Key #1: Stop estimating the old-school way
Estimating by hand is the old school way to do it…
If you want to really explode your sales and grow your business, you have to bid more jobs. Old school pen and paper is not going to work anymore these days; it just takes too long.
I HIGHLY recommend using a digital takeoff software because it’ll speed up your bids and you’ll be 10 times more accurate than doing it by hand….
Digital takeoff software like PlanSwift and Blue Beam are two options for performing your takeoffs digitally and will help cut down the time you spend performing takeoffs.
Key #2: Estimate your own jobs
A lot of contractors “bid out” their projects and ask their Sub for a proposal. While that’s good at times, we typically recommend you estimate your own jobs (most of the time) and win the job first.
The main reason is because you’re putting the success and accuracy of your own job in the hands of another guy who is probably busier than you, which poses two problems:
1.) Subcontractors are too busy to estimate your project
Subs usually have so many other jobs and bids to be concerned with, they could take forever to get back to you.
To keep up with deadlines, relying on your subs can be risky, so it may just be better to make your own estimate.
Plus, if you estimate the job yourself and have already won the proposal, even the busiest of subcontractors will come running to submit their proposals, so then you save time on securing subs AND you can compare your estimates to their prices for negotiation.
2.) You can’t always trust the numbers subcontractors give you
Again, your subs are usually very busy and can easily make mistakes on their estimates. What if the price they listed isn’t actually enough? What if their proposals are too high and you miss out on the bid?
Spare yourself the headache of having to go back and forth with a sub (or even a lawsuit) and estimate the project yourself.
If doing your estimate seems like too much of a hassle, check out our article on why you should be outsourcing your estimating.
Key #3: Find your estimate’s true costs
So, the previous tips we’ve gone over applied to how you perform your takeoffs, but what about preparing your assemblies?
Your “assemblies” are the different elements in each item within the job. For example, the assemblies of a single wall are its framing, insulation, drywall, etc.
Many contractors make the mistake of pricing their jobs based on a set rate, rather than calculating the job’s true costs.
Many contractors make the mistake of pricing their jobs based on a set rate, rather than calculating the job’s true costs. Especially with subcontractors, it is common to make a proposal based on a price per square footage or cubic yardage, without taking the unit prices of the job’s assemblies first.
The problem is, you need accurate estimates when it comes time to negotiate. If your GC comes back to you requesting that you lower your price, this task is so much easier if you know the cost behind every item.
Having these item costs will be especially useful in the third step of the estimating process when you add your pricing (overhead, contingencies, supervision costs, etc.) because then you can know exactly which costs are necessary and which can be reduced during negotiation.
Key #4: Prepare your pricing before you get proposals from subcontractors
Adding on to what I mentioned in Key #2, general contractors should estimate their jobs before getting proposals from their subs, which means calculating your overhead costs and profit beforehand.
There are three reasons why figuring out the costs and pricing beforehand is important for general contractors.
- You can bid and win the job by yourself, so subcontractors will be more willing to work with you.
- You can enter contracts confidently, since you will be able to compare the proposals of your subs to your original estimates.
- You know your direct costs, item-by-item. Since you know how much of the job is in your direct costs, it becomes easier to negotiate because you are aware of how much your overhead costs and profit are.
Since you are preparing the full bid, you have to estimate what your subcontractors’ pricing will be.
Here’s a tip:
Most subcontractors add 10 to 20% profit to their proposal and 10 to 15% overhead. Calculate their supervision, material, and labor costs with a cost database like National Cost Estimator or RSMeans and add 30 to 40% to each item of the estimate to get a realistic subcontractor budget.
Key #5: Don’t aim for perfection
Now that we are looking at the pricing and finalizing stages of estimating, a valuable lesson that should be mentioned is that we should avoid spending too much time perfecting our bids.
The finalizing stage involves looking again at your pricing (supervision, overhead, profit) and tweaking the numbers based on your current situation. This means judging whether you want your proposal to be lower or higher, whether or not you need to add in more contingencies, comparing your budget to your subcontractors’ budgets, etc.
The key to remember here is that, don’t fall into the rabbit hole of perfecting your numbers.
What wins jobs is not the “perfect bid”, but how many bids you are making.
Of course, it is important to accurately estimate jobs, but what wins jobs is not the “perfect bid”, but how many bids you are making. This concept is called “the law of large numbers” and it basically says that the success rate of winning jobs only becomes consistent when there is a large quantity of bids being made.
Winning as many jobs as possible then is about quantity, not quality and demands estimating to be as efficient and quick as possible.
Key #6: Build in negotiating room
The last tip we’ll look at is also about finalizing the bid. It is important to keep in mind that the first price you submit is never the final.
9 times out of 10, clients always ask for a discount, so to avoid having to sacrifice profit, make sure that your initial bids have plenty of cushioning. By assuming that you will have to negotiate down, you remove future headaches of operating under a low budget.
And if you’re concerned that adding negotiating room will stop you from winning as many bids, keep in mind the law of large numbers that we mentioned in the previous section.
Your strategy should be not to focus on perfecting your bids, but on doing them efficiently.
The Secret to 10X your Construction Business
If you are interested in growing your construction business, I’ve prepared a short training video for you that you can watch for FREE: