Misquoting jobs can mean you are already on the backfoot before picking up any tools. Having a consistent estimation procedure in place is just good business.
Most plumbers would prefer to pass on a project and lay on a beach somewhere, than to under quote the job and work themselves bankrupt.
Estimating or quoting, is fundamental for any plumbing business to be successful in a service-based business as potential clients will almost certainly request a quote from you before giving you the job. If the job has been priced correctly, then it is fair to say you’ll make a decent profit. Get it wrong, and you may lose money and unfortunately, in some cases, much more.
The competitive landscape of the plumbing industry has evolved over the past few decades. Clients and builders are highly motivated to reduce costs and get value for money when building a project, sometimes accepting the lowest submitted price in order to achieve a set budget. This practice can be to the detriment of the plumbing contractor. As the margins get tighter and projects become more fiercely contested, it becomes much harder to successfully bid for a project. In recent years, it’s not uncommon to have over 20 other plumbing companies competing for the same contract. The chances of winning the contract are slim, and then to make a fair and reasonable profit becomes extremely concerning.
So, what’s the solution to reducing the risk of falling into the trap of under-quoting projects? Simple: be consistent and know your bottom line.
Implementing a comprehensive estimating system that you have confidence in is vitally important, especially if you aim to achieve accurate quotes on a consistent basis.
Consistency can only be achieved through experience, practice and lots of record taking. It’s like anything else in life, ‘practice makes perfect’ and estimating is no exception.
It is very important that you give careful consideration when deciding which method of pricing is suitable for your business.
Here are some key features a good system should include:
– Accuracy: have confidence in the submitted price
– Efficiency: the system should be quick to use
– Flexibility: can modify a rate to suit each project
– Good reporting: complete specific project break down
– Transparency: see how each cost has been calculated
There are a few different ways plumbers price a project, each have their advantages and disadvantages. The most common is educated guessing. This is when you look at the project and from past experiences of a similar job; you throw a number at it and wait for the builder to tell you if you’re “on the money”. It’s impossible to know the projected profit margin using this method. Another is per point pricing. This where the total number of fixtures (points) are tallied and multiplied by an amount resulting in the project price (eg. 15 points x $2,500.00 = $37,500.00). These methods of pricing are quick and easy, but are thwart with danger as they don’t take into consideration the different requirements of each project.
The most accurate form of estimating is the ‘standard rate method’ as it creates a consistent benchmark for each individual component of the project. The advantage is that each standard rate can be easily modified (if required) to suit the different site/project conditions. This type of pricing is quick, accurate, flexible and completely transparent.
HOW THE STANDARD RATE METHOD OF QUOTING WORKS
STEP 1: Measure a complete take-off for the project and enter the details/quantities into an estimating program. This will result in having the ‘first cost’ of the project, which is the cost to install all the required works (labour, materials, excavation and backfill).
STEP 2: Add the ‘preliminary costs’ of running the project (supervision, wet weather, equipment, etc). This is usually entered as a percentage (around 8% should cover the prelims).
STEP 3: Add your businesses ‘overhead cost’ (cost of running your business verses the turnover) and add it as a percentage. An average sized plumbing business may have an overhead cost of around 14%, but your accountant can give you this information. The total of the above (first cost, preliminaries and overheads) is the absolute bottom line of the project.
STEP 4: The final and most important step of the entire process is to calculate and add the projected profit you wish to make on the project. This is entered as a percentage, which will calculate the dollar amount of the expected profit.
You can contact us if you have any questions about estimating.