What is an estimate?
An estimate is a document that a seller constructs to outline the expected price of the goods and services requested by a buyer. Since estimates predict costs of a good or service, they don’t serve as a binding legal document but rather as a preliminary pulse on expected costs.
In residential construction, builders create an estimate for a construction project by detailing all the materials, labor, equipment, and subcontract work involved. Strong estimates also incorporate allowances and potential upgrades from the client. This ensures that the project stays on schedule and remains profitable.
Why are estimates important in residential construction?
Estimates are an essential part of the pre-construction phase within a building project. Builders + remodelers need an effective estimating system because these documents are critical to winning new clients and earning revenue. Poor estimating can result in lost clients, or worse, angry clients. When clients are searching for building companies to work on their project, they compare estimates from different companies to make a decision. If a builder completes a project at a price far above the estimate, the client may think they are overpriced. On the other hand, if a builder is too conservative with their estimates, he or she might lose clients to more aggressive builders. It’s a balancing act.
How do builders + remodelers estimate construction projects?
While the specific details of an estimate vary with the building company’s location, region, market, and clients, a typical construction estimate template will have several standard elements:
Strong estimates are structured, dividing costs into patterned groups. Many builders draft estimates based on the natural timeline of a construction project, or they borrow organizational structures from construction industry leaders such as the National Association of Home Builders or CSI formats (see the attached examples below). Some builders organize their estimates into two tiers of information while others use three tiers. A two-tiered structure lists cost categories and each category’s relevant costs. Three-tiered structures include more information for builders + remodelers who prefer to separate standard specification costs from selection costs. To keep everything streamlined, an organized builder will structure his or her estimate’s costs to align with the project’s budgeting and/or accounting formats.
Even if exact numbers and prices change, some of the standard math used to come up with the appropriate prices and profit in an estimate might be consistent from project to project. For example, some builders + remodelers always calculate concrete by leveraging the specific width or length of the area. Finding ways to set parameters to record these common measurements sets builders apart and creates a quick estimating system.
Most prices on individual projects vary on design and scope. Looking deeper, the average builder or remodeler may realize their base price per unit stays consistent while quantities and exact measurements change based on the size and scope of the project. If this is the case, builders should try to templatize these prices for future estimates. There are a number of methods available to help builders + remodelers master their estimating process.
Download CoConstruct's estimating template to get started estimating today.
1. Manual Methods
Most builders + remodelers in the residential construction industry use software to generate estimates and send them to prospects. Excel spreadsheets and Google Sheets are commonly used to list costs and quantities for different materials and tasks within a building project. Builders + remodelers often use this software because it is a familiar platform that produces digital copies of estimates. These more manual systems require careful organization and storage so projects don’t get intermixed, misfiled, or miscommunicated. While these systems allow users to duplicate previous versions to create new estimates, they still create distinct and separate documents. Updating prospective estimates with price changes, for example, becomes arduous.
2. Estimating Apps + Software
There are apps and software services available that help businesses of all industries generate estimates and send them to clients. Builders + remodelers can use these services to speed up their processes and maintain accuracy. These services include programs like STACK and QuickBooks. QuickBooks is designed to help track financials in any industry while STACK is primarily designed for construction. These software services speed up the estimating process, but are limiting for builders + remodelers who want to integrate their project financials with their estimating processes or even other project details such as the schedule timeline.
3. Integrated Construction Management Tools
While there are many estimating tools available to builders + remodelers, there are fewer programs that create a fully integrated building experience. In an integrated construction management software like CoConstruct, builders + remodelers can generate estimates and send them to clients through the program. Every management tool a builder or remodeler needs exists as a feature in CoConstruct. It’s like Google Drive, but designed specifically for construction management. All communication, scheduling, estimating, budgeting, and much more happens within the software. What does this mean? When a builder or remodeler enters the price and quantity of an item in a project’s estimate, that information is automatically entered into the project’s proposal and budget, plus available further on invoices, purchase orders, and change orders. Beyond tying project financial details together, integrated systems also incorporate templates and a cost catalog into the estimating process, making for powerful, quick, and up-to-date estimates. This makes life easier for builders + remodelers because they never have to enter the same information more than once.