Usually, estimates are not the exact costs. Instead, they are seen as a close guess to what the services or goods would cost. Since it is merely an educated guess, it is not binding as it can be adjusted depending on changes in circumstance.
As a business owner, you would have heard of estimates for services/products you provide.
Many business owners who need to prepare estimates or estimate templates often consider the circumstances in which the services would be carried out. This would ensure that their estimates are within the foreseeable cost range even if there is a later change.
One thing that is similar to estimates is a quotation. The reason is that both are almost used for the same thing.
Quotations and estimates of services are issued when it looks impossible to narrow down the exact cost of the services or goods.
In situations like these, the business would have to create a rough guide in the form of a quotation or estimate to guide the pricing and cost of the services or goods.
This, however, does not make both of them the same thing. On the contrary, there is a wedge of difference between them. For a start, quotations usually reflect a fixed price of services that is not usually subject to change upon acceptance by the customers. This is why there should be some level of certainty before a quotation is issued out. In any situation where the issuer suspects that there might be some changes, then it is advisable to give out an estimate of the cost instead of a quotation.
On the other hand, estimates are flexible because they are guessing the content of the cost of the goods or services. Here, though it is important to make an educated guess, certainty about prices is not important. The flexibility of estimates helps make room to accommodate changes in circumstances that a quotation would not accommodate.
Types of Estimates
In preparing an estimate template, the same template is not followed in every case. There are at least four different types of estimates which reflect similar yet different content in an estimate or estimate template.
Depending on your industry, you might want to use one of the following estimate types:
These estimates are mostly applicable in the civil engineering field. This is because they are always subject to changes as the need arises. Usually, they give a guided clue about the cost of the project that would be undertaken.
These kinds of estimates are made at the beginning of the project. At this time, there is little known information about the cost of the project. This is why these estimates are only made to guide the cost and are changed later on. When a preliminary estimate is made based on the experience and cost of a previous but similar project, it is called a screening estimate. These estimates or estimate templates give you an overview of the cost and prepare ahead. It also puts the contractor in a better position to charge the client.
Since it is not final, the contactor would adjust the estimates to reflect them as other information comes to light.
As was mentioned above, a preliminary estimate is adjusted upon the availability of more information. Thus, when information is available, what the preliminary estimate turns to is the detailed estimate.
The detailed estimates are the matured form of the preliminary estimates. These estimate templates are drawn up when there is some level of certainty about the scope and cost of the project. The content of the detailed estimate template shows that there has been a lot of information at hand.
Some of the things included in detailed estimates or estimate templates are information on:
- Items necessary for the completion of the project
- Drawings for the projected area
All of the items included in a detailed estimate are summed up to arrive at the project’s final cost. The detailed estimates are often what the contractors use as their budget estimates. Though subject to change as the need arises, it still helps the contractor guess what would be required in the project and what to expect.
When a project is to be carried out, there would be some materials needed to complete that project. To fulfill the requirement of these materials, there must always be an educated guess about the materials and their quantity. What this educated guess is called is quantity estimates.
The purpose of these estimates is to let you know the quantities of materials needed for the project. It also shows the cost of each material. This gives you an insight into what should be expected for the project and the cost of the materials.
The quantity estimates are also used in the construction industry.
Before a project is awarded to a contractor, there might be a need to submit bid estimates. What the bid estimates do is to give the prospective client an overview of what the cost of the project would be before awarding it out.
This estimate is usually drawn with the understanding that it is competing. That is, the contractor is not the only person bidding for the project. This makes the contractor put up the best price hoping that the prospective client would consider it.
These bid estimates are drawn up based on the plans that have been provided by the clients on relying on standard industry costs. For better accuracy of the estimates, the contractor may have to consider other information like labor, materials needed, and equipment costs.
Writing a Professional Estimate
If you are in a position where you have to write an estimate, you must make it as professional as possible.
To do this, here are what you need to include:
Prepare a price list
When writing an estimate, the last thing you would want to do is leave out the price of an important item or even forget the item. Unfortunately, this mistake is possible, especially when you don’t have a list of the things you need. Therefore, you need to prepare a price list. This would ensure that you cover all the items you need and the educated guess on the prices. You may use software for this purpose.
Tip: If you are unsure about price rise or complications, you should make more than one estimate considering the plausible changes. Doing this will help you prepare against any sharp changes that might affect your work progress. It also helps you avoid disputes with your clients.
Prepare a written estimate
You would have to prepare a written estimate and give it to the client. This would include the breakdown of the projected cost.
For a standard written estimate, you have to include the following:
- Job description: You should be able to describe in detail what the job entails and the scope.
- Materials and labor: You would need this as there would be cost to rely on them during the project. So, you should define them and what they entail when giving the estimate to the client.
- Total cost: An estimate should reflect the total cost and the individual cost of all items there.
Tip: It is advisable to include a disclaimer that says the prepared estimate price is subject to changes. You should also have an agreement on how many variations would be allowed. All these will help you find out if the job is more complicated than expected.
- Payment terms: It is important to put the terms for payment of service rendered or the cost of things included in the estimates.
Tip: For your payment terms, ensure you get a signed acceptance of the estimates. It is also important that your client is fully aware of the agreement. You should provide the GST/QST component of your price list if applicable.
Sales and contact information
You should also ensure you put your company’s contact information so that you can be easily reached for further discussion on the project if your estimate is approved.
How to Format an Estimate Template
In drawing up an estimate, some things are required to be present in it. These things form the template of the estimates.
- Company name
- Company address
- Contact information (official phone number and email address)
- Estimate number
- Client’s name
- Clients company’s name
- Contact information (official phone number and email address)
Estimate description: This would contain the description of the items or services, the quantity, the unit price, and the required unit’s total cost. It is expected that all these are in tabular form to achieve orderliness and clarity.
This segment will also include the subtotal and discount if applicable. Also, it will include the tax rate and total tax rate plus the shipping cost. There will be a quote total that reflects the final cost after the necessary addition and subtraction in the final line.
In this segment, you can add payment requirements and methods. You can also add terms of payment, return policy, and project timeline.
Cost Considerations for Contstruction Estimators
There are other things that a construction estimator might need to put in place.
Some of these other considerations may be reflected through these methods:
The unit pricing method
This method is often used to speed up your estimation and achieve better accuracy. Calculating your unit pricing is important as it would allow you to know the actual direct cost of your estimates.
What you need to do is take the sample item and:
- Separately sum up your material and total labor cost
- Divide the costs by the total square footage of your identified sample
- Add the result to your database
- Do the same for material cost
Your unit price is the price you charge for your task.
If you are a photographer, your unit price might be $15 for 4 photographs.
The square foot method
This strategy has two methods; the prospecting tool and the last-minute bidding tool. The former is used to get a foot in the door with most clients. The latter is used as a last-minute strategy in bidding. Using this method, you can create a budget estimate for yourself.
The prospecting tool method
This is used to get an opportunity to work with an architect. Usually, architects are not aware of the actual cost of things. Due to this, they produce over budget designs and are forced to make multiple corrections, usually for free. For many in the construction industry, this provides an excellent opportunity.
A general contractor can provide free budget pricing for an architect’s projects in the design phase.
This most likely will impress the architects and would lead to recommendations for other works.
The last-minute bidding method
This is used to secure an opportunity in good time instead of going through all the processes and still missing the opportunity.
You might get a last-minute opportunity to bid on a job, but there is no time to detail the estimates. So you price a little higher in this instance since it is almost sure that the client will want a discount.
This ensures that even after the discount, your estimate is still within the reasonable price range. This is way better than spending hours writing an accurate estimate, only to be told that the opportunity is lost.
The rule of two method
This method is often used when you have determined the labor cost. This rough labor cost is multiplied by two, and a 10% cushion is added. This would help inform the decision about the estimates that are expected.
Preparing a Price for a Tender
If you are a contractor that does business with the public sector, there would be situations you would be required to submit tenders for the contract. This tender allows you to compete with other contractors for the same project. Since it is a competition, you should ensure that your tender stands out.
Here’s a how-to prepare a price for a tender that stands out:
- Familiarize yourself with the instructions in the bid specifications. This would allow you to know what to focus on and what to exclude.
- Ensure you provide encompassing information on the project.
Here’s what to include:
- A weekly or monthly breakdown of component costs at each stage of the project
- Staff time and costs
- Management time and costs
- Administration time and costs
- Estimates of reimbursable expenses
By providing this information, you will be creating an edge for yourself because it shows you are offering verifiable value.
You should include your overall price in figures and words, and the currency you are dealing with should be estimated. It is also important that you provide contingency terms in case of an unexpected cost arising later.
Following are some free downloadable templates for you:
Frequently Asked Questions
If you are pricing a tender for the first time, it might be confusing to know what price you need to win the clients. Of course, the price is essential, but the clients are more focused on the quality. So, your primary focus should be on delivering quality.
In bidding, ensure you don’t fall into the temptation of bidding too low to entice the clients. The truth is, clients also have an estimate of their own, and if your bids don’t come close, they will suspect.
What’s important is to focus on delivering quality and setting a realistic price.