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The client approves the estimate and the project is locked in. But could you be working at a loss before you even get started?
While estimates and quoting seems like the easier part of the project, this is often where things start to go wrong. As building and construction business advisors, here are the common quoting mistakes we see builders make and how to avoid them.
Common building and construction quoting mistakes
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Not using or using incomplete work in progress (WIP) reporting
Your WIPs can hold a wealth of insights, highlighting:
- Potential profit leaks
- Project cost, time and resourcing blow-outs
- Estimated vs actual cost variations
- Project scheduling considerations
- Additional resources or materials required
- Overall project profitabilty
Doing estimates based on your last quote only? You could be making your new project unprofitable before you begin.
However, your WIP is only as useful as its accuracy. Inaccurate or out of date WIP reporting could have you making quoting decisions based on incorrect project data.
How to avoid this:
Ensure your team is following clear processes and procedures when it comes to WIP reporting. Rather than updating at the end of the project, you should aim to update your WIP at least monthly. This will allow you to access up-to-date and accurate project information for your next building and construction project estimate.
Read more > Work in progress gone wrong for builders
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Subcontractor scope gaps
You’ve reached out to all your subcontractors, incorporated their estimates, and added in contingencies and margins. You finish the job only to have a whooping bill hit your inbox due to ‘additional work’ you swear was included in their original estimate.
Often, it’s not the scope that’s the issue but how it was provided. Without a clear, formal process in place, it’s easy for the scope to be miscommunicated, assumptions to be made or estimates to change.
How to avoid this:
Create an request for quote (RFQ) process that ensures clear, detailed scope of works, including defined responsibilities where trades may cross over.
Using a RFQ template each time can also create consistency with the scope information provided and reduce the risk of assumptions or overlooked exclusions.
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Using old or existing material pricing
While it can be handy to have past material pricing on hand to turn around quotes quickly, not asking for new supplier estimates could cost you more than time. From increased material costs eating into your profits to schedule blow-outs due to material supply chain issues.
How to avoid this:
Request supplier estimates for each and every project, reaching out to more than one supplier where possible. Better yet, use live supplier price books or online quoting tools to speed up time. This ensures you’re not only getting the most up-to-date pricing information but can unlock more competitive pricing.
We also recommend regularly negotiating with your suppliers to unlock more competitive pricing, lock-in pricing or supply advantages. By doing so, avoid material cost fluctuations as well as open up more sustainable supply chains and increase your profitability.
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Underquoting just to get the job
Building and construction is a competitive industry, and it can be easy to fall trap to slashing pricing to get the job over the line. Suddenly material prices have gone up, the job is taking longer, and that job you needed is costing you more than its worth.
How to avoid it:
Build in contingencies and buffers, not only for materials and suppliers but for your project time line. WIP reporting can provide insight into where you need these buffers and where you increase profitability.
It’s also essential to know your project’s breakeven point. This can help you assess if the project is worth bidding for and ensure your pricing is competitive while still profitable.
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Marking up instead of adding profit margin
Are you simply marking up or are you considering a profit margin? If you think they’re interchangable, you’re not the only one. As builder business advisors, we get asked what the difference is all the time.
Simply put, a mark-up is a percentage added to your overall project sell price. In comparison, your profit margin (or builder’s margin) is the overall profit considering all cost of goods (COGs) and building and construction costs.
How to avoid it:
Instead of marking up your final sell price by a certain percentage, we recommend aiming for a gross profit margin of at least 25%. This can be calculated by using the below formula:
Gross profit / revenue = gross profit margin amount
Gross profit amount x 100 = gross profit margin %> Learn more about mark-ups vs builder margins
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Not getting formal sign off or providing verbal estimates
This applies to not only estimates with clients but subcontractors too. While a verbal approval over the phone seem easier, not having it in writing (via email) might mean invoice disputes down the track.
How to avoid it:
Always send estimates, request estimates and approvals over email. Estimates should include detailed breakdowns, exclusions, and scope of work, reducing miscommunication and misinterpretation.
Having approvals via email also means you have written proof to fall back on for invoice questions, project inclusion queries or job disputes.
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Quoting manually
If you’re still using excel or manually doing your quotes in a Word document, you’re not alone. But while manual seems simple on the surface can cost you when it comes to:
- Time per quote
- Quote turnaround and approvals
- Pricing accuracy
- Scaling your business and growing your project pipeline
- Version control and amendment requests
Without built-in margins and pricing considerations, it’s also easy to miscalculate and cut into project profit margins.
How to avoid it:
Using a quoting tool can not only speed up your process and avoid manual entry mistakes, but can ensure margins and mark-ups are built into your pricing. It can also allow you to collect digital signatures, see who has accessed your quote, and track any requested changes.
To streamline your financial reporting, choose a estimating and job management tool that can integrate with your accounting software (such as Xero or MYOB) is essential. Not sure what tool is right for you? Our business advisory team can recommend software that suits your needs and budget.
Feel like you spend more time quoting and on admin than doing the actual job?
Our business improvements program can help you streamline your operations and unlock improvements to improve your bottom line.
> Learn more about our building and construction improvement services
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