Going over budget on a job can really take a hit out on your profit, can't it? Sure, inflation can creep in at any stage of the project - there's nothing you can do about that. But inaccurate (or lazy) cost estimating at the beginning of a job makes the most significant dent in your potential income.
So, getting your estimates right at the start of every project is crucial if you want to avoid problems later. If you don't already have a functional cost estimate template for your business, today's the day! Let's whip your business finances into shape and ensure you're maximising your profit potential on every job you do.
What is cost estimating?
Cost estimating is the process of tracking and documenting all the costs associated with a job. The data you collect and input into your cost estimate template will give you an estimate of your revenue, which will help you determine whether or not you are charging enough for your services. If you aren't familiar with cost estimating, take a look at the how-to job costing guide that every tradesperson should read.
Cost estimating is dependent on factors such as:
- The size of the job
- The time it will take to complete
- Equipment running costs and depreciation
- The quantity and cost of materials you will need for the job.
Cost guestimating vs using a cost estimate template
For very small or repetitive jobs, an experienced contractor will likely be able to come up with a quick cost estimate in their head. A guestimate, if you will. After all, they know how long these jobs will take, how many staff members they will need and which equipment to use. However, your revenue could be severely undercut when you allow your crew to conduct cost estimating in their head. They won't factor in the less obvious costs, like:
- Car depreciation
- Equipment depreciation
- Wages for office staff/bookkeeping costs.
That contractor may make a cost estimate in their head that includes their own wage, but they may forget that the company still needs to pay the receptionist who booked the job in the first place.
Businesses cost a fortune to run, and when you don't use a cost estimate template correctly, it can mean the difference between a high revenue and scraping through by the skin of your teeth.
The goal of job costing
The goal of job costing is simple.
- To understand each job's profit and loss and how those figures will affect the future of your business.
- To use historical data to refine your business practices, establishing a more accurate pricing structure in the future.
- To uncover unnecessary business costs and inefficient practices that affect your revenue.
What is an estimate template?
Cost estimate templates come in various forms, but they share some characteristics.
A cost estimate template should include:
- Numbered lists showing the materials needed to complete the job
- A breakdown of how many employee hours are necessary to finish the project
- A timetable providing an estimated completion time.
You can make a cost estimate template in a number of ways depending on how much you want to spend (or if you wish to use free tools), how much work you want to put in initially and how much work you want ongoing.
Pro tip: the more work you put into your cost estimate template in the beginning, the less work you'll have ongoing.
Why Do You Need a Cost Estimate Template?
Cost estimate templates are essential for three reasons:
- They provide insight into how long a project might take and how much it may cost. Although these analyses are just estimates, they should still give an accurate breakdown of the various costs associated with a project.
- These estimates also allow you to plan out the different phases of the job and acquire the necessary materials.
- They can be a valuable resource for later projects. For example, if a cost estimate template predicts that a job will cost $6,000 but ends up costing $8,000, you can use this information to improve your estimates and revenue for future jobs.
Project Cost Estimate Template
When an estimate is too low, you'll be out of pocket. Too high, and you'll scare away customers. Either way, inaccurate cost estimates are simply unprofessional, and that could have a lasting negative impact on your business. You need an efficient, easy-to-access cost estimate template available to all your staff on the go. That will allow them to create job estimates on-site with consistency - every time.
Using a Project Cost Estimate Template
Whether you have an established trade business or you are starting your trade business from scratch, you can save yourself valuable time and money by doing your cost estimating with a project cost estimate template technology. You can input values based on your business and experience to create consistent cost estimates for every job. Seriously - let technology manage the cost estimating process for you! It will take the human element of "opinions" out of the equation.
Cost estimate template technology is available in many different forms. You could use a simple spreadsheet template, or dive into an online collaborative software with features that optimise your cost estimating process.
A cost estimate template helps create an accurate estimate - one that is sure to make a good impression and, ideally, land new business.
If you're planning to create a cost estimate template for your business, here are some pointers to help you get started:
1. Materials data
Keeping an accurate and up-to-date record of the materials you regularly use in your jobs will help you create fast cost estimates. Let's use our own technology as an example. AroFlo's material management module lets you keep track of your materials and parts, whether in the field or in the office. You simply select an existing element from your inventory, and these materials will be put onto the job with their cost, markup and sell price figures. With access to such technology, you can instantly calculate costs and determine your profitability in the field or the office.
2. Employment costs
Knowing your employment costs per job will help you determine how much money is necessary to spend on employee pay during a job. For this aspect of cost estimating, you'll need to know how much each of your workers will cost you per hour in the field, how many hours they will need to complete the job and decide how many crew members you think are necessary to complete a job.
Finding a technology that provides a time entry interface is so useful - it'll allow you to book hours directly against a job so you can keep track of how much the labour is costing you.
3. Subcontractor costs
When you regularly work with subcontractors, you'll have an idea of what they charge for their services. It's crucial to keep track of the fees for these services to develop an accurate cost estimate.
4. Progress data
It can be useful to update your cost estimate template with progress information as the job happens. This can be useful for your customers, who can keep abreast of the progress. It can also be helpful for you to ensure the job is on track and not costing you additional wages fees for overtime.
An accurate cost estimate template is the key to healthy business growth
Job cost estimating allows you to settle on a pricing structure within your company to keep your prices consistent across the board. You can then be confident that your business's profits will meet and exceed your cost estimations.