Estimates vs Actuals: Are You Tracking Your Profitability?

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Estimating is the foundation of every profitable construction business. By measuring your takeoffs, labor, and overhead, you should have an accurate total for the project. But if you’re submitting bids without analyzing past project data, how will you guarantee profitability for the future? 

More bids won do not guarantee more profitability. Without referencing your estimate history and analyzing project performance, aka your actual cost of the job, you are going blindly into every future job. Using guesstimates accelerates failure rates. So, how will you measure success and meet your profit target? We’ll walk you through the difference between estimates and actuals, what happens when you don’t analyze estimating performance, steps to building a rock-solid estimating strategy, and how STACK’s Takeoff & Estimating platform provides the critical resources you need to stay profitable. 

Estimate vs Actual, Explained

An estimate is the total of direct costs (materials, productivity wages, etc.) and indirect costs (overhead, equipment depreciation, etc.) associated with a construction project. It is a prediction and should be an accurate one. 

The final project cost of a job is the actual cost. We’re talking final, final. The punch lists are complete, the certificate of occupancy is in hand, the job has been handed over to the GC or owner. Every last screw was purchased, every last productivity hour was paid. This is reality, and hopefully a profitable one. 

What Happens When You Fail To Analyze Your Estimate Data?

If you’re churning out bids without referencing past project data, you’re increasing your chances of being the one in five contractors who fail within the first five years of business.  

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The guessing game is not a fun game in real life. Underbidding jobs will leave you in a financial mess and struggling to keep your business afloat. Overbidding presents missed opportunities to win. Without analyzing your estimate data, your business is on a rickety rollercoaster ride.

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Precon insanity – if you keep doing the same thing over and over, it’s called insane! Why bid jobs with a GC where you can’t meet your margins? Or work in a region or trade where you haven’t been successful? You need to know where you came from to get where you’re going! 

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Bad gut check – a lot of times our gut tells us one thing, but too often we forget about the project that went awry. It’s important that we look at historical performance to check ourselves to make sure we’re doing the right thing. It never hurts to have data to back up our decisions. 

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You ignore outside factors – while your estimates might tell you one thing, your historical projects may tell you another. Accurate estimates and pricing are important, but they don’t always take into account outside factors like customer relationships, approval processes, time constraints, uptime, and downtime. Looking at similar projects that you’ve done in the past can help to identify these factors and make sure you take them into account before you submit your bid. 

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How To Build A Rock-Solid Estimating Strategy

With broader exploration and analysis of your estimating history, you’ll be able to strategize on future projects by minimizing risk and loss.

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Make sure the data is accurate. Data outputs are only as good as the inputs. Double-check estimates are finalized, that information is entered correctly, and estimate statuses are up to date. 

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Educate your team on the importance of data to make more informed decisions. When you’ve done things one way for too long it can be difficult to change. Make sure you’re educating your teams on what data is important and how to use it in their decision process. 

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Use dashboards. They allow you to visualize your data and information in a way that is digestible and makes it easier to make quick decisions. The easier data is to consume, the more likely you and your team are to leverage it. 

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What is your best estimator doing? Take a microscope to their processes – why are they successful, what processes are they using, what are they focused on or not? By identifying top performers within your organization and mirroring their processes you’re building the strongest estimating team. 

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Better understand your market. Knowing the customers, regions, and industries where we have the most success helps us to make decisions about where to make investments. If we see a declining trend in a certain industry, it might be worth diving deeper into. 

“In the beginning I used ‘wild ass guess’ pricing. It wasn’t working for us, so that’s when we moved onto STACK. That’s one of our biggest data points. We have a [data] history we’re building. For example, on this job, our man hours were this much. It helps us trace trends for productivity based on trade.”

Get Actual Profits With STACK

Get visibility into the accuracy of your estimates! 

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Respond to bid invitations quickly with the most thorough, accurate estimates. You can customize your process with items & assemblies, labor, non-measured costs & markup. 

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Leverage dashboards by analyzing summary by square foot, projected profit, and project details. 

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Measure with hyper-accurate takeoffs in the cloud with easy-to-use, lightning-fast tools. 

Take STACK for a spin and see for yourself!

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