6 Common Estimating Mistakes and How Contractors Can Avoid Them

Getting an estimate right is one of the most challenging aspects of contracting work. If your estimate is too high, you may not get the job. And an estimate that’s too low can eat into a project’s profitability, which hurts your bottom line. 

In order to be consistently successful and professional as a contractor, you’ll need an effective estimation process and be able to easily replicate that process from job to job. But to do that, you’ll need to be aware of some common estimation pitfalls that contractors face. With these tips, you’ll be able to make an estimate that’s right the first time — and every time.

Estimating Mistakes to Watch Out For

Knowing what mistakes to watch out for is the first step in improving your estimates. Here are some examples of common mistakes to avoid.

An accurate estimate will provide a granular view of a project, so anyone can easily understand how the cost was determined. Confusing, inaccurate estimates don’t build trust with customers, and they can often obscure the real costs of a project from the contractors themselves. 

Transparency, on the other hand, invites the kind of collaboration that extends client relationships from one project into several. Transparency also helps keep internal teams and subcontractors accountable for their stake in the work being completed.

If only one person on your team knows how to write up an estimate with reasonable accuracy, you won’t be able to scale up the process, which will impede long-term growth.

Establishing a replicable, teachable estimating process allows leadership to more effectively develop internal talent. By growing the number of team members who can complete estimates quickly and correctly, you’ll increase your capacity to take on more jobs and grow your business.

3.) No Margin Calculation

Gross margin is calculated by subtracting the direct labor and material costs from the gross profit, then comparing that to the selling price. It’s the money you have left over to spec new projects, invest in equipment and talent, and pay non-direct wages to your team (and yourself). Generally, an appropriate gross margin on a project is between 40% and 60%. 

Despite the importance of gross margin, many businesses don’t incorporate an accurate calculation of this number into their estimation process. Many rely on a tabulation of flat sales prices (i.e., profit across every aspect of the project, which may vary considerably from the final net profit). If your margins are too low, you may not have enough to cover expenses — which means you’ll have completed all your work at a financial loss.

Labor costs are often the most expensive aspect of a job. They’re also some of the hardest to get right in an estimate. 

Many variables are involved in assessing the labor costs of a project, from experience to pay rate and productivity. It’s generally helpful to use production rates to determine the overall prices and costs. But without refinement and regular updates to labor prices based on current wages, it’s easy to underestimate real wage pressures on an estimate.

Luckily, there’s a wealth of data available to refine this crucial calculation. Though every job — and every team — is different, having accurate numbers from previous jobs can help contractors spot trends and anticipate future overages before it’s time to sign on the dotted line. 

5.) No Risk Assessment

Every job comes with financial risks. It’s important to take note of the level of risk associated with a job to determine whether or not it’s worth the bid.

In the hunt for more jobs, many companies overlook risk assessment best practices. As a result, they often misjudge the level of contingencies needed for the estimate, which can cut into profits or even lead to costly court battles.

Risk assessments come in many forms, and the scope of projects can vary. They may include research into the project owner’s reputation, knowing if the pricing is fixed or flexible, and knowing if the materials needed are custom or prone to pricing fluctuations.

It’s essential to have a detailed material takeoff list before starting a project. This list determines the raw material quantities, equipment types, and amount of labor required to complete a job. Inaccuracies in a material takeoff list may result in material shortages, wasted hours, costly delays, and frustrated customers.

Your list of materials should be specific enough to effectively estimate the cost of a job. Including only  general material grades or quantities needed can lead to a lot of guesswork. Prices vary significantly between brands or specific types of materials, and costs often change due to supply chain issues.

Using a tool like Estimate Rocket can make complex calculations fast, accurate, and easy.

Avoid these common mistakes with Estimate Rocket.

Inaccurate estimates can wreak havoc on your business. They can limit your ability to scale up operations for growth, impact customer satisfaction, and eat into your profits. 

But with estimation software like Estimate Rocket, you can create professional, accurate estimates, save time and money, and build trust with your customers.

Start writing accurate estimates for every job. Try Estimate Rocket for free today!