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Estimating, Sales, And Expectations

 
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Old 02-20-2020, 06:58 PM   #1
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Estimating, Sales, And Expectations


Hi all, I just re-joined! It's been a number of years since I've been online here. I came with this specific question in mind, and will also make a point of contributing wherever I can.

I'm at a burn out point. Our business has grown strongly over the past number of years, and largely, we are doing well. That said, a few years back we transitioned into a design build company. We have two designers on staff, and work collaboratively with an outside Engineering firm for our structural designs. I'm having a big problem that I can't figure a way around. That is- initial expectation setting in terms of the project price, and then being able to design towards a budget and deliver a completed design on budget. My process is as follows, Im sincerely hoping that someone can spot the flaw in it and make some suggestions:

1. We meet with client for the first time. They have an idea for a home addition, new home, or large scale total home renovation. They always want to know what their half formed idea will cost. So- we will compare the scope of work they described to other project, and use "gut feel" to give them a very high level of what a project will cost. We then propose that they proceed with conceptual designs so that we can get a little more accurate with the estimate.

2. We do conceptual designs for usually a few thousand dollars. We then rough estimate it by guessing at what each individual piece will cost, but its not exact at all because we dont have all of the detail we need to approach our subs for pricing

3. We then ask them to spend another 5k or so on full building plans so that we have all technical details

4. We then go through a 4 week long pricing exersize where we request quotes from all suppliers and vendors. We apply allowances to things like flooring and cabinets that are yet to be selected. We then are able to provide a fixed cost quote to the client with selection budgets, we then ask them to sign contract

5. Contract is signed and then interior design adn selections are done, we then re-price again based on their selections

Not only is the above incredibly time consuming and costly to the client (it takes on average of 4-6 months in design until we have a signed contract), its a constant dissapointment to clients... We have had a few clients drop off thrughout the process this year as they are surprised by the costs and get scared off.

As an example- I might estimate a project at the beginning at 500k, and throughout the process it could climb to 750k!

With these large complex renovations, there are simply so many details to conisder, and I find that no matter what, Im always so far apart in the expectation vs reality and its starting to hurt sales..

If anyone has any thoughts or advice at all, Id be VERY appreciative. Thanks in advance for reading this.
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Old 02-20-2020, 07:28 PM   #2
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Re: Estimating, Sales, And Expectations


If you are seeing more than 40-50% of projects dramatically exceed your initial estimates then you may need to adjust your baseline but you basically just described the standard design experience of most customers. I've completed projects under budget and had customers tell me they were shocked it cost so much. There's not much you can do to adjust consumers expectations in this day and age other than what you're doing.

To clarify, if the project was doable for $500k and they spent $750k, that's the customer managing their own budget. If it would have been a code minimum piece of garbage at $500k then you need to work on your estimating.

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Old 02-20-2020, 07:37 PM   #3
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Re: Estimating, Sales, And Expectations


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I'm at a burn out point.
Welcome back. I've experienced burnout and it's not fun. I took some time off, regrouped and ended up intentionally making my company smaller to be able to mentally continue on.

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Not only is the above incredibly time consuming and costly to the client (it takes on average of 4-6 months in design until we have a signed contract)
Seems like a long time. We are usually able to have a project ready for permitting/construction in 2 months from our initial meeting. Do you see any way to expedite this?

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I might estimate a project at the beginning at 500k, and throughout the process it could climb to 750k!
That is a 50% disparity. Why are you so far off and not able to see this earlier in the budget/design phase?


It seems like you need to work on your budget process before moving on to drawings.

Last edited by NJ Contractor; 02-20-2020 at 08:12 PM.
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Old 02-20-2020, 09:35 PM   #4
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Re: Estimating, Sales, And Expectations


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If you are seeing more than 40-50% of projects dramatically exceed your initial estimates then you may need to adjust your baseline but you basically just described the standard design experience of most customers. I've completed projects under budget and had customers tell me they were shocked it cost so much. There's not much you can do to adjust consumers expectations in this day and age other than what you're doing.

To clarify, if the project was doable for $500k and they spent $750k, that's the customer managing their own budget. If it would have been a code minimum piece of garbage at $500k then you need to work on your estimating.
Thanks for the input. I do need to work on the estimating.
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Old 02-20-2020, 09:43 PM   #5
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Re: Estimating, Sales, And Expectations


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Welcome back. I've experienced burnout and it's not fun. I took some time off, regrouped and ended up intentionally making my company smaller to be able to mentally continue on.



Seems like a long time. We are usually able to have a project ready for permitting/construction in 2 months from our initial meeting. Do you see any way to expedite this?



That is a 50% disparity. Why are you so far off and not able to see this earlier in the budget/design phase?


It seems like you need to work on your budget process before moving on to drawings.

Wow, 2 months to ready for permitting... how do you do that!? What types of projects would this reflect??

Re the disparity- I don't know. This is what I am trying to figure out. I don't know my pricing well enough is what I am thinking. Before transitioning to design build, I followed a very prescriptive process which was- take the prints, bid out to all suppliers/trades, receive bids, calculate total, apply O&P, sell job, manage job. I used the subs to do my estimating. Now, I need to know my pricing in order to run estimates in a time effective manner, and frustratingly, there doesnt seem to be any quantifiable/measurable/reliable method for this that I have found yet. EG- just today I met with our walls and ceilings contractor to attempt to learn how he prices his work. He has no logic to it. He literally wings it on a project by project basis!! How do I enter that into a spreadsheet!
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Old 02-20-2020, 11:34 PM   #6
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Re: Estimating, Sales, And Expectations


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I don't know my pricing well enough is what I am thinking. Before transitioning to design build, I followed a very prescriptive process which was- take the prints, bid out to all suppliers/trades, receive bids, calculate total, apply O&P, sell job, manage job. I used the subs to do my estimating.
Ah, the joys of being the Paper Contractor. Sub everything out, mark it up, and sit back and collect the money.





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Old 02-21-2020, 09:19 AM   #7
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Re: Estimating, Sales, And Expectations


A few thoughts:

If I was your client I would be worn out and probably have lost interest in the project after six months. Your whole process is way too slow.

The one that really shocked me was #4 a four week long pricing time frame. Should be able to price any house project out in under two weeks. Pick the team of subs you want to work with, with the understanding "if we win, you win", rather than getting a bunch of competitive quotes on everything.

Also need to find a way to tighten up your budgeting to +/- 20-25% accuracy.

Close the deal and sell the job including the basic middle of the road finishes and features, then if they want to make changes, do change orders. Otherwise you are tying up a lot of your time pre-contract and may / or may not even get the job.
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Old 02-21-2020, 09:30 AM   #8
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Re: Estimating, Sales, And Expectations


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Wow, 2 months to ready for permitting... how do you do that!? What types of projects would this reflect??
After a brief phone call I meet with the client to discuss the project and whether or not it will fit within their desired budget.

Once we decide we can do the work for their budget, I collect an engagement fee and we do preliminary schematics along with a construction estimate and a selections allowance spreadsheet.

Once the estimates and schematics are approved we collect a 10% scheduling deposit and begin the drawings.

Once the drawings are complete and approved, we sign a construction contract, file for permits and begin shopping for selections.

Once the necessary selections to get started and permits are approved, we schedule construction.

I always tell my clients to allow for a 15% contingency factor for selection overruns, as well as unforeseen conditions.

I know my labor and material costs for both in-house as well as subcontract work. I will typically have my sub put together a written estimate prior to construction but usually not prior to my contract with the client, unless it is some unusual circumstance.

This would reflect high-end renovation projects; including kitchens, baths, additions, whole-house renovations, etc... Most projects are $300k-$750k with the occasional $750k+.
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Old 02-21-2020, 09:35 AM   #9
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Re: Estimating, Sales, And Expectations


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Originally Posted by Seven-Delta-FortyOne View Post
Ah, the joys of being the Paper Contractor. Sub everything out, mark it up, and sit back and collect the money.





Yeah? That easy, right?
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Old 02-21-2020, 09:37 AM   #10
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Re: Estimating, Sales, And Expectations


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Originally Posted by NJ Contractor View Post
After a brief phone call I meet with the client to discuss the project and whether or not it will fit within their desired budget.

Once we decide we can do the work for their budget, I collect an engagement fee and we do preliminary schematics along with a construction estimate and a selections allowance spreadsheet.

Once the estimates and schematics are approved we collect a 10% scheduling deposit and begin the drawings.

Once the drawings are complete and approved, we sign a construction contract, file for permits and begin shopping for selections.

Once the necessary selections to get started and permits are approved, we schedule construction.

I always tell my clients to allow for a 15% contingency factor for selection overruns, as well as unforeseen conditions.

I know my labor and material costs for both in-house as well as subcontract work. I will typically have my sub put together a written estimate prior to construction but usually not prior to my contract with the client, unless it is some unusual circumstance.

This would reflect high-end renovation projects; including kitchens, baths, additions, whole-house renovations, etc... Most projects are $300k-$750k with the occasional $750k+.
NJ Contractor- I really appreciate this. It sounds as though you have your system together quite well. Would you ever be open to having someone visit and shadow you for a day or two from a non competing market??! I'd come down to NJ in a heartbeat to learn a thing or two.
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Old 02-21-2020, 09:40 AM   #11
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Re: Estimating, Sales, And Expectations


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Ah, the joys of being the Paper Contractor. Sub everything out, mark it up, and sit back and collect the money.




HA!! I used to think the same thing 15 years ago when I was doing carpentry work only! I wish it were that easy my friend... The prime contractor is the insurance policy, a risk mitigator for the owner, accountable to EVERYTHING in terms of time, money, stress. I quite often envy our subs, some of which are making a killing and have 10% of the stress.
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Old 02-21-2020, 09:48 AM   #12
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Re: Estimating, Sales, And Expectations


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Originally Posted by Mdesignbuild View Post
Hi all, I just re-joined! It's been a number of years since I've been online here. I came with this specific question in mind, and will also make a point of contributing wherever I can.

I'm at a burn out point. Our business has grown strongly over the past number of years, and largely, we are doing well. That said, a few years back we transitioned into a design build company. We have two designers on staff, and work collaboratively with an outside Engineering firm for our structural designs. I'm having a big problem that I can't figure a way around. That is- initial expectation setting in terms of the project price, and then being able to design towards a budget and deliver a completed design on budget. My process is as follows, Im sincerely hoping that someone can spot the flaw in it and make some suggestions:

1. We meet with client for the first time. They have an idea for a home addition, new home, or large scale total home renovation. They always want to know what their half formed idea will cost. So- we will compare the scope of work they described to other project, and use "gut feel" to give them a very high level of what a project will cost. We then propose that they proceed with conceptual designs so that we can get a little more accurate with the estimate.

2. We do conceptual designs for usually a few thousand dollars. We then rough estimate it by guessing at what each individual piece will cost, but its not exact at all because we dont have all of the detail we need to approach our subs for pricing

3. We then ask them to spend another 5k or so on full building plans so that we have all technical details

4. We then go through a 4 week long pricing exersize where we request quotes from all suppliers and vendors. We apply allowances to things like flooring and cabinets that are yet to be selected. We then are able to provide a fixed cost quote to the client with selection budgets, we then ask them to sign contract

5. Contract is signed and then interior design adn selections are done, we then re-price again based on their selections

Not only is the above incredibly time consuming and costly to the client (it takes on average of 4-6 months in design until we have a signed contract), its a constant dissapointment to clients... We have had a few clients drop off thrughout the process this year as they are surprised by the costs and get scared off.

As an example- I might estimate a project at the beginning at 500k, and throughout the process it could climb to 750k!

With these large complex renovations, there are simply so many details to conisder, and I find that no matter what, Im always so far apart in the expectation vs reality and its starting to hurt sales..

If anyone has any thoughts or advice at all, Id be VERY appreciative. Thanks in advance for reading this.
Your process looks good. Itís a lot like ours. Your results seem to be questionable.

ē I design all of our projects. I also work onsite/shop 5 days a week. I can move a $750k project from initial consultation to construction contract in 4 Ė 6 months. You have two dedicated designers. If I was dedicated to design, I think I could move a $750k project from initial contact to construction documentation in two Ė two and a half months.

ē Your design fees seem to be quite a bit low. We tell prospects to expect to spend between 6% and 8% of the project's value. On a $750k project, weíre setting the expectation of $52,500 in design. Based on what you indicated, youíre getting maybe $8k? Based on that a designer at $150 per hour should be able to design the project in a week and a half ($8,000/$150). I donít think thatís possible. Have your designers keep a timesheet per project.

ē In 15 years of design/build, I have only had one client that did not complete the project with us. They had another builder complete the project. If youíre losing them during your process, something else is happening.

ē If youíre gut feel is $500k and the project ends at $750k. Itís time to tell your gut to feel $750k on the next one.

I need to head out to the job site so I canít analyze this anymore right now, but Iím happy to help a bit later.

What was your past username? How long ago was it you were here? What's your location?

Paul
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Old 02-21-2020, 09:52 AM   #13
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Re: Estimating, Sales, And Expectations


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Originally Posted by NJ Contractor View Post
After a brief phone call I meet with the client to discuss the project and whether or not it will fit within their desired budget.

Once we decide we can do the work for their budget, I collect an engagement fee and we do preliminary schematics along with a construction estimate and a selections allowance spreadsheet.

Once the estimates and schematics are approved we collect a 10% scheduling deposit and begin the drawings.

Once the drawings are complete and approved, we sign a construction contract, file for permits and begin shopping for selections.

Once the necessary selections to get started and permits are approved, we schedule construction.

I always tell my clients to allow for a 15% contingency factor for selection overruns, as well as unforeseen conditions.

I know my labor and material costs for both in-house as well as subcontract work. I will typically have my sub put together a written estimate prior to construction but usually not prior to my contract with the client, unless it is some unusual circumstance.

This would reflect high-end renovation projects; including kitchens, baths, additions, whole-house renovations, etc... Most projects are $300k-$750k with the occasional $750k+.
Another question NY- What happens if or when you have had your initial construction estimate and allowances approved, collected the 10% deposit and then AFTER the construction drawings are approved and it goes into contract, your CONSTRUCTION estimate that they proceeded to drawings based on is OFF and is more than anticipated? THAT is my main issue.

EG- Mr customer, your base construction estimate is 300k with 150k of allowances for product selections, sign here. They sign.

Construction drawings are done, you now have all the detail, that detail prices out at a base construction of 400k with 150k of allowances. Contract is handed to client, client is pissed.
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Old 02-21-2020, 10:04 AM   #14
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Re: Estimating, Sales, And Expectations


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Your process looks good. Itís a lot like ours. Your results seem to be questionable.

ē I design all of our projects. I also work onsite/shop 5 days a week. I can move a $750k project from initial consultation to construction contract in 4 Ė 6 months. You have two dedicated designers. If I was dedicated to design, I think I could move a $750k project from initial contact to construction documentation in two Ė two and a half months.

ē Your design fees seem to be quite a bit low. We tell prospects to expect to spend between 6% and 8% of the project's value. On a $750k project, weíre setting the expectation of $52,500 in design. Based on what you indicated, youíre getting maybe $8k? Based on that a designer at $150 per hour should be able to design the project in a week and a half ($8,000/$150). I donít think thatís possible. Have your designers keep a timesheet per project.

ē In 15 years of design/build, I have only had one client that did not complete the project with us. They had another builder complete the project. If youíre losing them during your process, something else is happening.

ē If youíre gut feel is $500k and the project ends at $750k. Itís time to tell your gut to feel $750k on the next one.

I need to head out to the job site so I canít analyze this anymore right now, but Iím happy to help a bit later.

What was your past username? How long ago was it you were here? What's your location?

Paul
Paul, thanks so much! I sent you a PM.
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Old 02-21-2020, 12:09 PM   #15
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Re: Estimating, Sales, And Expectations


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Another question NY- What happens if or when you have had your initial construction estimate and allowances approved, collected the 10% deposit and then AFTER the construction drawings are approved and it goes into contract, your CONSTRUCTION estimate that they proceeded to drawings based on is OFF and is more than anticipated? THAT is my main issue.

EG- Mr customer, your base construction estimate is 300k with 150k of allowances for product selections, sign here. They sign.

Construction drawings are done, you now have all the detail, that detail prices out at a base construction of 400k with 150k of allowances. Contract is handed to client, client is pissed.
Your estimating process is off somewhere.
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Old 02-21-2020, 03:34 PM   #16
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NJ Contractor- I really appreciate this. It sounds as though you have your system together quite well. Would you ever be open to having someone visit and shadow you for a day or two from a non competing market??!
I don't think a day or two is going to do it. You need to put in the effort to dial in your own process.

As far as budgeting/estimating; based on your experience and size of your company, you should have a better handle on subcontractor costs. If you feel they are out of line, you should discuss why and be willing to move on if need be. If they are all out of line with your expectations then you are the problem.
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Old 02-21-2020, 03:43 PM   #17
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Re: Estimating, Sales, And Expectations


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What happens if or when you have had your initial construction estimate and allowances approved, collected the 10% deposit and then AFTER the construction drawings are approved and it goes into contract, your CONSTRUCTION estimate that they proceeded to drawings based on is OFF and is more than anticipated? THAT is my main issue.
How could that happen unless your original estimate was wrong and too low to begin with? What would you miss that is that large of an item?

Quote:
EG- Mr customer, your base construction estimate is 300k with 150k of allowances for product selections, sign here. They sign.

Construction drawings are done, you now have all the detail, that detail prices out at a base construction of 400k with 150k of allowances. Contract is handed to client, client is pissed.
That would never happen unless they drastically changed the scope or exceeded the selections allowances given. I may be off by a few percentage points from my preliminary estimate to my final contract price but nothing that would stop me from moving forward with my original estimate.

It sounds like you do not have experience estimating the projects you are being asked to build.
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Old 02-21-2020, 04:34 PM   #18
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How could that happen unless your original estimate was wrong and too low to begin with? What would you miss that is that large of an item?



That would never happen unless they drastically changed the scope or exceeded the selections allowances given. I may be off by a few percentage points from my preliminary estimate to my final contract price but nothing that would stop me from moving forward with my original estimate.

It sounds like you do not have experience estimating the projects you are being asked to build.
It's hard to hear, but very important to hear. I am definitely a large part of the problem. NJ- do you mind me asking what tools you use to estimate? And further- do you approach your subs each time for an estimate, or do you simply have a good database of pricing that has proven to be accurate?
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Old 02-21-2020, 07:12 PM   #19
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NJ- do you mind me asking what tools you use to estimate?
I created my own spreadsheets in excel and I seldom use an RS Means cost data book as a "rough" gauge to double check myself on certain items that I may not be that familiar with.

Quote:
And further- do you approach your subs each time for an estimate, or do you simply have a good database of pricing that has proven to be accurate?
I have a good database and will only request an estimate pre-proposal if it is out of the ordinary for what we typically do. However, I always ask for an estimate before they start work on the project, so we have no issues about scope/cost. The estimate is usually a text message...

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