Underestimating Material Costs
Prices for materials can fluctuate, and if you don’t account for this, you might end up paying more than planned. For example, timber or steel prices could rise after you’ve already quoted the client.
As a builder or tradie in New South Wales, Victoria, or Queensland, setting up an accurate estimate for a project is one of the most important tasks you’ll do.
If your estimate is too low, you could end up losing money or working for free. If it’s too high, you might lose the job to a competitor. This article will explain how to set up a solid estimate, highlight key risks you face, and offer tips to help minimise your chances of losing money.
What is an Estimate?
An estimate is a detailed calculation of the total cost of a building or trade project. It includes the cost of materials, labour, permits, and any other expenses related to the job. A good estimate helps you avoid unexpected costs and ensures you make a profit.
Key Risks When Estimating a New Project
Incorrect Labour Costs
If you miscalculate how long the job will take, you may pay more in wages than you planned. This is especially risky if you underestimate how many people or hours are needed to complete the work.
Overlooking Hidden Costs
Some costs might not be obvious at first glance. Things like permits, equipment hire, or disposal of waste can add up quickly if not included in your estimate.
Not Including Contingency Plans
Unexpected issues can arise, such as bad weather, supply delays, or problems with existing structures. If you don’t include a buffer for these unforeseen events, you could face extra costs.
Errors in Measurements
Incorrect measurements can lead to buying too many or too few materials, causing you to spend extra on returns or reorders.
Not Factoring in Profit
Forgetting to include a margin for profit is a common mistake. You need to ensure that your estimate covers all costs and leaves room for profit, so you aren’t just breaking even.
Tips to Minimise Risks and Avoid Losses
Here are some practical tips to help you create accurate estimates and reduce the risk of losing money on your next project:
Get Clear on Project Scope
Before starting your estimate, make sure you fully understand the scope of the project. Have a detailed discussion with the client to clarify the work to be done, including any potential changes or additions. The more specific you can be, the better.
Tip: Use a checklist or template to ensure you cover all areas, from demolition to final touches.
Use Updated Material Prices
Always check the latest prices for materials. Don’t rely on old information, as prices can change frequently. Speak to your suppliers and get current quotes for all materials needed.
Tip: Build a small margin into your material costs to account for price fluctuations.
Be Accurate with Labour Costs
Calculate how long each stage of the project will take and how many people you’ll need. Factor in any overtime or special skills required, and don’t forget to include the cost of subcontractors if needed.
Tip: Use previous jobs as a guide for how long certain tasks take. This will help you estimate more accurately for future projects.
Account for Hidden and Extra Costs
Include all extra costs in your estimate, like:
- Permit fees
- Waste removal
- Site preparation (e.g., scaffolding or earthworks)
- Insurance costs
Tip: List all possible hidden costs so you won’t miss anything and have to pay for it out of your own pocket.
Add a Contingency
Include a contingency (typically 5-10%) to cover any unexpected costs or delays. This gives you a financial buffer to deal with surprises like poor weather, delivery delays, or unforeseen problems at the worksite.
Tip: Make sure your client knows about the contingency, so it doesn’t come as a surprise if it’s needed.
Double-Check Measurements
Always double-check your measurements before ordering materials. Even small errors can lead to significant cost increases or delays if you need to order more supplies or fix mistakes.
Tip: Use digital tools or apps to help you measure accurately and track materials.
Don’t Forget Your Profit Margin
Make sure you add a reasonable profit margin to your estimate. This ensures you’re compensated for your time and expertise, not just covering costs.
Tip: Aim for a margin that reflects your business needs, usually between 10-20%, depending on the project size and complexity.
Use Estimation Software
Consider using software designed for builders and tradies to help you set up accurate estimates. These programs can calculate material quantities, labour costs, and help you avoid mistakes.
Tip: Some popular estimating tools in Australia include Buildxact, Cordell, and CostX.
Example Scenario: Setting Up an Estimate for a Home Extension in NSW
Let’s say you’re asked to quote for a home extension in NSW. Here’s how you’d approach it:
Scope of Work
Discuss with the client all details, including the size of the extension, materials to be used (e.g., brick, timber, glass), and expected finishes.
Material Costs
Get current prices from local suppliers for bricks, timber, windows, etc. Build in a small margin to account for price changes.
Labour Costs
Estimate how many days it will take for each stage (e.g., foundation, framing, roofing) and calculate the number of workers needed, including any subcontractors.
Hidden Costs
Don’t forget to include permit fees, equipment hire (e.g., scaffolding), and waste removal services.
Contingency
Add a 5-10% buffer for any unexpected issues like delays due to weather or material shortages.
Final Estimate
Make sure you add your profit margin on top of all costs.
Setting up an accurate estimate is crucial to protect yourself from losing money on a project.
By understanding the scope of the work, keeping your costs updated, accounting for hidden expenses, and including a contingency and profit margin, you can ensure that your estimate is realistic and profitable.
Using these strategies will help you avoid the common risks of underpricing or missing important costs, keeping your business healthy and your clients happy.
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