How to estimate construction project costs

Estimating construction costs starts with a careful review of the project documents to determine the amount of work in a project.

Many residential builders and remodelers use construction cost estimation and material takeoff software to quantify the work, price the equipment costs and labor costs to complete it. This ensures accurate estimates for your project.

Getting construction cost estimating right depends on correct material takeoffs and consistent pricing of project components. Buildxact improves your efficiency, allowing you to complete construction estimates quickly and accurately, allowing you to bid on more construction projects.

We’re going to take a look at the estimating process and show you how construction estimating software, like Buildxact, can ensure an accurate estimate and efficiency throughout the construction process.

Table of contents

  • Start with good estimating software
  • Complete material takeoffs
  • Estimate labor costs in today’s construction industry
  • Go digital for your estimating needs

Start with good estimating software 

You know that time is money, and any time saved putting together cost estimates is money in the bank. Construction estimating software helps streamline the bidding process, reduces errors, and calculates pricing accurately so that what you estimate ends up being close to the actual total cost at the end.

An inaccurate construction estimate can end up costing your construction business a significant amount of profit.

Control costs with accurate bid estimates

This is why it is important to make sure a construction project estimate accurately calculates all the costs involved in the building project.

These costs include material costs, labor hours, supervision costs, direct costs, building costs, administrative costs, taxes, markup, and any other costs that might come up.

Scope the works early

It is also good to establish the project scope early on so you can calculate labor hours and be efficient with your project management. A construction project estimate is just that, an estimate. However, you want the final project cost to be as close as possible to your initial estimate.

Estimating software streamlines the bidding process by speeding up material takeoffs and labor calculations. It also makes pricing work simpler, as the software’s material cost database can be updated quickly to reflect new pricing. Bid estimates that come back to customers quickly can help you win more work.

Ditch manual work

With manual estimating or when using spreadsheets, it’s easy to miss items or not calculate formulas correctly, which can lead to underpricing work. You can’t recover costs for work that you’ve missed on the estimate; so you need to be sure you are not put in a price bind right from the beginning.

While there are many cost estimation methods at your disposal and tools that a cost estimator or cost estimators in the industry can use to facilitate their work, the latest technology allows you to estimate building costs while performing project management tasks once you win the job and begin work.

Maximize your profits

Accurate cost estimation is key to a successful and profitable business, and modern software also enables you to boost your professionalism. Imagine having the ability to produce detailed estimates and keep construction documents organized so that they are at your fingertips whenever a client ever wants to see them.

Also, when you use the same pricing structure and item list, pricing is more consistent across your projects. This helps ensure that profits are also consistent from project to project. Today’s supply chain issues are causing havoc when it comes to construction costs, so cost estimation becomes even more crucial.

Monitor price changes

Price volatility can cause havoc when dealing with construction cost estimates. Buildxact’s dealer integration allows custom home builders to have direct access to a dealer’s price files to assist them in the construction cost estimation process.

When estimating construction costs for a project, you want to make sure you have the latest pricing, and the dealer integration provides price files in real-time. Knowing the latest unit cost when estimating helps boost your accuracy by a lot.

Complete material takeoffs 

Once you’ve reviewed the project documents to determine the overall scope of the project and the portion(s) that you will be bidding, you are ready to perform a material takeoff.

This involves the creation of a list of materials and equipment that will be needed to complete the work. The amount or quantity that you’ll need will depend on the amount of work shown on the plans or documents.

Measurements can be taken by hand using a scale ruler on printed plans (which is time-consuming and can lead to mistakes not to mention the hours of invested time) or digitally using material takeoff software.

Here are some tips for ensuring accuracy on your material takeoffs:

Use a checklist 

Develop a checklist of usual bid items that are included in most of your projects. This helps ensure that key items aren’t missed when bidding a project.

General conditions, rental equipment, and other miscellaneous materials are often forgotten if they aren’t on a checklist. Missed items also can lead to unexpected unit costs in today’s volatile market for materials.

Automate as much as possible 

Some takeoff software allows you to capture item assemblies or packages (at Buildxact we call them recipes) that are a collection of materials used as a unit in the project.

An example would be an interior framed drywall wall with wooden studs at 16 inches on center. The package for this wall would include drywall, screws, insulation, wood, and nails.

By using recipes, you don’t have to calculate how many studs are in the wall, because the program calculates that for you. You just measure the wall length, and the software tells you how many studs you’ll need. This saves you lots of time and again prevents missed items!

Estimated schedule

Next, you’ll put together an estimated schedule for the project based on your scope of work. This lets you know how long the work will take and how much labor to include in your cost estimate.

The schedule should be based on the amount of material you have to install and the production rate of your employees or crews. Often, historical data will inform how you build your schedule, and software can easily help you keep track of this.

Be sure to include crew time, supervision, and administration time in your estimate of the duration of the project. Record the contractors and labor hours that will be needed to complete the project. Refer the client to the schedule throughout the build for superior customer service.

Pricing the work

Now that you’ve got a full list of the materials needed and know how much labor you’ll need for the project, it’s time to put together your cost estimate.

Cost estimates are based on material pricing, current labor rates, equipment costs, past projects and your company’s experience with similar work, and the need to include other allowances such as your markup.

First, you’ll want to make sure that your material pricing is up-to-date, especially in today’s market. Also check to make sure the material will be available within the timeframe the project is scheduled for.

In Buildxact, you can upload your own price list, or sync up your supplier’s price list with our latest material dealer integration.

Estimating labor costs in the construction industry

Your labor billing rates need to be high enough to cover wages and overhead, which includes employer-paid taxes, retirement funds, vacation time, sick time, etc. Aside from materials costs, the payment of labor is the trickiest when you want to nail your estimated construction costs.

A preliminary estimate can give your client and yourself an idea of what the total cost might be, as well as an idea of the project timeline, It’s always best to keep your client aware of project costs as they come along. All of these should be included in your construction cost estimate. It’s very difficult to add a cost not included in your original cost estimation.

A detailed estimate will be your best friend, and your client will appreciate you for it. Make sure your construction estimate is organized and easy to understand for your client.

Account for hidden project costs

Project costs can vary and cost control is a huge challenge. However, clients will understand, as long as they are informed throughout the process.

Include an allowance for overhead costs not directly tied to labor that need to be covered by the project. This type of overhead includes vehicles, insurance, cell phones, computers, and office administration expenses.

As mentioned, add a percentage for your markup to help ensure profit, which will vary depending on how aggressive you want to be on your estimate and what the competitive market will bear. Using Buildxact, you can be confident that you correctly add up all the costs and markup to determine your final price.

Other factors to look out for

Last-minute price increases can be difficult to pass on to the customer, so it is best to do everything you can to avoid mistakes in the first place.

These factors include:

  • Inaccurate material estimates can lead to serious delays in your project
  • Cost variables based on geographic locations of your materials
  • On-site observations to evaluate labor requirements
  • Accurate risk assessments of the work site
  • Project-specific needs such as environmental costs

Accurate estimating is so crucial to winning bids and making a profit, so it makes sense to use digital tools in your estimating process to save time and money.

Going digital for your estimating needs

Digital technologies are becoming an increasingly important part of the construction sector, and companies that do not adopt them may find themselves at a disadvantage as they increasingly lack the ability to efficiently manage their workflows.

Furthermore, those companies that do not adopt digital technologies may discover more obstacles as customers increasingly demand faster turnaround times. These technologies save time and allow businesses to communicate with their customers more effectively.

Using technology for faster quotes in 45 minutes

For builder Jaye Ibrahim of Jetcon, he started his construction business in 2017 after 12 years plying his trade and honing his skills. With a well-established portfolio and strong professional network, Jaye wanted to expand and chart growth from the get-go.

While Jaye has never considered himself a ‘techie’, he was keen on using technology and digitalizing his processes.

He had always recognized that in this day and age, the only way to increase productivity and efficiency was to use technology. So when his supplier, Dahlsens, recommended he look into Buildxact, he did not hesitate.

“I found Buildxact pretty easy to get started with. All it took was 45 minutes and I was already able to put together an estimate and produce a quote.”

Win more bids

With an industry average quote turn-around time of between 1 to 2 weeks, being able to submit a detailed and professional quote quickly sets Jetcon apart from its competition, and this in turn helps increase the company’s win rate.

“Since using Buildxact’s estimating and job management software, I can produce estimates and quotes much faster and this ultimately helps me win more work.”

Before using Buildxact, it was standard for Jaye to work in the evenings in order to keep up with his admin, but now that is a thing of the past. The extra time that he now has can be used to work on growing his business, or simply doing things that he enjoys.

And because Buildxact is an end-to-end system, it provides efficiencies from first takeoff, right through to the final invoice, saving countless hours in admin, which ultimately improves the company’s bottom line.

Get better bids with estimating software

Ready to take that next step of going digital for your bid estimate? Manage and organize your total project cost with estimating software.

You can perform accurate construction project estimates faster and easier when using estimating software. Digital takeoffs and pricing integrations improve accuracy and ensure consistent pricing across projects.

Buildxact is easy-to-use construction management software that allows you to be more efficient and price more work.

Book a demo to see how Buildxact can transform your residential construction business, or get started with a 14-day free trial.

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