Estimating: The Foundation for Financial Success for Builders

When you first launch your business, it’s common to accept any job, for any client, at almost any price. You’re often juggling multiple responsibilities without the resources to delegate tasks.

While this approach is understandable in the early stages, it must evolve as your business grows. A critical area worth dedicated resources or significant personal attention is your estimating function.

Set for success or doomed from the start?

Financial success in the building industry begins with accurate estimating. Other essential processes contribute to your project’s profitability, but a solid estimate provides the foundational financial framework and peace of mind as your project progresses. It becomes your plan and your benchmark for success.

We regularly see poor estimating lead to project losses. In an industry marked by volatile material and labor costs, thin margins, and numerous variables, there’s no room for estimating errors. With tight margins, risks multiply exponentially.

Effective estimating delivers three clear benefits:

• Underpins your desired profit margin by accurately identifying and pricing all project costs.
• Provides detailed cost breakdowns so you can use these to track actual expenditures against projections, enabling real-time insights into project profitability.
• Projects professionalism, especially important when tendering for larger projects or interacting with other industry professionals.

Estimating Technology

Transitioning from traditional methods like paper-based quotes or Excel spreadsheets to cloud-based services such as Buildxact provides significant advantages:

• Efficiency and Accuracy: Automates repetitive tasks, reducing human error.
• Accessibility: Centralises information, making it accessible anytime, anywhere, enhancing team collaboration.
• Integration: Seamlessly connects with other business software to streamline operations.
• Scalability: Easily adapts as your business expands, managing increased project volumes without added complexity.
• Enhanced Project Management: Supports comprehensive management features like scheduling and resource tracking. Explore the Cost Tracking Dashboard we’ve developed with Buildxact.
• Data Reusability: Allows easy reuse and refinement of previous estimates.

If you’re already using Buildxact or a similar platform, consider enhancing your use by adding greater detail upfront and consistently tracking actual costs. Regularly updating your “recipes” to reflect learnings from previous projects can help you avoid repeating past mistakes.

The Devil is in the Detail…

As mentioned earlier, accurate estimating is deeply tied to detail. Pay attention to these areas to stay on track:

• Detailed Plans: Ensure clarity by quoting from comprehensive architectural and engineering plans rather than vague concepts.
• Specification and Scope Clarity: Clearly define product specifications, project scope, and procedures for handling substitutions and variations.
• Construction Techniques: Assess the complexity of your build honestly. Confirm if specialized labor or equipment is needed and thoroughly research unclear areas.
• Comprehensive Costing: Include all costs, such as contract administration, site supervision, and relevant owner wages if directly involved onsite.
• Beware Labour Costs: Labour costs are frequently underestimated. Be realistic about task durations and ensure hourly rates account for benefits, entitlements, and potential downtime.
  Download our free pricing calculator to accurately determine labour rates.
• Margin vs. Markup: Many businesses still confuse these concepts – don’t be one of them! Visit our quick guide on Margin vs Markup to clarify.

What’s your margin?

Determining your margin involves more than defining your desired Gross Profit (GP) or Net Profit (NP). It’s about strategically pricing your projects to ensure profitability, including:

• Profitability per item/stage: Some project aspects will have tighter margins than others, so ensure overall profitability balances across stages.
• Risk Mitigation: Always include buffers in your pricing for unforeseen expenses or delays.
• Provisional Sums: Consider including provisional sums when pricing items that are challenging to estimate upfront, adhering to industry guidelines.
• Market Benchmarks: Understand typical margins for your project type (renovation vs. new build, residential vs. commercial) to stay competitive yet profitable.

We specialise in building and construction, supporting builders across residential, commercial, and civil projects. If you need margin benchmarks specific to your projects, reach out, we’re here to help.

Transparency and Quoting Strategy

Balance transparency regarding margins with clients while ensuring your business remains financially healthy. Regardless of what margin information you disclose, always clearly understand your actual estimate and use this, not the client-facing quote to measure performance.

Who’s doing the estimating?

Another critical consideration is whether you continue estimating yourself, outsource, or employ a dedicated estimator. Here’s what to think about:

• Owner/Estimator: Initially unavoidable and can remain beneficial due to the direct link to profitability. However, honestly evaluate your skill level, the opportunity cost of your time, and if you’re becoming a growth bottleneck.
• Outsourcing: Reduces inaccuracies and enhances professionalism, particularly beneficial for complex projects. Services like Vision 2 Estimating provide advanced tools like 3D models, but remember outsourced estimates are only as good as the information provided. Always review and refine external estimates.
• In-house Estimating: As your business grows, employing a dedicated estimator can closely align estimating with your strategies, freeing key team members for business growth.

Your Estimate is the Yardstick for Profit

When you put together a detailed estimate, you’re not just pricing a job — you’re setting the benchmark for how you’ll measure performance as the project rolls out.

A solid, detailed estimate becomes your yardstick. Every cost you track, every invoice you approve, and every variation you quote can (and should) be compared back to that original estimate.

Why does this matter? Because without that reference point, it’s nearly impossible to know how you’re tracking. You might be spending more than expected on labour. Your materials might be running over. Or you might be ahead on some areas but falling behind on others. Unless you’ve got that detail at the start, you’re flying blind.

Back costing (or job costing) only works if you’ve got something reliable to measure against.

That’s why the detail matters. The more accurate and itemised your estimate is, the easier it is to track your profit — not just at the end of the job, but all the way through.

And that gives you the power to make real-time decisions:

– Can we recover this cost overrun?

– Are we still on track to hit our margin?

– What do we need to change before it becomes a problem?

It’s not just about staying organised. It’s about protecting your bottom line.

A Good Budget Will Set You Free!

Answers about when and how to expand your team become clearer when supported by a robust budget. Check out our Budgeting for Builders template, including an instructional video.

Estimating is vital, and having a clear plan for managing it effectively is essential. Whether it involves improving your processes, technology, or staffing strategy, it’s crucial to keep your estimating function sharp.

We support hundreds of builders across Australia on projects from small renovations to major commercial and civil developments. While we don’t directly provide estimating services, we offer expert oversight and guidance, ensuring your systems effectively track costs and capture insights for future improvements.

Ready to strengthen your estimating process? Contact us today for a free consultation with our CFO Advisory team.