Competing in today’s construction market is tough. To keep your company profitable and growing, you need to understand the importance of project cost estimation–both what it is and how it can help you succeed. The simplest explanation that I can give you is that cost estimating consists of converting the components of your construction jobs into budgetary numbers. Your results will help you understand how much your business should charge for each project.

As easy as it may sound, ensuring that your job estimates are accurate can actually be quite challenging. There is a fine line between an appropriate bid and a poor bid; some poor bids could be high and lost to someone else, or they could be lower estimates that result in little to no financial success.

The complexity of cost estimations is deeper than budgetary numbers and appropriate bids, though. You need to determine who should be responsible for this process. Many businesses separate the selling and cost estimation processes, but that is probably not the right way to go. One person should be handling both the sales and estimates.

Here are some important tips that you can use to accurately implement your estimation process:

Create a clear construction plan

If you’re going to conduct a good quality project, you’re going to need a good quality guide. Whatever you do, do not make the mistake of using hand-drawn plans for your estimations instead of official blueprints. Proper plans will provide you with a more accurate and precise vision of the project’s goal, so it is always better to use them. Believe it or not, many construction companies commonly use improvised drawings for their estimations, and these same companies are typically less successful than those who use the proper plans. Now that you know that it is better to use official, approved plans, you can avoid making such a common error and save your business some money!

Develop an accurate checklist

As this is a crucial step in cost estimation, you should take your time to make a list of the necessary items, tasks, and steps for each job. Especially make sure you include things that are easy to forget, like landscaping, permits, insurance, etc. Creating checklists will help you keep track of everything you need to get done and keep your business organized.

Analyze the costs of labor  

Determining an appropriate hourly rate for labor workers (especially specialty workers of craftsmen) is essential to the success of your company. The cost of labor is a large portion of the estimation process; the cost can be determined by the length of the worker’s tasks, the hourly rates, and the crew rates as well. Have your rates established within your company to use as a guide for estimation for current and later projects–and make your future work much easier overall.

Perform job costing

Doing accurate job costing can become very useful for future project estimates. Analyzing old projects will help you determine any past errors that could have unnecessarily cost you money, and by identifying the problem, you can address it as necessary. When job costing, check to make sure you include operational, project support, and all project-related expenses that may fall under material and labor costs (Some of the most common ones include legal services, administration and operational costs, and cost of utilities). Job costing can and will benefit your business in the long-run; try it out and you’ll see!

Buy proper equipment

Before you begin the construction phase, you need to be sure that you have to appropriate equipment that meets the needs of the capacity of your job. While calculating estimates, it may be beneficial to also determine which tools and equipment will be the most cost-effective. Some jobs require special equipment that you might not own, so for those, you will have to rent the best and most costly equipment for the job. For each job, you need to determine which equipment will save you the most money while also providing you with the best performance so you can generate the most profit and highest quality work.

Rely on subcontractors

To avoid unpleasant surprises along the way, you should probably check your subcontractor’s quotes first. Invest time into comparing quotes from various subcontractors who have specific scopes of materials and labor. Always hire a subcontractor that gives you firm estimations, and avoid accepting offers with cost-plus bids.

Bid smartly on the market

Make records of each of your previous bids and their results so that you can get a clear picture of where your business has the highest chances of success. By keeping track of which kinds of jobs brought you success, then you can bid on those same kinds of jobs. On top of that, avoid investing or bidding on jobs for which your competitors are making lower bids; that way, you won’t get yourself tangled in any unprofitable projects.

Present your quote properly

First things first–make sure you submit your quote on time to avoid looking unprofessional. Missing your deadlines damages the credibility and reputation of your business; to ensure that you meet deadlines, send out quotes via email or postal mail. If you really want to close a deal, submitting your quote in person is your best bet. You have the chance to interact directly with clients and provide additional information or answers right away. While we may live in the era of technology, face-to-face interactions are still much more intimate and persuasive.

Follow through to the final execution

Providing accurate cost estimates and winning the best bids is only the beginning of your path to prosperity. The ultimate outcome truly depends on the execution of the project; be sure to stick with your plan and manage your time correctly. Organizing all the details of your jobs beforehand will not only reduce any potential errors, but you will get a head-start on all of the work to come.

Managing a business and competing against others is difficult, especially since the market is always changing and innovation is constantly brought to the table. However, you can easily smoother your workflow by improving the way you do your job estimations. If you implement the above tips into the workplace, you are sure to generate both growth and profit for your company!