When the cost of doing business increases, your profits will suffer unless you anticipate the increases and include them in project estimates before jobs are sold. How far in advance you need to anticipate the increase depends on how busy you are and the length of your sales cycle. Let’s use the example that your field workers’ compensation costs will increase by 20% starting July 1. To determine when to include the cost in project estimates, work backward from July 1. To keep things simple, let’s also assume that the project will start on July 1 (see chart for considerations and the related timeline.)
This example shows you need to build the additional cost into your burdened labor at least 81 days in advance of starting the project. Some other considerations for the timeline include: the time it takes the business to access and incorporate the additional cost in the company’s estimating system; total design time for a design/build firm; and designing to a fixed budget.
You can also use this strategy to determine how far in advance to include wage and payroll tax increases in estimates before giving an employee a raise.
—Shawn McCadden sold his design/build company and now consults with remodelers and the supply chain. shawn@shawnmccadden.com
More REMODELING articles on acurate estimating:
Pricing It Right — Basic estimating principles for breaking even on a job
Know Your Lines — Building a thorough estimate, one line at a time
Projects Made Simple — Detailed estimating system ensures smoother project execution