The Two Most Common Estimating Problems
Before we get into the different ways you can organize your estimating department, we need to first understand the two major problems contractors face nowadays when it comes to estimating. I like to call these two problems the Vicious Cycle and the Yo-yo Effect.
The Vicious Cycle
All contractors have one thing in common: they have no time
Between managing things on the job sites, meetings with owners, looking at billings, etc., contractors have very little time to do estimating on their own.
The solution to this at first seems to be simple.
Just hiring an estimator or an estimating service, would solve everything, right? But the problem turns out to be a cyclical one since hiring someone to bid for more jobs means… bidding for more jobs!
This is the catch-22 that most contractors face. They don’t have time to grow their construction business because of estimating limits, but in order to invest in their estimating they need to get more business, which demands more estimating.
The Yo-yo Effect
Suppose that you’re a contractor who has gotten out of the vicious cycle by finding time to estimate jobs on your own. Don’t relax just yet, there is another estimating problem that most contractors face.
The Yo-yo Effect is the phenomenon where contractors’ businesses go through large swings in productivity because of their inconsistent bidding.
A common scenario that many contractors face is that they go through small seasons of bidding and estimating jobs, only to stop once these jobs have gone through their gestation period.
A gestation period is the period of time between when a bid is proposed to when the job is actually awarded and this period on average lasts around 3-6 months for most contractors.
In construction, the process of submitting a bid proposal and being awarded a job is called the “sales cycle”. Sales cycles take months to complete, which means that contractors should think of their sales as a pipeline that has a delay in when returns start to show.
It is because of this delay in the sales cycle, contractors will go through periods of estimating only to stop once their work comes in, like a yo-yo moving up and down. It is hard to grow a business like this when you are seasonally going through shortages of funds to pay for labor and materials.
Again, because of the gestation period, contractors don’t realize the consequences of their inactivity in estimating jobs until months later, so what the takeaway here is that contractors need to consistently fill their pipeline of jobs if they want steady work.
Option #1: Estimating yourself
Now that we understand what issues need to be addressed with your estimating department, we can now look at some different ways you can organize your estimating team to solve these issues.
The first option that you have for your estimating department is… to not have a department at all.
Although this option is possible, due to the reasons we discussed in the previous section, it’s not advisable if you are really looking to grow your construction business.
No matter how well you organize yourself, one individual is limited in the amount of sales they can bring in due to their time limits on estimating jobs and making bids, which is why the next two sections will explore team-based options.
Option #2: Hire and build an in-house team
The second option is what most people imagine when they think of an estimating department, that is, delegating your estimating to your own personal team.
There is no shortage of experienced construction estimators on the market, with plenty of sites like Indeed being a great place to start looking. The main drawback with this option, however, is that estimators are some of the highest paid people in construction.
For this reason, building an in-house department is not a good option for small contractors. Although having personal estimators is useful in that, aside from estimating, they can negotiate jobs and follow-up with clients, the cost for an in-house team is a big hurdle to leap.
Part of the reason why an in-house team is so costly is due to the fact that estimators tend to have lots of experience, be experts in the field, and so they naturally expect to be paid the salary of a professional.
Option #3: Put your estimating on auto-pilot
If your business is at a large enough level, paying $80,000 a year or so for a personal estimator might actually be a great idea, but for smaller companies, it simply isn’t feasible.
The solution? Outsourcing your estimating.
This is a method that is generally overlooked by most contractors, but its greatest benefit is that it can give you the power of a whole estimating department for a fraction of the cost, as well as on an on-demand basis.
On the contrary to what most contractors may think, structuring your estimating like this doesn’t have to be pricey. Since outsourcing your estimating to services like ours is on an on-demand basis, it’s relatively simple to add your overhead estimating costs into your bids, essentially making the whole process zero cost.
Estimating can be done for free. All contractors have to do is add in their estimating costs into their bid proposals. This may decrease your closing rates a bit, but it’s more worth it to estimate bids faster and at a lower cost.
The key to understanding why this option offers the most benefit is that, out of all the methods mentioned in this article, outsourcing your estimating can help you bid at the highest volume.
In terms of speed, there is nothing faster than having a whole department of estimators dedicated to estimating your jobs and this is good news because of the Law of Large Numbers. What this law basically means in construction is that, the more you bid, the higher your closing rate will be.
If you want to grow your construction business, especially as a small contractor, the key is to bid as many jobs as possible and outsourcing your estimating is the best way to accomplish this.
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: