How is it that some contactors can look at an irrigation design and say, “That will cost $10,000 dollars to install.” Where does that number come from? Did they just pull it out of the air or is there a systematic process to it?
Some contractors can throw numbers out like that on a regular basis to bid a job without having an estimator. Some can do it because they are that good at what they do. Others don’t have an estimator to do it for them, so they rely on experience because there is no other option. However, when you get into a commercial or a unique project such as large as a golf course, the need for a good estimator is critical. At the very least, it’s important to have a support structure to help with the estimating.
Companies that are too small for a dedicated estimator will have their project manager or another employee handle the bidding of all their work. If it’s not handled by them, the sales person will end up doing it themselves or in some cases the owner. This could potentially cause trouble down the line. That is why, I always recommend a creating a partnership with a dedicated distributor such as Central. This way, you can align with an experienced team that has a wide range of experience to meet your needs.
With more than 20 years’ experience in the industry, I can tell you that every contractor has their own unique approach to bidding a job. Some use an arbitrary formula, while others breaking things down on a spread sheet. Over time, with a lot of good experience and trials and errors, you will find something that works for you. No matter your approach, there are three things that you need to consider to make sure your estimates are on track: Materials, Labor, and Profit.
1. Materials & Installation Expenses:
If you don’t know what it is going to take to do the job, you will never be profitable when you’re done.
In order to be profitable it’s vital to consider anything that would be classified as an installation expense.
There are two expenses to keep in mind:
Categorize your materials as everything you will need to install. This can consist of the heads, valves, sprays and rotors, the controller, valve boxes, and pea gravel.
A sub-contractor can be an additional installation expense. For example, if you did not get the general contractor to complete a backflow installation, you will need to hire a plumber.
This category works for me because of its simplicity. I like to see installation expense separately from labor so that I know what it is going to take for me to do the job. Find a system that works for you. Some may want to include an additional category so they can break out materials from sub-contractors and other operating expenses such as equipment, tools and fuel costs. Overtime, you’ll find a system that works for you and your team.
Labor is a key component that will make or break the job, so I like to keep it separate it from everything else. Labor is what each member of each crew is paid to do and the largest variable to deal with.
Save Money with Labor
With labor, knowing how much your employees’ cost is not just for the individual employee, but it’s important to know your costs for the overall crew. Different crews will cost you a different amount even if they are the same number of people. They will all have different levels of experience which means some will work faster and more efficiently than others. You need to account for that because they all have different salaries and skills. When you’re juggling around multiple crews you need to be able to watch your expenses. If you have to divert one crew from the job you expected them to be on to another job where you did not plan on sending them—you can overspend on that specific job. This will directly cut into your profit margin.
Calculate Your Man Hours
Let’s say you have three crews of laborers. Do you actually know what you’re paying each crew per hour? This is important to know to make sure you have an efficient crew team. To do so, break down the cost of a crew based on the pay per man hour.Calculating the cost of the crew per man hour is very simple. If you have a five-person crew, add up what each of them makes per hour and that’s your cost for that crew. To figure out what this crew costs per day, multiple that by the number of hours they typically work. If you want to know what that number is per week, calculate that by the number of hours they typically work in a week. Now if they go over 40 hours in a week, remember to account for overtime pay (time and a half or double time). If you calculate your labor out correctly, it will help you hit your target labor hours and costs. This will help you hit your estimation number accurately when you bid a job. And ultimately, help your bottom line so that you do not lose any money from your profits.
It is a simple question. What do you expect to put into the bank after you finish the job? Expenses pile up, so how are you going to make sure you keep your profit? I always recommend marking up materials a percentage that you are comfortable with. This is what you’ll want to make at the end of the day. Sure, we all would like to make high margins but you have to be realistic because of your competition. Try to always keep these margins as constant as possible and remember if you get a better deal on some material—that’s extra money in your pocket.
When I estimate a job, it starts by getting the correct material quantities. These are the core numbers to consider when bidding the job, but if they are wrong it will throw your numbers off. It’s crucial to know these costs. They need to be accurate or you can miscalculate your potential profit. For the materials, some of the design software in the irrigation industry will give the quantities based upon the design such as mainlines, laterals, valves and heads. This can save a lot of time for the individual doing the bidding, but you don’t want to rely too much on the computer to do the work for you. You will always have unforeseen things you cannot control and you need to have a financial contingency to cover yourself. I recommend a minimum of XX%. Yes, these programs will save you time, and time is money, but knowing what you’re doing and watching the variables will keep your bid [and business]
Know Your Products
Estimators should all have a good background in product knowledge—it will be key to their success. You cannot properly bid something if you don’t know what you’re bidding. Product knowledge is important to know how products work and understand that there is a difference between a contractor-grade irrigation product and a specification-grade irrigation product. Most of these items will give you the same results but have some unique differences that will make a difference in performance and cost.
Price Your Units
You have the ability to break out your installations by unit pricing. This is the cost of each individual component put together with a labor. It will allow you to build assemblies like a spray assembly or a valve assembly. If you do this, and do it well enough, you will eventually be able to classify your installations by zones, and then be able to bid jobs based on the way your team installs. You can still apply this to a job that is already designed by an architect or consultant but understanding how to unit price a job will keep bidding consistent and save you time.At the end of the day, you want your job estimates to be within five to ten percent of what it actually takes you to do a job. Obviously the lower you can get that number the better, but It can be done. The more you do it the easier it is, but you have to know how to manage your expenses. If you think the process through, and refine it, it will help you become more successful—and ultimately more profitable. When you make a bid on a job, remember you will be held to that bid and if you did not bid your job correctly, you will lose money.
If you’re a small company that needs additional support or a company that simply wants a different perspective, give your local Central sales rep a call. Central has several people that can help from specialty items, to design, to estimating and bidding. We’re here to help you grow your business.
Shane Kreis, Central’s Irrigation Specification Manager, has a Bachelor’s of Science in Applied Geography emphasizing in Resource Management. In addition, Shane has more than 20 years of experience as contractor, consultant and distributor from residential, commercial, to golf irrigation systems and agriculture. He is a valuable resource for any stage of a project from beginning to end. Shane is a current member of the Irrigation Association and is an EPA Water Sense Partner.