How many times has one of your projects suffered from scope creep? Maybe you were more than a little optimistic about your time or budget for a project.
It happens to everyone, but it’s not always a major issue. The problem occurs when these things happen too frequently.
A long-term international study showed that some 86% of construction projects experienced cost overruns, and the average overage settled around 28%. That sounds like massive profit losses across the board.
Scope creep, miscommunications, and overly optimistic timelines and estimations aren’t uncommon for contractors handling remodeling work. They can be costly when left unchecked.
The good news is that many of these issues are preventable more often than not.
Stop settling for reduced profits due to things you can control. There will always be the unexpected to contend with, like a massive storm inflicting damage. Control what’s in your power to manage, and you can protect your profit margin.
What’s Preventing You From Being Competitive?
Sometimes the most challenging thing is figuring out where you have gaps. It’s not always easy to identify the issues impacting your profits, especially if you have already accepted that it’s part of your remodeling work.
Take a look at some of the common issues and see how they measure up to your company’s experience. It might be easier to spot trends if you know where to take a deeper dive.
Inaccurate Estimates Cut Down Profits
Accurate estimates establish a foundation for successful contractors, making it the best place to start if you want to stop losing money on remodeling projects.
You need to understand the costs of materials, labor, and any related permits or fees. That means knowing municipal and community rules on top of accessing current numbers and trends.
While you can’t account for everything, like damaged counters arriving, focus on what you can control.
- Talk with your subcontractors before assuming they can do a job in the time you think they can.
- Create contingencies for broken or missing materials to avoid delays.
- Use data from past projects to create a better idea budget cushion to reduce the fallout of cost overruns.
The more information you can compile to make better estimates, the better your profit margins will look.
You’re Too Slow With Submitting Bids
Gathering information is necessary, but don’t overdo it.
Taking too long to prepare estimates means you’re losing jobs to faster competitors. You need to balance having enough information with acting faster than your competition.
While you don’t want to submit a hasty proposal with estimates you can’t possibly meet, you could miss out if somebody else blows your client away.
Having a process in place that allows you to plug numbers in and create a custom proposal for each prospect is an excellent way to save time. Creating a template also ensures you don’t miss key figures that could skew your numbers.
You’re Missing the Mark With Pricing
Difficulty pricing a remodeling project due to unknown conditions and variables is often overlooked as a profit-gouging issue. Profitable projects rely on actual material and labor costs instead of guessing.
Speaking with vendors or researching material costs on your local home improvement site can make it easier to arrive at accurate numbers. Be wary of deep discounts for sales because they may not still be active by the time you are ready for the project.
The same can be said for subcontractors. If you haven’t worked with an electrician in a while and you know the project is going to require substantial work, make a call.
It’s worth checking in with somebody rather than guessing wrong and having to make up the difference elsewhere.
You Rely Too Much On Faulty Data for Guesstimates
Fudging numbers based on best guesses or pulling numbers of similar but lesser products can lead to gross underestimations. You need access to reliable cost data on materials and labor pricing to protect your profits.
Further, you need to make concessions for a project’s scope. If you or your subcontractors handle a blend of new build and remodel work, it’s important to note the differences between the two.
For example, you’re less likely to find mold or faulty electrical wiring in a new build than an older residence. Failing to account for those eventualities can leave you scrambling. Permitting may look a bit different in an older home as well, especially if there’s an HOA involved.
Sometimes you have to get back to the basics of estimating to ensure your numbers are where they need to be. It might be worth your time to create a checklist so you don’t miss anything.
Estimating Methods and Tools That Work
Home renovation and remodeling work is extremely competitive, though it’s predicted to see some increases over the next few years. If you want a piece of those profits, you need to prevent costly underestimating mistakes.
Use the Most Accurate Data
It’s simply not effective to track down cost information every time you need to write a proposal.
Keeping track of prices and rates for everything from materials to labor saves time and effort. However, you have to maintain accurate numbers for the tracking records to remain useful.
It may help to create a template that breaks down the typical costs you need to consider. Setting it up like a checklist with notes about specific quirks to consider is even better.
- Keep price lists updated. Checking in with suppliers regularly can prevent unexpected surprises due to rising costs.
- Track historical data to identify pricing trends, labor costs, and anticipate wear-and-tear on equipment.
- Conduct regular audits to identify problem areas and prepare for bigger purchases, like replacing worn-out equipment.
- Break everything into categories for easy filtering. Some jobs may not require every category, so it’s easier to get to the numbers you need.
- Address the outliers. Make notes if you know of certain neighborhoods that are difficult to work with and places where you need special permits.
Managing everything in one document makes it easy to find when you need to write up a bid. There are also platforms with built-in databases that maintain the information for you, making it easier to track pricing changes. You can then access the information you need with a few clicks.
Establish Sound Markup Strategies
Building in a cushion to cover unexpected costs is a sound business practice you probably already use to some degree. There is always room for improvement, and this may be one of those areas that could use a little restructuring.
You’re already customizing your proposal for each prospect, so you should give the same care to plotting your markups. Given the potential impact on your profit margin, it’s only fair to adjust your markup price calculations based on the individual project scenario.
For example, you are more likely to experience permit delays on some projects. Dealing with an HOA or a particularly sticky city ordinance creates more risk than a more relaxed neighborhood with no HOA interference.
Likewise, walking into a much older home means there’s a greater chance of running into a structural issue than in a newer residence.
In these situations, you need to have all the facts about what you’re walking into so you can make a more accurate estimate and maximize profits. Take the time to fine-tune your markup strategy to deliver a more accurate estimate for each project.
Construction Software Maximizes Your Time and Profits
Have you ever mistyped a number only to have it cause a ripple effect that threw off your calculations? From a missed stroke or misplaced decimal point to forgotten entries, there’s a lot of room for error when you’re doing everything manually.
Electronic estimating tools improve your accuracy and speed while reducing costly manual errors.
Working faster with more accurate numbers means you can put bids together and deliver them ahead of your competition. Making yourself more competitive increases your chances of winning more projects.
Using software for your estimates has additional benefits, like boosting collaborations with your partners. It’s easier to share information and ensure everyone is on the same page, with a complete understanding of a project’s scope. There’s less room for costly miscommunications.
Again, you can do all of this manually, but it takes time and probably at least one more set of eyes to ensure everything is up to par.
Using software, like Contractor Foreman, can streamline everything and reduce the risks of costly mistakes. It’s faster and more efficient, which gives you the time and money you need to do other necessary tasks.
Stop Making These Three Estimation Mistakes
There are almost limitless ways to mess up estimations on remodeling work, but some are more common than others. These three issues also happen to be some of the simplest to correct.
1. Inaccurate Inventory Management
Even if you keep limited materials on hand, you probably still have something. Maybe it’s extra paint or drywall from overestimating on a job. Perhaps it’s a bathroom vanity that didn’t quite fit.
Keeping unused items around to use on other jobs is a great idea, but only if you remember you have them.
Misplacing materials or forgetting you have them is a waste. You need a plan to track the materials you have on hand so you can use them.
Beyond your excess materials, there’s also equipment to consider. Do you know the current usage on every piece of equipment you own?
Accurate records give you better oversight to plan equipment maintenance and replacement.
A spreadsheet is an effective solution for managing this information. However, construction software makes it easier, more efficient, and shareable with your team.
2. Ignoring Change Order Tracking
Change orders are unavoidable, but there are ways to reduce their impact. What does this all have to do with estimations?
Well, it doesn’t really matter if you don’t use software to manage change orders and then leverage that data when building estimates.
Tracking change orders and integrating that information with your estimating systems means you can apply the impact to your job costing.
For example, say there’s a vendor that historically experiences delays in getting materials to you and it’s reflected in change orders from past jobs. You know you need to use that vendor to complete the job you’re bidding on. With the historical data, you can adjust for the likely delays.
3. Underestimating Indirect Costs
Failing to account for indirect costs can crush profits. This is another area that may require a list or template so you remember to address them in any relevant bids.
It might seem simple, but that’s the point. Missing something so simple could have dire consequences, and you’ll feel that much worse if it’s something you shouldn’t have skipped.
Creating a list of indirect costs, like permits and insurance, ensures you don’t miss anything. It can also be used to gain your client’s respect. Being transparent about these fees can go a long way, especially if your competition doesn’t include them.
A Systematic Approach To Remodeling Work Estimates That Boosts Profits
Finding the balance between delivering competitive estimates and protecting your profit margins might seem impossible with all the room for missteps. Adopting a systematic approach to estimation is the key to boosting profits.
Establishing a reliable system that’s also customizable for each project isn’t just doable; it’s necessary. Taking the time to craft templates and checklists makes your job easier and saves you time.
Further, improving your tracking and inventory systems gives you better oversight to make more informed decisions and deliver more accurate estimations.
You now have everything you need to do this manually with the simplest of tools, like spreadsheets. However, it’s not going to save you much time, and there’s still too much room for human error.
Contractor Foreman eliminates the time suck and chances of human error with a collection of tools to streamline and automate the process.
Book a Free Demo to see how much easier your estimation process could be with Contractor Foreman’s end-to-end suite of project management tools.
