How to Estimate Remodeling Projects
As a busy home improvement remodeler, you are continually looking at new potential projects. The common question that clients will ask you is how much will my remodel cost?
An excellent reply is, "How much does a bag of groceries cost?". Until I know what's in the bag, I couldn't possibly tell you how much you should expect to spend.
Let's start with three common pitfalls when it comes to estimating.
Using Average Cost
Here's the problem with using average costs such as square-foot or unit-based numbers. They are often unable to account for the differences seen in different remodel projects. Many remodelers that get into the business are quickly looking to get their pricing standardized. But this is a big pitfall because I don't know about you, but over my 21+ year career, we rarely did two projects that were the same. Sure, there were similarities, but I was often very off when I used numbers based on a different project for a global square foot price.
In large-scale commercial projects or new home construction, estimators usually get pretty close to the accurate price using average cost and square footage. But budgeting for home remodels is a very different situation.
Standardizing your numbers for remodeling projects is honestly something that takes a very long time to perfect, if ever at all. It involves using dozens of very similar project's costing information put together into an analysis process that might take a CFO designation to complete.
And the reality is that you will probably never do two projects that are the same, so trying to use pricing from one to match the other is a losing proposition. You can certainly use the pricing from a faucet or the countertops, but when it comes to labor, you'll likely be way off.
The Wrong Mark-up
Here's something fundamental to understand: If you estimate a project correctly, but you charge the wrong mark-up, you won't be profitable. And vice versa, if you set the right mark-up, but your cost estimate for the remodeling project is off, then you won't be profitable.
Most of us have fallen into the construction business because we are great at working with our hands and enjoy working on high-end remodeling projects. But this means that we never learned the business side of things, including knowing our numbers.
First and foremost, you need to know your overhead to figure out what your mark-up should be. It's going to be different for different size construction businesses, so it's critical you get this process set-up.
If you'd like to learn more about how to Know Your Numbers, then click HERE>>
Underestimating To Get The Job
It's not that you want to make yourself unprofitable, but this is precisely what happens when we compete with other general contractors on pricing remodeling costs. You mustn't break your price to sell a job, ever. This is one of the biggest sales pitfalls because the job costs will remain the same, yet all you've done is reduced the profit you expected to make on the remodel.
When you're pricing a remodeling project, it's essential not to let the mind goblins creep in from your sales mindset. We often say things like, "there's no way this client will pay this much for their remodel." When in fact, the question you should be asking is, "Can I afford to take on this remodel for this price?".
Never short yourself to land a project. It sets the wrong tone with the client and yourself, which will only snowball throughout the project. I know because I did it once on a big job and ended up working for free for the final month and a half early in my career.
So How Should You Estimate Remodels?
Now that we've covered the top three things you shouldn't do let's focus on how we should think about these projects. One overarching item is that this is the homeowner's remodel project, based on a scope of work that drives the price.
Start With The Scope Of Work
Before you can go about taking a homeowner's dreams and turning them into a realistic cost estimate, you'll need to first focus on building out the scope of work.
This is a common topic when we talk about why you shouldn't estimate for free.
For more on that BIG topic, click here.
As a general contractor, you are focused on pulling together the different cost estimates from your trade partners (formerly called subcontractors), the cost materials such as faucets, cabinetry, etc., as well as your self-performed labor costs.
One of the most important things when it comes to estimating remodeling projects is to charge for this work. As we talked about in this BLOG POST, it's a process to develop an accurate estimate. And it starts with creating an exact scope of work.
Think of yourself as a homeadvisor helping to educate your prospective client on their home improvement project. A homeowner doesn't know what they don't know, and it's our role as a professional remodeler to walk them through the process.
Slow Down
One of the critical elements of a paid estimating process is that you will give this the time and space it needs to be accurate. You cannot arrive at a precise cost estimate for a home renovation project quickly without first capturing the required information, speaking with your trade partners, and often involving architectural/design partners.
There are so many factors to consider when estimating remodeling work in older homes, kitchen remodels, bathroom remodels, etc. If you don't go through a systematic approach when pricing the job, you will inevitably miss costs. You need to include your electrician, plumber, roofing contractor, HVAC contractor - and many more - to help you identify the correct scope of work.
All of this takes time and is critical to arriving as close to the end price of the homeowner's renovation costs before the project starts. If we rush, we end up signing projects that will inevitably see significant cost increases throughout the remodel. This is a recipe for losing trust built with the homeowner and hurts your companies brand.
Have A Sales Process
You've heard it over and over, but it's the truth. When it comes to estimating remodeling projects, you need a proper sales process.
A process that helps to educate homeowners about why they need to enter a paid estimating process.
An approach that leverages the partners you work with regularly.
A process that builds trust and relationship with these prospects to differentiate your remodeling brand.
It starts with you internalizing that you deserve to be paid for your time when estimating your prospect's home remodel. And this means that you will tell the next lead that comes in that you charge for your estimating process.
At first, this is going to feel very uncomfortable. But it gets more comfortable with time. I know this because we got paid for EVERY SINGLE ESTIMATE in the final four years of my construction career. Some of these estimates were $4500-6000 as part of a project development process.
So you can do it, and it starts with you charging $150 for the very next lead that comes in. If the homeowner doesn't want to pay for that, you have the wrong prospect on the other end of the phone.
Where To Go From Here?
As a professional remodeler, you spend a lot of time looking at projects and meeting prospective clients. What is critical is that you recognize that NOT everyone is going to be your client. And a great way to help filter out the right clients is by using the strategies discussed in this post about having a paid estimating process.
One that considers YOU in this exchange instead of merely rushing over to every home to educate someone on removing a load-bearing wall in their living room and other valuable insights about their home remodeling project.
You must help homeowners understand that their real estate asset is something they need to protect. And they do this by being focused on the right scope of work instead of judging based on price.
An estimate is much more than a few numbers on a page in different categories like drywall, landscaping, roofing, etc. It's more than a rough square footage number for a mid-range or high-end level of finish.
It's YOUR years of experience that you have worked incredibly hard to acquire, so don't give it away for free.
