Maximizing Profitability:  Leveraging Cost Based Estimate for Contracting Success

Are you doing cost based estimating in your contracting business? 

Why not?

What is cost based estimating?

Cost based estimating is to evaluate a job based on the materials and labor time that you need to accomplish the needed scope of work.

Think about an addition to a current living space. You may need an engineer, a designer, materials labor and so on. The cost of all of those services or materials is very straightforward to calculate. 

Having a diverse team will help you get the baseline costs put together quickly.

At the early stage you might look at the scope of work and classify this the same as you would, let’s say a T-shirt size (S, M, L, XL) to give you a quick overview of the potential cost.

The size of the project might put into perspective what the needed materials would be.

In the same sense the size of the project would also determine the hours needed to complete such a project.

Not only will the size of the T-shirt determine the project cost but what material the T-shirt is made of will also contribute to the final calculation. Some people have expensive taste and determining that up front will help you set your allowances for various materials at the proper level. 

Also the level of effort required will play a large role. The attention to detail on a residential repaint is much different than a new construction paint. Understanding this commitment will also be a large help in determining a final number.

Define the level of coordination needed. Is there site work needed, is there concrete work needed, is there build out needed, what trades needs access and when and what finish work is needed.  Having these all coordinated will help the overall project go smoothly but are also critical for keeping things on cost.

The detailed information on the scope of work, as it evolves, will give you a final cost and allow you to properly estimate the project to make it profitable.

Software tools like Estimate Rocket can help with the cost based estimating. Once estimated you can use the labor and materials estimated to plan the schedule for the different aspects of the project. The cost based estimating will also be used to calculate your projected profit margin on the project and the scheduling to help keep things on task.