Estimating in a Changing World
August 23, 2007
With a few notable exceptions, most insurance companies want to pay what they owe. Despite all the battles you may have fought over the years, I stand by that statement. If you’re an estimator doing restoration or reconstruction, you can get the money you need by following a few simple guidelines.
The goal when we write estimates is to make enough money to service the client properly and to have something left over when we are done. Sounds simple, doesn’t it? Well, it is if you prepare properly.
A Note About Negotiating
I’m going to mention negotiating a few times in this piece, so let’s get something straight. Negotiating is not about you winning and the adjuster losing. If you go in with that attitude, you may get your money on that job but may never hear from that adjuster again. It’s got to be a win-win for both. A good negotiation is when both sides feel they have a fair deal. Going further, the best estimate is one that is written so well, with such clear explanations and strict attention to detail, that no negotiating is necessary.
Know Your Costs
Let’s face it. Most of us do the same thing over and over every day. We estimate paint, drywall, carpeting, trim, ceiling texture, framing, electrical and plumbing every day. By paying a little attention, you should be able to develop a feeling for what things cost. Don’t be afraid to call lumberyards to get prices and an understanding of why things costs what they do. Take frequent trips to your suppliers and peruse the shelves.
Do the same with your subs. Sit them down and force them to make you understand how and why they price things the way they do. Understanding all the elements that go into a job and what the potential challenges can be puts you in a much stronger position when you estimate and when you negotiate.
To simplify estimating even further, consider this: All you have to know is how much will your material, labor and subcontractors cost you. With this info you can produce a budget and add your markup.
All estimating software will figure out how much material you need if you put in the correct measurements. With that info, you can call any supply shop and get your material price. They have people sitting at desks waiting for you to call. Develop relationships with your suppliers and subs so they will run out for you on a moment’s notice to price jobs for you. In fact, call them and ask them to meet you on the job the first day. Demand that they get back you immediately. Often times they won’t, so you will have to bug them. After a while they will get the picture and get you what you need quickly.
Never Defer to Your Estimating Software
This is the biggest mistake I see among inexperienced estimators. They say, “Well that’s what the computer said.” We are not robots. We are thinking, reasoning humans. Deferring to your estimating software is to let the software company set your prices. They take control of your profitability out of your hands. They don’t know what you need to make on a job or what your overhead is.
Get your estimate written as quickly as you can. As I said, we estimate the same thing over and over again. Small estimates should be written the same day they are seen. The longer you wait to write your sheet, the more you will forget.
Speed is also important so the adjuster can set his reserves. It forces the adjuster to consider your estimate while he is writing his sheet. He’ll look at yours twice to see if he’s missed anything. It allows him to see what you are thinking.
A sloppy estimate will lose money most of the time. If you include everything and you know your costs, your jobs will be winners no matter what estimating platform you are using. You need to develop a system that will allow you to record everything and alert you when you have omitted something. Developing a top-down estimate works for many people. In this case, one starts from the ceiling and works his or her way down to the floor, noting everything as they go.
Put Two Pairs of Eyes on Every Estimate
Never send an estimate without letting someone else look at it and pick it apart. Most of the time, I can add 10 percent to 15 percent on any estimate I see just by reviewing it and adding things they left out or by questioning my estimators. Occasionally I’ll reduce the estimate if the explanation is not satisfactory. While honesty is the best policy, my aim is also to make sure the adjuster doesn’t feel gouged by us.
Having production guys look at it always worked best for me. They know they will have to produce the job it and adhere to a budget. They have a vested interest in making sure your estimate is accurate. Even experienced estimators should let production review their sheets. Stow your pride and make more money.
Spend Time on a Job Site
See what the production guys do. Better yet, work with them occasionally so you see firsthand what they go through. I decided to help demo a fire-damaged house years ago because I didn’t know why we kept losing money on demo. After spending a morning humping garbage cans full of demo’d plaster up a flight of stairs, my thighs were screaming. They refused to move. I crawled back to my office and increased my demo prices. Now when an adjuster questions my demo number, I relate that story.
Figuring out labor is a little dicier, but if you break it down to small bites and then extrapolate, it’s simple. Instead of trying to guess how long it would take to drywall an entire house, try to estimate one medium-size room and multiply it out from there. Of course, you should take room sizes into account.
Estimates should be so clear and easily understandable that the adjuster should not have to call you for clarification. Explain why you wrote what you wrote and why you charged what you charged so the adjuster can digest it and can easily explain it to his or her supervisor six months from now. If it’s been explained clearly from the beginning, adjusters are more likely to accept it and move on.
Review Completed Jobs
Assuming you record all your job costs, take a look at the good and bad jobs to see what worked and where you fell short. It’s the equivalent of a football coach reviewing game films. Measure it against the budget you wrote. Figure out if the problem is your estimate or your production. Did you include enough money for material and labor? Maybe production took too long. Maybe you forgot a major trade category. Maybe someone has a hand in your pocket. By reviewing these jobs, you will learn where your shortcomings are and correct them.
Estimating is not brain surgery. It’s a matter of knowing your costs and presenting them in a timely, clear and concise way. The less you leave to chance, the stronger your estimates will be. Get hard numbers when you can, and when you can’t, look at historical data. If you are fighting and arguing on every estimate to get an approved price, review some of these suggestions and watch your stress level go down and your profits increase.