Learn what to include in your estimates as a start-up or small home service business, including materials, labor, total cost, and company information. Discover the pros and cons of itemized estimates and the importance of transparency.
As a home service provider, one of your most important tasks is crafting comprehensive estimates for every job. Whether you provide cleaning services or do general contracting, accurate estimates are essential for setting expectations and helping you prioritize your work. Read on to find out why comprehensive estimates are so important and what you can do to make the estimating process a little easier.
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Why Comprehensive Estimates Matter
Comprehensive estimates are critical for businesses of all types and sizes, as they help you and the customer understand what to expect in terms of pricing and scope. If you don't provide an estimate before you start a job, there's a good chance you'll be blindsided by the true scope of the task once you arrive on the customer's premises.
For example, the customer might tell you they have five rooms to clean, but when you arrive, you find one of those rooms is a catchall for every object they've owned since the 1980s. Then, you're put in the awkward situation of deciding whether you want to do the job for the agreed-upon price or tell the customer they have to pay more than they expected.
Estimates are essential for scheduling projects and allocating resources accordingly. If you don't provide an estimate before you start a new job, you won't know exactly how much time to set aside for the project. It's also more difficult to determine if you need to hire additional subcontractors. If you take the time to create a detailed estimate, you can avoid these problems.
Shared Cost Allocation
Depending on how you structure your business, you may end up partnering with other service providers at some point. When that happens, you need to allocate costs and revenue accordingly. For example, if you agree to pay 75% of all project expenses and take the other 25% out of a partner's share of the revenue, you need to create a comprehensive contractor estimate to determine how much you can expect to spend. In this case, a good estimate also helps your partner determine if the project is worth their effort.
Accurate contractor estimates are also critical for managing your expenses. When you create an estimate, you use the data to determine how many subcontractors you need to hire and how much you need to spend on materials and equipment. If your calculations are off, you'll have to eat the extra charges, reducing your profit. You may even lose money on the project, which hurts your cash flow and makes it more difficult to run a successful home service business.
Comprehensive estimates eliminate the need for customers to guess what's included with each job. When customers have realistic expectations, there's a lower risk of disputes once you finish the project and issue your final invoice. Producing a detailed estimate can also save you time, as customers are less likely to ask complex questions if you provide as much information as possible during the estimating process.
Essential Elements of an Estimate
Your contractor estimate should include these components:
- Job scope: List everything the homeowner asked you to do as part of the project. Defining the scope of the job makes it easier to set a price that helps you turn a profit without making the customer look for a less expensive home service provider.
- Materials: Provide a general overview of the materials you'll need for the job. You don't need to account for every screw — and you shouldn't — or the customer might feel slighted if you use 30 screws instead of the 40 you quoted. Depending on what type of service you provide, your materials list may include lumber, nails, screws, cleaning supplies, fertilizer, mulch, and other items.
- Estimated labor costs: If you have employees or subcontractors, you'll need to account for the cost of hiring them for the project. Don't forget to include your labor as well.
- Total cost: Add up your materials and labor costs to get the total anticipated cost of the project. Make it clear this estimate only applies to the current scope of the job. If you agree to install a new shower and then discover a rotten wall behind the existing tiles, you'll need to charge more to address the problem.
- Contact information: Make sure the customer has your company's mailing address, phone number, and email address in case they have any questions about the estimate. If you provide a digital estimate, make sure it has a button that leads directly to the booking page on your website.
The Pros & Cons of Itemized Estimates
To itemize or not to itemize — for many home service providers, that's the only question that matters. There's no rule that says you have to itemize, but there are a few benefits to doing so. First, it increases transparency. In many cases, customers don't realize exactly how much work goes into even the simplest home projects. Providing an itemized estimate is an easy way to ensure a customer understands exactly what you need to do to achieve their desired outcome.
Itemizing also makes it easier to justify your pricing decisions. With a detailed contractor estimate, customers can easily see how much each item costs, helping them understand why a job is priced the way it is. Finally, providing an itemized estimate helps customers understand how project changes are likely to affect them. For example, if you bid on a kitchen renovation, you might include laminate countertops in your pricing. If the customer wants to upgrade to marble or granite, they'll know that the total cost is going to increase accordingly.
Despite these benefits, itemizing does have some drawbacks. One of the main disadvantages is that you end up focusing on the cost of each item instead of the value you bring to the project. You want customers to hire you for your knowledge and expertise, not because you can give them the best price on nails and bolts. When you itemize, there's also a chance customers will haggle over the cost of every little item, increasing the amount of time it takes to get the go-ahead on a project.
Transparency in Estimating
As noted above, providing itemized estimates increases transparency, which is essential for building trust with customers. Transparency involves acting with integrity and being honest every time you interact with a customer, supplier, employee, or subcontractor. When you create estimates with transparency in mind, satisfied customers are more likely to trust you, leading to repeat business and an increase in referrals. A high level of transparency is also essential for increasing retention rates and building a strong reputation in your community.
Follow these tips to increase transparency in your estimating process:
- If possible, include the technician's name and credentials, especially if they have a national certification that can help justify the amount you're charging for labor. You don't have to include their full name, just their first name and last initial. In fact, it's wise to avoid providing a technician's full name, as there's a small chance the customer will try to poach your employees or subcontractors out from under you.
- Provide the name of each part, including the brand name, quantity, and size, to justify the amounts you're charging for materials and equipment. For example, if you have to rent equipment for a specific project, make sure the estimate contains language like "Bobcat E10 excavator rental."
- Make sure the job scope is well-defined in the estimate. You don't want customers to be shocked when their project goes over budget because they decided to make several expensive changes right in the middle of the job.
Estimate Your Way into More Revenue
Many home service providers see estimates as a waste of time, but the truth is that a good estimate can help you make more money. When you provide a detailed estimate, the customer understands what's involved with each project and has the information they need to determine if they're ready to move forward. If you need to generate more leads before you can focus on estimating, contact CraftJack. We verify every lead before we share it with you, ensuring you only contact people who are truly interested in your offerings.
Frequently Asked Questions
What Should I Do If I Forgot to Include Something in My Estimate?
If you forget to include something in your estimate, the omission could have a big impact on the price of the job. How you handle it depends on the size of your error. If it's a matter of $50 or $100, you might want to absorb the cost instead of admitting to the customer that you made a mistake. It's not worth damaging your relationship with the customer over such a small amount of money.
If you made a $1,000 mistake, however, you need to let the customer know right away. After you apologize for making the error, give the customer an updated estimate with the missing item(s) included. Let them know you understand they may not be able to move forward based on the new estimate.
The best way to deal with omissions is to prevent them from happening. Consider creating a checklist you follow every time you create a new estimate for a potential customer. Depending on what type of work you do, you may need to create a few custom checklists to use for different types of projects. If you have team members help out with estimating, make sure they use the checklist as well.
How Often Should I Update My Estimates?
If you bid on a job today, there's a good chance the cost of labor and materials will increase 9 months from now. That's why it's important to put an expiration date on each estimate. Let the customer know that you'll only honor the estimate for a certain amount of time; if they don't hire you by then, you'll have to provide a new estimate based on updated prices.
How Should I Handle Changes to the Project After the Estimate Is Approved?
Once a customer approves your estimate, there's a good chance they'll change their mind about some aspect of the job, such as the type of paint they want to use or the flowers they want to plant around their new patio. Even if the customer doesn't change their mind, you might uncover hazardous conditions that need to be remedied before you can proceed with the project. In either case, you need to fill out a change request form and have the customer approve it. The form should clearly state how the change will affect the total cost of the job.
Is It Necessary to Provide a Timeline in the Estimate?
You don't need to provide a detailed timeline, just a rough estimate of how long you think the job will take. Providing a detailed timeline may even come back to haunt you, as the customer might get upset if it takes longer than you planned.
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