Pricing Remodeling Jobs Just Right

Cook uses past history for preliminary estimates. As the designer gets more details fleshed out on paper, Cook looks at all the information and writes up the entire estimate. Over the years, he has used Xactware Solutions’ XactRemodel software, which “itemizes every 2×4, nut, and bolt,” as well as Microsoft Excel spreadsheets, and information from Intuit QuickBooks for job costing.

“The goal of the estimate,” Cook says, “is not just to provide a price for the client. It is also just as important to provide the vital information to the crew about how to put the job together. They need, at a minimum, to know how many hours are expected for each phase, what the material list is, and what specialty items are needed.” One area he still finds challenging is how to accurately estimate field staff administration time. Workers’ compensation in his state does not allow carpenters to log time in administration or supervision, for example, which carry a less expensive insurance rate than carpentry. Cook posts administration hours, such as safety meetings or phone calls, to the same category of the employee’s daily task. “Our job actuals reports might show more hours in framing or finish carpentry and zero hours for admin,” he says, which makes it difficult to job cost. How many hours were really spent in hands-on production and how many in safety meetings or making phone calls, for example.

There is a way in QuickBooks to customize the insurance burden for each worker and activity, but again, Oregon’s workers’ compensation rules don’t allow for this.

Though it might be tempting to just add in the highest insurance rate when figuring burden, Cook is trying to remain competitive. He has chosen to add in the average insurance rate and make sure his margins are added on top of that. He also is using trade partners more often for work such as framing, which carry a higher insurance rate.

Cook recognizes that the company owner must fill out a time sheet for his or her time spent on production. “If the owner doesn’t do this,” he says, “then they won’t have an accurate picture of what the job actually cost in order to bid on the next one.”

Specialty items are another area of concern. Often, when Cook meets with the designer and the client, the designer has already looked into pricing specialty items such as a hammered copper countertop or high-end wire fabric for cabinet doors. “We always verify pricing independently,” Cook says, “but by the time we need to order this ‘have-to-have’ item, the price always seems to change and it ends up being [more expensive]. Now we know to include a larger contingency for any specialty items.”

Slippage and Grippage

“In a perfect world, you’re giving accurate pricing and you are not over or under the estimate,” says Greg Harth, co-owner with his father Allyn of Harth Builders, in Spring House, Pa.

Harth believes that many remodelers are not job costing and tracking project costs, so they underestimate price and create slippage — the difference between the cost and the estimate in the budget.

Harth outlines three things that “a good remodeler does to close the estimating circle”:

• Uses detailed cost codes (Harth uses HomeTech estimating software’s codes);
• Keeps up with job costing, an accounting process in which every cost that goes against a job gets placed into an appropriate category;
• Performs a job autopsy, reviewing scheduling, manpower, and trade contractor issues, as well as cost overruns and savings.
• After a job is completed and all costs are paid, Harth does a walk-through with the lead carpenter, the estimator, and the production manager to discuss where they went over- or underbudget. The estimator uses that information for future jobs. “If you’re doing an addition, and excavation went over by one day, that might cost you $800 because you didn’t consider bringing in dirt or taking out more dirt or poor access to the site,” Harth says. “The estimator will flag that, and the next time there’s an addition, he’ll ask if they need to bring in or take out dirt, so we don’t miss that $800 the second time.”

Harth identified 3% slippage in projects over the last few years and was able to track it to several items, including estimating labor too aggressively and not getting field input into the estimates. To right the situation, Harth Builders now includes a contingency in every estimate that amounts to 3% of total cost. If the contingency funds aren’t needed, they help to offset the production incentive that the company pays to all employees, but which is heavily weighted toward the lead carpenter, production manager, and estimator at the end of each project.

Harth also developed an in-house estimate review checklist for any project that costs more than $30,000. “We use it to confirm we have covered all the major items and past mistakes where we have lost money,” he says. Fire-blocking on basement projects — typically a $1,000 item — has been a thorn in the company’s side and an item that has been forgotten on multiple basement project estimates. After the third job autopsy in which it was discovered that this portion of work had been omitted from the price, Harth implemented the estimate review checklist to help identify these types of omissions that nibble away at the bottom line and create slippage. The checklists are then updated after every job autopsy. ( Click here to see Harth Builders’ estimating spreadsheet.)

The company has become more efficient and has decreased slippage by using project schedules in the estimating phase and reviewing project schedules weekly with project managers.

But wouldn’t it be great to be underbudget — have grippage — every time? “No,” Harth says. “A well-run company should have zero slippage or grippage. Two percent is accepted [by most remodeling company owners], but if it’s more than that you have a real problem that should be addressed right away.”

Constantly coming in underbudget might earn you a pat on the back from an individual client but, multiplied across many jobs, it may mean you’re overpricing. “In a tight, competitive market, your numbers need to be accurate,” Harth says. “On a small job it may not make a difference, but [on a larger job], 5% could be the difference between getting or losing that job.”