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Estimating Projects

Discussion in 'Irrigation' started by PurpHaze, Jan 28, 2006.

  1. PurpHaze

    PurpHaze LawnSite Fanatic
    Messages: 5,496

    From time to time we get questions here from guys/gals asking if their bid on a certain job is high/low. I found the following on the Hunter website and thought it was short enough to post yet contained insights that most already take into account when estimating a job. Take it with a grain of salt and your mileage may vary. :p

    "Industry Expert: When Estimating Bids,Your Costs are More Important than What Competition Charges"

    Jim Huston, the irrigation industry’s authority on bidding and estimating, recently gave a two-day workshop to Hunter Preferred Contractors from all over the country. Huston provides readers with the key message of what was discussed at the sold-out seminar.

    Too many contractors miss the point of estimating. They simply try to set their bids against what the competition is doing. Instead, they need to have a better grasp of what is going on in their own company.

    Contractors need to take a close look at their books and understand their expenses and the cost of operating a business. Once they see what those costs are and how they need to be able to recoup them, they’ll have a better feel for what they really should be charging their customers.

    You can’t simply see what everyone else is charging and then try to undercut them just enough so that your lowball price gets you the job.

    Obviously, you need to start by determining your direct costs – i.e., the price of the labor and materials directly related to the job. Needless to say, most contractors are already doing this.

    Next, you need to establish the indirect costs on an individual job…this is what many of you may be overlooking. Indirect means anything not directly tied to a particular job – general and administrative outlays such as advertising, office equipment, insurance and licenses. These costs need to be accounted for, but they are not tied to a single job.

    Once you have determined these costs, markups are added in. Markups would include – but are not limited to – profit, overhead, labor burden and sales tax.

    After this, the break-even point for the project is identified. A contingency factor and net profit are added to the break-even point in order to arrive at the final price.

    It is these two numbers – the break-even point and final price – that you are constantly attempting to identify during the estimating process. The break-even price determines how low you can go to get the job and cover all costs. The final price is subjective and addresses how high you can go and still get the job.

    To establish this price ceiling you need to ask yourself what pricing structure the market will bear, including how much gross profit margin you can add before you lose any realistic chance of winning the bid.

    Another important factor that many contractors tend to overlook is the impact that equipment costs can have on operating costs. Did you buy yourself a brand new skid loader and only use it on one job in two years? How are you going to recover that expense? That piece of equipment needs to be accounted for in setting the price for every job you bid – not just the jobs that require use of that equipment – if you ever expect to cover the cost incurred by its purchase.

    You need to get a grip on what the cost of doing business is, in order to set a price that will attract the job AND produce a profit for you.

    Almost forgot... If anyone wants to read more interesting business articles they can be found at http://www.hunterindustries.com/Resources/Library/business_topics.htm#Anchor-Estimating-47857

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