August 22 - 25, 2018

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Effective Estimating that leads to Bullet Proof Proposals - Part 6

by Editor 9. August 2018 07:01

By: Bobbo Buckley, Software Developer: Cabinotch Innovative Solutions

Effective Estimating that leads to Bullet Proof Proposals - BMG10

In our last Effective Estimating post of this series, we talked about our Estimate and Proposal ACCURACY. In this final post of the series, I want to remind all cabinetmakers (me included), that when it comes to manufacturing cabinets, "The end depends upon the beginning." No matter how effective we design, engineer, machine, assemble, finish, hardware, deliver and install a project, if our Estimate was bad, then there is a good chance our Proposal was bad, and if they were exorbitantly high, we just might earn a reputation that is not conducive to future projects, and if they were too low, we may lose money on the project, and just a few of these can break even a strong company.
We need to know out costs, and we need to know them well. We need an Estimating System that can take Material and Labor costs and build upon them the appropriate markups that will cover our overhead. Our overhead must include things that we don't think of on a day-to-day basis, but we must force ourselves to do so.

  • If you want to retire one day, you have to build in the cost of funding your retirement.
  • If there is any chance you might cut off a useful part of your body, you need to insure for that (Disability Insurance).
  • If you own a building, you have to build in the cost to own, insure and maintain that building.
  • Whether you own your building or rent your building, you have to build in costs for utilities.
  • If you own equipment (and what cabinetmaker doesn't), you have to build in the maintenance and replacement cost for that equipment, and the cost to keep it insured. Keeping in mind that the new breeds of CNC and/or NC equipment lives in dog years (1 year is the equivalent to 7 years).
  • If you own tools (and what cabinetmaker doesn't), you have to build in the maintenance and replacement cost for those tools, and the cost to keep them insured.
  • If you own vehicles, you have to build in the maintenance and replacement cost for those vehicles, and the cost to keep them insured.
  • In additional to covering your labor, you need to cover the cost of labor (i.e., paid vacations and holidays, workers comp insurance and taxes).
  • If you own and use computers, you have to build in the maintenance and replacement cost for those computers, and the cost to keep them insured.
  • If you own and use software, you have to build in the upgrade and support costs for all those software programs.
  • In addition to the direct labor that is part of your cost-of-sales, you must build in indirect administrative labor costs (some portion of your pay might fit right here).
  • If you want to continue your business over many years, and who doesn't, you must build in your cost of sales (advertising, commissions, etc., some portion of your pay might fit here)
  • If you are operating on borrowed money, you must build in the cost of operating on borrowed money.
  • If you breath oxygen and/or have a pulse, you must build in the cost of taxes, lots and lots of taxes.
  • If you breath oxygen and/or have a pulse, you must build in the cost of complying with regulations, lots and lots of regulations.
  • If you want to survive long enough to quote another project, you must build in a healthy profit margin.

I know, it can feel overwhelming to think about, and then you have to think, what if the market won't bear all of this material and labor cost, overhead and profit? AND, how to I apply overhead to a single Project?
Well, back to my earlier quote from an unknown author, "The end depends upon the beginning." Our Estimating System has to be rock solid so we are not guessing at what to charge our customers, and we know that EVERY job is not only covering our costs, but is PROFITABLE.
We will cover these things and so much more during the Effective Estimating session at IWF-2018 in Atlanta, have you signed up yet? You can do that by clicking on the link at the beginning of this post!
 
 

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