Profits are usually gained or lost based on how accurate your estimates are.
Yes, one bad bid wouldn’t put you out of business, but if you keep making the same mistake of not comparing actuals to estimates, you are at the high risk.
Here are some of the common estimating mistakes and how to prevent them.
1. Labor Costs
Labor cost is most of the times the most expensive project cost and the one that is very hard to predict. If you have good job cost records that you could use from the previous jobs, you could determine how many hours it takes to perform the task. As a cushion, you may want to add a small markup percentage to make sure that you would be ready for any labor cost increase during the project.
2. Materials and supplies
This is the second most important item on every estimate. These costs can fluctuate dramatically, so it would be good to lock in the prices with your supplier by establishing good business relationships. Make sure that they are reliable and will deliver materials on time and correctly.
3. Not conducting site visits
No two job sites are identical, but sometimes in a rush of a bidding war we underestimate the real scope of work involved. I am guilty of the that too, lesson learned. Always make sure that you have inspected the property and took all the necessary measurements. Don’t wait for unexpected issues to come up that will cost tremendously.
4. Not assessing the risks
Often things go wrong and you need to be prepared for these contingencies. Pass on the project that seems too risky or have mitigation procedures in place.
5. Forgetting about overhead costs
Make sure to factor all the overhead costs that come with each project from permits and inspections to equipment usage. You don’t want to think that job is profitable until you include all the costs associated with it and bid accordingly.
6. Not taking time to review
Rushing to submit the bid will only bring more problems than profits. Review your numbers and the numbers that your subcontractors submit.
If you underestimate your bid it will be hard to control all the additional costs throughout the project. Get it right the first time!