Do you lose work over other contractors because they under-cut your quote? Perhaps you frequently fail to account for all areas of pricing, and end up with reduced profits?
Don’t worry – you’re not alone. Learning how to estimate in construction, while remaining both competitive and profitable, is one of the most common contractor education needs. It seems that construction education never ends.
We’ve put together a guide to estimating construction work for home renovation so that you can increase your profits and provide the most accurate price for jobs to clients.
Every construction project involves a unique combination of variables – from the qualities of the site, to the specific requirements of the design; taking into account the team, and the current labor costs.
Clients often gather at least three price quotations for a project. They take into account reputation as much as cost, so going for rock-bottom prices that require corner-cutting isn’t always the way.
Your estimate becomes the budget for the project, so consider the build and material qualities demanded by the project, the client’s available budget, and the timescale and potential profit.
Should you under-cut your competitors just to get the job? Probably not.
An effective cost estimation for a home renovation project should stop the builder from losing money, and ensures that the customer gets a price that they can afford. You don’t want the customer to run out of available funds because you under-estimated.
Large companies have construction cost estimators who are experts at assessing costs to the last penny. If you’re a small company, you need to develop those skills for yourself.
Contractor Business School Course
For more insight on how to run a successful construction company
take a look at The Contractor Business School.
The Essential Steps
A material take-off (or MTO) is the process of gathering all of the relevant information required to bring a construction project to fruition and forms the basis of your estimate.
It contains the list of necessary materials; exact quantities gleaned from precise measurements; and specific material types (such as grades of steel).
Home renovations are generally smaller projects, and you might be able to work costs out in your head. But it’s good practice to write everything down. This way you have evidence of your expenses, and you can check what you might have missed before committing to a final price.
What to include
The MTO is about physical materials – it doesn’t include assets such as equipment and tools. It could include raw materials, such as concrete, sand, or timber, and prefabricated materials such as bricks, electrical cabling, pipes, and light fittings.
What grade of steel is required to ensure that the construction is robust and legal, for example? What type of electrical cable will meet regulations and the client’s requirements?
The four key types of measurement
Consider these –
- Count – How many of each specific item is required? This could include light fittings, bricks, windows and doors, to the number of studs for the steel work.
- Length – Cables and pipes are measured by length, but some are measured by diameter. You should account for additional length to cater for drops for switches and wall panels.
- Area – Flooring and cladding are commonly measured by surface area. If you are decorating as well as building, you’ll need to use area as a calculation for paint or wallpaper.
- Volume – For example, how much concrete is required to lay a foundation or to cover the appropriate thickness of flooring? How much plaster will you need to finish the walls?
You should assess the current condition and structural robustness of the existing building for home renovations. Take potential repairs into account to ensure the integrity of the home renovation.
Does the project require demolition costs? If so, will you need to subcontract?
2. Create a Master Checklist
It’s easy to forget essential elements such as permits and permissions. Have a master checklist that you could refer to for each and every project:
- Plans and specifications
- Plan review costs
- Permits – building, environmental, etc.
- Surveying costs
- Impact Fee
- Jacking & Shoring
- Dust control / surface protection
- Site access / security
- Building waste disposal
- On-site storage
- Scaffold rental
Depending on the type of renovation, you may also need to consider the following:
- Temporary toilet facilities
- Temporary power/heat
There’s a useful free estimating master checklist available here that will help to cater for a wide range of renovation jobs.
3. Accommodating For Risk
Sometimes things don’t go to plan, and part of the estimator’s role is to assure the integrity of a project.
If you miss something in the estimation and it spirals the costs of the home renovation, there’s every chance that your client may run out of budget – resulting in an unfinished project that you might not get paid for.
There are three levels of risk to assess when creating an estimate:
- Worst Case Scenario – Consider what could go wrong. Take the current structural integrity of the building into account, and identify what might halt production. Are the planning permissions water-tight? Material costs might increase mid-way through construction. Your labor source might dry up.
- Most Likely Scenario – Consider what you need regarding quantities and time in the most likely scenario. A compromise between the worst case and best case. Use your experience of previous, similar projects to assess this scenario.
- Best Case Scenario – This is the price in an ideal world, should nothing go wrong.
The temptation, especially for new contractors, is to jump straight in with the best case scenario because this represents the best price.
But if things do go wrong, you’ll find yourself potentially unprotected against those risks.
You risk damaging relations with the client and, as importantly, your reputation. If you do a great job, your client will want to show off their renovation to their friends – who might aspire to similar work for their homes.
If you’re a one-person band, you know how quickly you can work. Based against other projects, you’ll know precisely how long particular jobs take. But if you’re employing a crew, do you know if they can produce at the same rate (and quality) as you can?
This is your reputation as much as your profit margin. Home renovation clients are likely to recommend you if you do a great job at a competitive price.
Cutting price is about accurately assessing the scenario, not cutting corners. Part of every contractor’s education is learning to estimate accurately, and deliver timely, profitable projects.