7 Estimating Mistakes That Hurt Profitability & How To Avoid Them

Guest Blog with Business Continuum

Why care about estimating? 

Getting your quotes and estimates right is a crucial step in improving your businesses profitability. 

When you can get estimating right you also give your customers and your team a better definition of scope and build checks and balances into the project. It puts you in a better position to understand what you’ve charged for, so you don’t end up footing the bill for variations to your scope.

Being clear about your value proposition and what is included, can often help your proposal to stand out when being compared to competitor’s quotes as well! Basically, understanding and improving your estimates can help you win more work and make more on the work you do win. 

So, what are the common pitfalls most businesses make when estimating, and how can you avoid them? 

WorkGuru partnered up with Business Continuum to pull together a full list of solutions to common estimating problems. 

Mistake: Not focusing on accuracy

Inaccuracies when estimating can impact your bottom line, your reputation and resource constraints if not managed properly. Whether it’s not having the amount of stock you need because you underestimated, or undercharging for your team’s time – guesstimation is a big killer of profit margins. 

Solution: Get the right processes in place

There can be a lot of skill and data involved in estimating the right time and materials for a project. There is also a skill in balancing having contingencies in place with remaining competitive in your price.  

By systemising your approach to estimating through creating a consistent process, you can help your team learn faster from each other and not reinvent the wheel with every estimate they create. Take the time to create processes and rule-of-thumb tips that your team can lean on when estimating (how to do this is covered below). It will help make your quotes more accurate and faster to produce.

3 Important Reasons to know your Project Margins

Mistake: Using complicated spreadsheet formulas to help with quoting

Interpreting the demands of the project into the right costs and prices when estimating can be very taxing, so turning to technology to help is a great call. The mistake a lot of businesses make is choosing options that seem easy and cost-effective but aren’t set up to help them grow – like spreadsheets. 

Bad formula’s and lookups can produce inaccurate results. Fields are overlooked from previous iterations of the spreadsheet estimator causing inaccurate estimates to be produced. Even small slip-ups like mistaking the formula for margins vs. markup can cause your business to lose thousands quickly.  

Solution: Rely on purpose-built tools instead of complicated calculations

Quite often we see complex calculators set up in spreadsheets that break down the costs of time and materials. Rather than relying on tools that can be easily broken or corrupted over time (it just takes one person saving over the master copy of your quoting template), it’s worth investing in tools that are purpose-built and can scale with your business. 

It saves you the headache of set-up and the worry about something going wrong with complicated formulas behind the scenes. Purpose-built quoting tools are easy to get your hands on and are much harder to make mistakes in (as important calculations are often unable to be edited by you or your team).

Find Out How Much Free Spreadsheet Templates Really Cost

Mistake: Not setting benchmarks

If the quotes you produce are vague and don’t provide the specifics of the job for your team then it can be hard to track how well they perform. 

For example, let’s imagine a mechanic quotes $500 for a tyre replacement. All the quote says is ‘full set of Brand A  tyres” and there are no internal notes. The team doing the work have no way of knowing how much time has been quoted for and therefore might feel like the project was a success even if it goes over budget. 

Solution: Clear, written metrics and ways to track them

Being clear with your quotes or internal notes can help your team understand what’s expected. Highlighting how many hours have been quoted, who should be doing the work and what materials are included give your team the metrics they need to track their work. 

If you are using software to create your quotes and projects, you can also use this specific information to create project templates, tracking reports and event purchase orders that clearly outline to third party contractors the services required, and budgetary limits. 

Mistake: Starting from scratch every time

A lot of businesses neglect their historic data. Either it’s too hard to collect with their current tools or the information that is collected is too hard to analyse. 

If you aren’t reviewing your past quotes and project outcomes and adjusting your future quotes and templates then you’re missing out on opportunities to save money. You can’t learn from past mistakes if you aren’t looking at the past, so your team are bound to make the same mistakes again. 

Solution: Review historic data, communicate & learn

Regular reviews of past quoted projects and how the actual delivery went can help calibrate your businesses estimation skills. At the end of the project, sit down and take the time to look at how much was quoted vs. what was actually done. 

If the difference is large you might need to look into any extraordinary circumstances that could have caused things to go wrong. If there is a consistent problem with underquoting for time then you know you either need to change your quotes or your processes.  Without reflecting on these changes, you can’t ever know if there was a mistake, and you can’t get better with your quotes. 

Using templates for your quotes can help you share these lessons with the whole team by updating the template to be more accurate. 

Mistake: Looking at quoting in isolation 

How businesses quote can be very different depending on the size of the team and the type of work. One mistake that businesses tend to make as they grow is that the sales team that are quoting get removed from the work that is done. 

It can be easy to start slipping into under-quoting to win the work, unaware that those jobs are losing the business money because the operations team can’t complete work on time.

The entire value chain should be considered so that when quotes turn into approved projects, billing and delivery milestones and forecasting can be achieved.

Solution: Give yourself a whole-of-business overview

Give your team the tools they need to communicate with each other. Short-term solutions like regular short meetings or whiteboards can help, but investing in technology can help your business “talk” without taking up your team’s time is a better long term solution. 

That doesn’t mean that you have to use just one system like a custom build ERP that can be cost-prohibitive, as long as the solutions you choose have compatible integrations that suit your businesses needs. 

For example, if you’re quoting and project management systems work together, your quoting team can look at past projects to get an idea of how long similar jobs take and quote more accurately. 

Mistake: Not checking your estimates vs actuals until the end of the job

Once your quote has been signed off and the work has been won it can feel like the quoting stage is done and dusted. But keeping what’s quoted in mind for the whole project can be super beneficial – you can watch your scope and identify opportunities outside the quoted job.

 If you assume that you’ve nailed your quotes and don’t check back in until the project is over, then you can’t readjust and you risk losing money on your jobs. 

Solution: Keep a ‘paper trail’ and have a Plan B

Building a process to track variations and milestones that have been reached is an important way to ensure you’ve kept to scope. By watching these things in real-time you can stop any issues before they occur. 

For example, if you see that you quoted 3 hours and your team have worked 2.5 and are only halfway through, you can have a chat with the client to see if more time can be added to the project. It’s a lot easier to have this conversation before the work has been done. 

Having a catch-all clause for out of scope services means that once they have approved the quote, you can approach the client with confidence that any additional extra’s can be presented for consideration before it is too late. But this can only work in conjunction with good job management software to present these early warning signs.

By using tools like a CRM you can watch turnaround times, keep notes or record what has been communicated between you and the client – and what was agreed to after the initial quote was sent out. 

About Business Continuum

Business Continuum implements best of breed software solutions to improve workflow efficiency and happier employees.  By working in consultation with our clients to customise and educate them on best practice setup and guiding them through the change management process suited to their needs.