You’re having those initial client conversations. They look interested, and things seem to be going well. Now you need to give them an estimate for your work. Maybe you turn to your partner Bill and ask, “How do we do that?” Of course, Bill is no help, and so now you’ve got to figure out how to estimate the cost of your first construction project.
That’s why we’ve made this handy guide — so that you don’t have to rely on Bill to get things done:
- How to estimate construction costs
- Tools and tricks to use along the way
- A free template you can use for your first estimate
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What’s the deal with construction estimates?
It’s a fair question.
What goes into a construction estimate? It’s simply the process of predicting and planning the expenses of any given construction project. The final product is usually a document or presentation of some kind that lays out, in detail, what you plan to do, what materials you’ll use, and how much it’s going to cost.
Along with job costing and customer service, estimating projects is, arguably, one of the most important parts of a construction project. Estimates for jobs have to be incredibly accurate, which is why they can feel frustrating to create. Considering how your business makes money, getting this step wrong can figuratively and literally cost you if you do it wrong.
No pressure, right? But, making sure you’re getting your estimates right is about more than just money.
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What’s the purpose of construction estimating?
This can be answered with this simple answer: If you’re accurate with your estimates, you’re going to win more work. Simple as that.
Clients talk, and if you’ve been giving inaccurate or poorly constructed estimates in the past, they’ll be sure to let you and the whole world know you cost them extra money. Providing accurate estimates gives your clients confidence that you both know what you’re doing but that you’re also trustworthy.
Having a history of honesty with every single client will go a long way toward winning more work.
On a more technical note, having accurate estimates will help yourself and your clients as projects progress. Both clients and contractors will be concerned about the possibility of cost overruns and the overall financial impact of this project on their livelihood and business.
As you start gathering all the needed information to build an estimate, you first need to ask your client the right questions. The last thing you want is to order the wrong material and end up costing both yourself and your customers more money.
Because no one wants to lose money… ever.
These two reasons are why building extremely accurate estimates is so important. If you get it right (which actually isn’t that hard), you can save yourself and your client some serious cash and earn yourself brand new clients based on your incredible reputation.
Not too bad, if you ask me.
Types of construction estimates
Estimates aren’t completely final. As your project progresses, your estimates will change. As plans become more solidified as the project moves along, you get a better sense of how things are going and can get more granular and accurate with your estimates.
Because of this, there are actually a few different types of estimates you should be aware of.
The rough estimate
This is an estimate where you’re just looking to get in the ballpark range for a project. Figures here are typically based on previous on-the-job knowledge and assumptions rather than hard numbers and facts.
The intermediate estimate
As the project moves along, you’ll want to determine how feasible the project actually is. There’s a big difference between a concept and a real project — that’s what this estimate is for. Typically, this is used in commercial construction, so if you’re running a smaller operation, this step is less important for you.
The preliminary estimate
This is where we can start to get detailed. With the preliminary estimate, we add in more specific and consolidated costs for each part of the project. Once you have this in place, you can use it to start setting rough budgets and researching project financing. You must be very accurate at this stage, so have someone check the numbers and make sure that you’re not looking for funding before this preliminary estimate is done.
The substantive estimate
At this point, you should have some designs ready so that you can start pricing out precisely what you’ll need for the project. This is the time to estimate costs for primary and secondary materials and look at other things like project objectives and deliverables to start sharpening your estimate. After this, the budget should basically be set in stone, so be mindful of that as you build this one out.
The finalized estimate
Finally, the last estimate. This will be your most accurate and reliable version. Compared to the others, this estimate will have accurate costs and a budget to measure them against. You can use this estimate to create bids and cost out everything to the client. At the end of the day, all estimates are still just based on assumptions and guesswork. It’s a good idea to leave yourself some wiggle room in case something goes wrong during the building phase.
How to calculate construction costs
There are a few different ways to calculate the price of construction projects. To figure out how much you should actually be charging for your services, let’s talk numbers.
It should be noted that (obviously) no two construction companies are the same, so figuring out your own way of doing things is essential. Here’s a step-by-step example that starts with taking a look at your total revenue from the previous year.
- Let’s say you made $700,000. If you divide that by 52, you’d find that your weekly rate would end up being $13,461.53.
- Next you get a call from Janice, who’s looking to get some work done to her house. Based on previous experience, you know it’ll probably take around 4 weeks to complete. So, when she asks you for a rough estimate of your services, you can say that your rate would be $53,846 (your weekly rate times the number of weeks for the job.)
- Bear in mind, this is still just a rough estimate. The amount of money you made last year isn’t an accurate way to price a job, but it does give you some indication of how much you should be charging per week.
- Once you have that number, look at how much your labor will cost. If your crew is on staff, then just look payroll and add the labor for your team to do the job. If you hire subcontractors for anything, you’ll need to factor in their hourly rate as well for a rough quote.
- Janice will ask you how much you expect the job to cost in materials. Since this is just preliminary, you don’t need to actually price out every single 2×4 for Janice’s new pergola. See how much of a budget she has and do your best to stay within that range. If she doesn’t have one, use previous knowledge to give a rough estimate. It also helps to do some basic research and see how much, on average, a project like Janices’ costs typically.
When presenting Janice with all this information, it’s best to give her what’s known as a work order. On it, you’ll list the labor, materials, and equipment costs with the total for all your work. Compare this to the $53,846 from before and, if you’re getting within the range, then you’re on the right track.
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Construction cost estimation techniques
There are a few different techniques you can use to build out your construction estimates. Some are more accurate than others, and should be used based on the type of work your construction company does.
1. Production function
This method serves as a machine of sorts. To calculate a production function, the estimator looks at what labor, materials, and tools go into a project as the input, and the amount that ends up being built as the output.
It sounds complex, but it can be really useful for projecting what might happen with a given plan or if you are aiming for something like a specific number of square feet or a certain number of buildings. Production functions can also be useful for planning out particular types of projects like nursing homes or schools. In essence, you can build these formulas and apply them to similar projects to help develop estimates.
2. Stick estimating
This is probably one of the more common methods of estimation. To use this method, the estimator mostly figures out the total cost of a project by listing every single expense that could possibly occur on the job. As you can imagine, stick estimating is exceptionally accurate but, unfortunately, can eat up a lot of time and could delay or even lose work.
3. Unit cost estimating
This is a great one for quick and clean estimation. Essentially, you assign a unit cost to each part of the construction process. Planning and sourcing are assigned one price while framing and electrical gets another. Using unit costs gets better over time as you do more projects and can alter and modify your unit costs to give even more accurate estimates.
4. Empirical cost inference estimating
If you’re a math wiz, then here’s your time to shine. This method uses statistics and regression analytics to figure out how much a project is going to cost. This method is really only useful if you have someone who knows how to do them. It’s not recommended that you estimate construction jobs this way if you don’t have someone on your team whose primary job it is to do this specifically.
Construction estimate sample
A lot goes into building a construction estimate, we know. That’s why we’ve made this template to help you get started. Just plug in all your information and make any edits you need (it’s your estimate after all.)
How Hubstaff can help your construction business
Estimating a job is only the first piece of the puzzle. As a project progresses, you’ll need to build budgets, set up payroll for your crew, know how much time your crew is spending on jobs, develop and send invoices and reports, and track the project’s progress and profitability.
This is where Hubstaff can help. The software not only makes building estimates easy, but it makes running your construction company easier for everybody.
You and your crew can use Hubstaff to simplify your construction company’s admin work. Do everything from building custom automated reports to tracking your team’s time and location automatically the second they’re on the job with geofencing technology.
Better yet, you can use Hubstaff to track how long any given project takes and monitor said job’s budget to make sure you are coming in right where you need to be. That way, when you’re asked to price out a second pergola job for Janice’s friend, all you have to do is look back and see how much was spent the first time around.
Hubstaff also makes it super easy to pay your crew for their work. Once they’ve tracked time from their mobile devices, you can quickly approve their time cards within seconds and pay them with any payment option you choose.