When you’re a hard-working entrepreneur running your own business, time is money — and both are in-demand, precious resources. For commercial construction contractors, growing your business hinges on your ability to successfully bid on new and bigger jobs. However, accurate construction estimating takes a significant amount of upfront time and effort (anywhere from hours to days) that you can’t afford to waste.
That’s why it’s so imperative to be selective about which projects you’re willing to provide comprehensive estimates for. By vetting projects up front, quickly, you can more effectively focus your valuable time and energy on those that will make the biggest impact on your success.
Say a general contractor comes to you asking for an estimate on a potential office-building project. How do you gauge right off the bat if you’re willing to spend time putting together a comprehensive estimate for a bid? You have to ask yourself: Is this project even worth it to me?
To accomplish this quickly, you’ll need a go-to framework for quickly assessing new projects and determining their value to your business.
How to know if a construction project is worth estimating
To create your framework, first define the aspects of any given project that would support either your short-term or long-term business goals.
For example, you might be looking for opportunities that would enable you to:
- Grow your profit margins – For projects that aren’t overly competitive, you may be able to mark up your services and boost your profit. This is obviously a significant benefit, especially when your goal is adding profit to your bottom line.
- Learn new skills – If you’re an up-and-coming entrepreneur working to perfect your trade and get more experience under your belt, the opportunity to hone your skills on a project could be a compelling reason to spend the time estimating, and bidding on it.
- Grow into a new category of projects – Increasing the size and magnitude of projects is a key factor in growing any construction business (and padding your portfolio). However, if you don’t have the bandwidth or skill level to deliver effectively, this is also something to consider (more on this later).
- Strengthen or forge a new relationship with a new GC – Building solid relationships with GC’s is critical to landing those more complex, lucrative projects that will help your business thrive. Depending on your current financial situation, it could be worth it to sacrifice profit on one project if it means working with a successful GC and getting more projects from them in the future.
How to know if you should pass on estimating a construction project
Once you’ve defined what would be of value to your business, define the deal breakers — the characteristics of a project that would make you pass on it, even if it potentially offered other benefits. These could include elements such as:
- Thin profit margins – If the profit you’re likely to net doesn’t make financial sense for your business right now, and there are no other major benefits to offset this, that’s a major red flag you shouldn’t waste your time on an estimate. How will you know if margins will be thin? Reach out to the general contractor’s estimator and get a sense of what they think your competitor’s bids will be coming in at.
- A difficult client – Whether the general foreman’s reputation precedes them or maybe you’ve worked with them in the past, this might be the ultimate deal breaker. However, if you’re willing to work with a demanding client in exchange for a project that will move your business forward, great! If not, this is your opportunity to walk away.
- Too much time or labor involved – Even if a new project would help you develop a valuable relationship with a big GC, if the scope is simply beyond your capacity in terms of timeline or the amount of labor involved, don’t bite off more than you can chew. It could sink the business if you do.
- Beyond your skill level – In addition to your capacity, you also have to honestly assess whether or not the quality of your work will meet the GC’s expectations. If you don’t have the skills to complete it, it’s not worth putting in the time for an estimate or bid, full stop.
Now that you’ve determined what would make a project a valuable undertaking, the next step is doing a rough preliminary estimate before making your final decision.
Simple tips for a preliminary construction project estimate
Unlike the highly accurate estimate necessary for submitting a winning (and final) project bid, this step is a rougher estimate to gauge how much work is going to be involved. It allows you to quickly measure the feasibility and profitability without putting in the hours-long work for a full estimate.
When creating a rough estimate, consider factors such as:
Historical Projects – Looking back on similar projects you’ve completed in the past is an efficient way to roughly estimate material and labor costs.
General Contractor – Who’s the general contractor on the project? Do other subcontractors want to work with them? If so, there will be a lot of competition for the project, potentially putting pressure on you to bid lower if you want to win it.
Location – Consider the project’s proximity to necessary resources, as well as whether it’s located in a dense urban area that might also increase the cost for parking, time of your daily commute, cost of storing materials, and hours of operation.
Labor – Based on all of the above, how many man hours, what kind of skill level and how many hours would you expect for the project to require?
Using your rough estimate, measure the project against the framework you created to decide if it’s truly “worth it,” or if it would be smarter to pass and wait for the right opportunity.
No matter how attractive a project seems, if there’s a chance you won’t be able to meet or exceed expectations, you have to weigh the benefits against the risk of burning a bridge with a GC or hurting your professional reputation. (Hint: no project is worth either of those outcomes.)
The quality of your relationships with GC’s who will consistently come to you with lucrative projects is essential to growing your construction business. Not only do larger, more complex projects generate greater revenue, but they’re also a chance to expand your skills and enhance your portfolio with impressive work — which, in turn, will potentially attract bigger clients.
Before you decide to throw your hat in the ring, it’s important to stop and consider the reality of how you’re actually going to execute on that big new project. Can you successfully complete this job and maintain your relationship with the GC? Do you have the finances, materials, labor and expertise to successfully deliver it on time and up to expectations?
If you have the skill and the capacity to take on larger projects, but lack the cash flow, Billd can help. With our contractor material financing, you’ll gain the flexibility to pay your material suppliers up front so you can confidently take on the kind of bigger, complex projects that are going to help rapidly grow your business — and maintain worthwhile relationships with GC’s.