replacing a door. The difference is how many details need to be addressed. The size of the project varies, but the process doesn’t change, and this book is about learning the process.

Estimator/Salesperson

You’ll notice that I often use the phrase estimator/salesperson. That’s because I firmly believe that the individual hired to do the estimates should also be the person who is selling for the company. I know some companies hire two people to do these jobs. They find someone who knows how to estimate jobs and that estimator follows the salesperson around, compiling the estimates for proposed projects.

However, I’ve never seen an estimator and a salesperson working together close as many sales as a well-trained individual who does both the sales and the estimating. I am not saying it can’t happen, but day in and day out the well-trained estimator/salesperson will always outperform the two-person crew. Additionally, the two-person team will seldom have as high a profit margin because when you hire two people to do one job, you increase your overhead.

Why can a salesperson who estimated the job close more sales than a salesperson who didn’t estimate the job? Because with a two-person team, the estimator knows the details and they pass those details on to the salesperson. When a potential client asks questions, there is often a question or two that the salesperson can’t answer because they don’t know the project as thoroughly as the estimator. Their doubt or confusion creates unease with the client, and that unease will cost