What makes a successful cost estimate?
Put that question to a group of different construction company managers, and it wouldn’t surprise me if you got a wide range of different answers.
Nor would it surprise me too much if all those answers ultimately boiled down to two key things:
- A successful cost estimate needs to be competitively priced in order to win the project in the first place
- It also needs to generate a profit for the business or sole trader carrying out the work.
Achieving these two things requires a whole bunch of different ingredients such as:
- Accurate quotes from suppliers and sub-contractors
- A cost estimator with a deep understanding of the industry
- An attractive total cost that appeals to clients.
Beyond all those ingredients, there are two more that are the real secret to successful construction cost estimates:
- In-depth detail
- Absolute clarity.
To put this another way, your estimate needs to cover every last detail, right down to the final nail, all in a way that doesn’t take a potential client long to read.
A huge document that requires an advanced degree in Construction Jargon 101 is only going to make it much harder for that client to really get an idea of the kind of value you’re offering.
Write in Plain English and get to the point without overlooking crucial details, however, and you instantly up your chances of winning that all-important contract.
Let me explain:
Complete Transparency – No Hidden Surprises
Right from the outset, even someone relatively new to the world of construction projects should be able to pick up your estimate and gain a clear understanding of both the overall cost of the job, and the process used to determine that cost.
Take labor costs, for example.
It’s one thing to give clients a general, lump-sum figure for labor, but it’s another to break down the figure and explain exactly what it covers.
This helps both you and the client.
The client enjoys the reassurance that you really have thought about everything, and if you’re this thorough with your estimates, doesn’t that speak volumes about how thorough you’ll be once work commences?
For you, it can prevent any problems from arising if the labor costs on your estimate happen to be higher than those on a competitor’s.
Think about it:
Sure, you’re charging a grand or two more than your nearest rival, but your clear and comprehensive breakdown of labor costs may include tasks that the competitor hadn’t considered or had perhaps left out on purpose.
Trust me, this happens.
I’ve seen plenty of cases where firms will deliberately omit important details from their estimate to submit the least-expensive tender, only to then hit the client with additional costs later on.
You really don’t want to be one of those people, so if your costs are higher, at least you’re managing the client’s expectations by being open and honest about it.
Expect the Unexpected
Of course, estimating the cost of a project with 100% accuracy right down to the penny can be a difficult task, especially if unexpected circumstances come into play which require more money to be spent.
Even still, that doesn’t mean you shouldn’t be thinking about such unforeseen events while creating your estimate.
Doing so means that both you and the client go into the project with an uneasy sense of uncertainty and no contingency plan on what you’d do should things go wrong.
Whether you’re doing your own cost estimates or bringing in outside help, it’s important that the person putting the figures together has enough industry experience to forecast the kind of problems that may arise on the project and how much they may cost.
Again, this provides tremendous value to the client as it helps to set their expectations right from the start with both a best-case and worse-case budget for their project..
No contractor or business owner wants to find themselves in a dispute with their client. Quite apart from the potential damage to their reputation should you lose the dispute, the financial damage can be insurmountable.
Still, as much as we may all try to avoid falling out with our clients, it would be naive to suggest it never happens.
When it does, the fact that you provided a detailed estimate that really does cover everything limits the possibility of a dispute when things don’t run 100% smoothly.
So far, we’ve talked about clear, concise, and highly detailed estimates as exclusively benefitting the client, but that isn’t necessarily the case.
The estimate can serve as the first essential blueprint for you as a contractor, ensuring you understand fully everything that is expected of you and helping you to plan out your projects effectively.
Win More Work in the Long Run
What all of this boils down to is one thing:
Delivering exceptional value to your clients.
When you provide clients with a clear, in-depth estimate that reduces the risk of hidden surprises, prevents potential disputes, and ensures that you’re well-prepared to do the best job possible, you ultimately ensure a better working relationship with that client and – a boost to your reputation.
Naturally, you don’t need us to explain what a long-term benefit this can produce when it comes to winning more contracts in the future and ultimately taking your business to the next level.