Estimating and Pricing Commercial Work
Big, complicated jobs are an opportunity to make or lose money through the accuracy of your estimating. Here is some advice on coming to grips with the details that determine your costs. October 23, 2007
Question
Six months ago I started as a project manager with a new company. This is my first real venture into the commercial, middle range (AWI Premium) end of things, as I've only done high-end residential/corporate before. I've become aware that this company has a problem bidding the more complicated things (I know, who doesn't). We've underbid two reasonably complicated jobs (which I'm now managing). I overheard the co-owner who does/used to do the estimating, explaining to the new trainee for estimating, that we use lineal footage rates (which haven't been updated in a few years) for primarily everything, and the oddball stuff he "averages" out. The shop labor time, CNC time, engineering time, etc., all carry the same value. I think this is what's killing us on the custom stuff.
So, when do you stop using lineal footage, or at least add to it? We are in a great position as a company to train that person to serve the company well. (Please don't get on me that it's not my position to say that... the senior owner and I are working together to improve the office.)
I also believe now that we have a full time estimator, it is less necessary to win the majority of bids, therefore we have an opportunity to cherry pick jobs. What percentage of bids do you generally win?
Maybe it's because I come from the high-end segment of the market, but some things seem off. For instance, if I'm going to do a 2 drawer lateral file with locks, I'm used to getting paid 600-800 dollars for that. He figures 200. Mind you, I'm used to raised panel doors, and his figure is for a slab drawer, plastic laminate cabinet, with 1/2" melamine drawers. I just think we leave a lot of money on the table, and in my mind, that's the easiest money to make.
Forum Responses
(Business and Management Forum)
From contributor W:
I have never been a fan of lineal foot pricing. I use the per unit pricing method. I created a spreadsheet of standard cabinets based on size and material, as well as doors, drawers, counters, etc., which includes labour to machine and assemble, and hardware. Then when I estimate a job, I add up the items. Custom cabinets, such as curved back, are priced by adding a design charge based on my time, and an extra labour charge which I get from talking to the shop.
I have never found an accurate way of charging for finishing, or installation, so I just look at the whole job and throw out a figure based on talking to the finisher and installer. I then add a percentage to the job based on overall complexity, and how busy we happen to be at the time. This takes a long time to get accurate. My base prices are based on labor, material, and profit, but the percentage added is variable. If I find I am getting too many jobs, I increase it. If things are slowing down, I decrease it.
From contributor B:
In my experience commercial work sells for less than residential. I don't use a price per foot, instead a labor per operation plus materials. The file cabinet mentioned, if 16" wide, would be $340.00, but if 24" wide, would add only another $40.00. If figured at a cost per foot based on a 16" standard, you wouldn't get the job and at the 24" standard, you might lose money. That's the easy stuff; curved reception counters about triple the normal cost.
From contributor R:
I estimate all of the work for my $8.5 million/year commercial architectural woodwork company with an assistant. We count everything in the job and we list every piece. We use a spreadsheet to calculate materials and labor and add various "soft variables" on a recap sheet at the end. I don't use the lineal foot method because it is not flexible or accurate enough to address the vast number of variables that we face every week. It's true that more complex things are harder to estimate, but more complex things are still made up of the same basic building blocks as the simpler things and the art of estimating is picking things apart and rebuilding them in your head.
The AWI Cost Book is an invaluable tool for learning how to assemble and price woodwork using the operational, time and materials process. Go to the AWI Estimating seminar to learn the use of the Cost Book and a lot of other things about operational estimating.
As to cherry picking jobs - this is company policy and depends on the market and your shop capabilities. It's important to know what you are good at and avoid bidding jobs that will cost you money. My policy is to bid most of what we are asked to bid, and anything that is easy to bid, but to always price the work to make money, rather than price it to get the job. My success rate is about 30%, which could be seen as low because we bid a lot of work that is easy to bid, but that we are unlikely to get. What happens several times a year is that we are not awarded the job on bid day, but we get to do it anyway because the low bidder doesn't show up. Also, since we bid a lot of work, we frequently get public jobs that no one else bid on. This makes it worth pursuing unlikely projects, but I never go after them cheap.
From contributor M:
Just to add some weight to contributor R's post, the AWI Cost Book is an incredible tool. It has given me information that I have sought for years. It breaks down the time for some of the simplest tasks, like drilling and mounting euro hinges. I have wondered how much time it takes to drill 1 set of doors as compared to 10 or 100. The Cost Book is an average of averages, and gives you units of time that you can use. It is a straightforward, objective way to estimate. If your shop is a member of AWI, ask the owner where he is hiding the Cost Book! I would bid according to the Cost Book, then adjust your shop rate to match your current pricing. In the future, you can do your own time studies and make your estimates more accurate.
From the original questioner:
Thanks. I found the Cost Book (a little dust covered) in a corner yesterday. Tomorrow I'll have some time to go through it. It seemed pretty useful.
From contributor R:
The greatest usefulness I have found in the Cost Book is the approach that it takes - an operational estimating method that allows you to virtually build a product with different operations of labor. The book is broken into various operations, each with a table of average times, and the tables are set up as curves, with the first of any operation taking the most time, each subsequent performance of the operation taking less, and slowly leveling out. This mirrors the actual process in your shop. What I have done over time is replace the times in most of the Cost Book tables with times from my own operation, based on my machinery, layout, material handling, etc. Some of my times are faster than the Cost Book - some are slower - but the curve is similar. Years ago I had someone help me create lookup tables in Excel so that, for instance, I could enter the square footage of sheet goods or the lineal footage of a molding and get an automatic time for that operation in that product. This has speeded up estimating for standard products enormously. I have continued to tweak the times as I add new machines or make improvements and I look closely at what pops up on non-standard products, but overall, the system has proved very accurate and yielded consistently profitable bids. It's sensitive to economies of scale and complexity in ways that lineal foot estimating is not.
When I was starting out and I encountered something new that I never estimated or built before, I went straight to the Cost Book and took the operations directly. For instance, all of the steps for building a complex wood lattice from S4S on the raw lumber, to cutting the joints, to assembly are there. I may have been high on some jobs and not gotten them, but I never lost money on a job bid directly from the Cost Book.
From contributor J:
I highly recommend that you take contributor R's advice. Pricing by linear foot is an average and only works for a company in the long run for a history of cabinets made from similar materials and with similar construction methods. If you price by LF, then you are going to under-bid some jobs and over-bid others. Some will be close.
In my opinion, the key to pricing your work is to know your labor and overhead costs and to be able to allocate those costs to your jobs. It is very difficult, but if you don't have a handle on your L.O.H., then you might as well guesstimate with LF prices.
From contributor O:
Is it possible to get a copy of the AWI Cost Book if I'm not a member?
From contributor M:
They have a great deal. I believe it is $600/year if your gross sales are under $500K. And you get to use a good portion of that towards a seminar. The estimating seminar and the Cost Book has been well worth it for me. And there are other benefits, too. To answer your question, I think it is available to members.
From contributor G:
There are some software tools specific to estimating for millwork and casework. Ours [Alliance Millsoft] is one and emulates the AWI Costbook's philosophies.
