# Chapter 11 — Estimating ## The chapter in one line The estimate is where profit is won or lost — before a single tool comes off the truck. Underestimate, and good work still loses money. --- ## Let me tell you the truth Most contractors think profit is made on the job site — work hard, work fast, do quality work, and the money follows. That's only half true. The truth is **profit is won or lost on the estimate**, long before anyone shows up to work. If you priced the job wrong, it doesn't matter how good or how fast you are. You can do flawless work, finish ahead of schedule, make the customer thrilled — and still lose money, because the number was wrong before you started. Estimating is not guessing. It's not "eyeballing it" and picking a number that sounds about right. It's a skill, and it's one of the most important ones in this whole course. This chapter is how you build it. ## Start with the scope You can't price what you haven't defined. **Scope writing comes before pricing.** The scope is the detailed, written description of *everything* the job includes — every task, every area, every material. Write it out before you price it. Bullet points are your friend: clear, line-by-line, no vague catch-alls. A tight scope does two jobs. It forces you to think through the whole job so you don't miss costs. And it becomes the backbone of your contract (Chapter 15) — because **work not defined in the scope is work you didn't price and shouldn't be doing for free.** ## Build the estimate from line items Estimate the way the pros — and the insurance industry — do it: **line item by line item**, not one lump guess. Break the job into its pieces and price each one: - **Materials** — every material, with real quantities. Build a material list. Don't estimate "lumber" — estimate the actual boards, fasteners, hardware. - **Labor** — the hours each task really takes, at your real labor cost. - **Subcontractors** — get sub pricing in writing before you commit to your number. - **Equipment, fuel, dump fees, permits** — the costs that hide. - **Code-related items** — work the building code requires that the customer didn't ask for but you're obligated to do. Miss these and they come straight out of profit. This is the Xactimate-style approach from Chapter 10 — line items, not lump sums. When you estimate line by line, you catch the things a lump-sum guess misses. And the things you miss are *always* costs, never bonuses. ## Overhead and profit — the two most-skipped numbers Here's where contractors quietly go broke. They add up materials and labor, tack on a little, and call it the price. They forgot two things: **Overhead.** The cost of running the business that isn't tied to one job — insurance, vehicles, software, phone, marketing, your office, your time running the company. Overhead is real money and every job has to carry its share. If your price only covers the job's direct costs, your "profit" is actually paying your overhead, and your real profit is zero. **Profit.** Profit is not "whatever's left." Profit is a number you *decide* and *build in* on purpose. It's the reason the business exists. You add it deliberately on top of all costs and all overhead. The formula in plain terms: **Price = direct costs (materials + labor + subs) + overhead + profit.** Leave out overhead and profit and you're not running a business — you're running a very tiring hobby. ## Hidden costs and contingency Every job has surprises — the rot you find when you open the wall, the extra material, the access problem. Experienced estimators build in a **contingency** for the unknown. New contractors price the *best case* and eat every surprise. Price for reality, not for the fantasy version where nothing goes wrong. ## Supplementing — don't do free work When the scope grows — hidden damage, customer changes, conditions you couldn't see — that is **not free.** In restoration you **supplement** the claim (Chapter 10). On any job, you write a **change order** (Chapter 15). Either way: more work means an updated, signed, agreed-on number. The contractor who absorbs every surprise "to be nice" trains customers to expect free work and quietly bleeds his profit out. ## Why underestimating kills Underestimating is the silent business-killer. It doesn't announce itself. The job looks fine, the customer's happy — but the contractor made nothing, or lost. Do that across enough jobs and you've got a contractor who's *constantly busy and constantly broke*, working harder and harder to dig out of a hole his own estimates dug. This is also why **job costing (Chapter 6)** and estimating are a pair. Job costing tells you what jobs *actually* cost. Feed that truth back into your estimating and your numbers get sharper every job. Estimate, do the work, cost it, compare, adjust. That loop is how a contractor becomes deadly accurate with a number. > --- > **From Dexter's career — a story about knowing your numbers.** > > Let me tell you about a kitchen remodel that taught me the second half of this lesson. > > Full renovation — drywall, cabinets, granite countertops, new flooring, paint. I had priced it right: line by line, materials real, labor real, overhead in, profit built on purpose. The job went well. We were two payments from completion. > > That's when the customer started looking for a way out. > > My granite installer had to take the custom sink — a purple custom sink — to the fabrication shop to template the countertop exactly. Standard practice. He brought it back and installed it. And that's when this customer claimed he'd swapped her sink for a different one. > > I knew flat out it didn't happen. I'd used that installer for years. But here's what I did — I told her: give me your original purchase receipt, and I'll buy the exact sink myself. If it doesn't match what's in, I'll swap it on my dime. > > Of course it matched. Which told me everything I needed to know about the real dispute. > > She wasn't complaining about a sink. She was trying to avoid the final payment. And here's the estimating lesson inside a customer story: **a contractor who knows his numbers doesn't panic.** I knew exactly what was owed, what was done, and what was left. So I finished the backsplash and the paint touch-up — finished the job right — and then went straight to the county clerk and filed to have her served. By the time the sheriff showed up, she was calling me with the balance, in full. > > Know your scope. Know your price. Know what you're owed. When someone tries to chip away at it — whether it's a customer who won't pay or your own underestimate that already gave it away — the result is the same. Get it right before you start, and stand behind it when it's done. > --- ## Don't race to be the low bid New contractors think the lowest price wins. The lowest price wins *the wrong customers* — the price shoppers (Chapter 9) — and wins them at a loss. You don't want to be the cheapest. You want to be the contractor whose estimate is **professional, detailed, and trusted** (which is also Chapter 13 — a clean, thorough estimate is part of your professional image). A customer will pay more for a contractor whose number they believe. ## Why this matters Estimating is the difference between busy and profitable. Master it and every job you take actually makes money, your pricing is consistent and confident, and you can set real income goals (Chapter 12) because you know your numbers. Get it wrong and nothing else in this course can save the job. ## Common mistakes - **Eyeballing it** — a lump-sum guess instead of line items. - **Forgetting overhead** — pricing only direct costs. - **Not building in profit** — treating leftovers as profit. - **No contingency** — pricing the best case and eating every surprise. - **Missing code-required items.** - **Doing scope growth for free** — no change orders, no supplements. - **Racing to be the low bid** — winning unprofitable work. ## A real example Two contractors bid the same remodel. One eyeballs it, lands on a number that "felt right," wins the job — then overhead, a missed code item, and hidden damage eat the whole margin. He worked a month for nothing. The other writes a line-item scope, prices materials and labor for real, adds overhead and profit on purpose, includes a contingency, and writes change orders when the scope grows. He bid a little higher, won the job anyway because his estimate looked professional, and actually made the profit he planned. Same job. The estimate decided it. ## Your action step Before Chapter 12: 1. Adopt a **line-item estimating format** — stop lump-summing. 2. Calculate your real **overhead** and start adding it to every estimate. 3. Decide your **target profit margin** and build it in deliberately. 4. Add a **contingency** for the unknowns. 5. Commit: scope growth gets a **change order or supplement** — never free. 6. Use **job costing** (Chapter 6) to check estimates against reality and tighten them. Use the **Estimating Checklist + Line-Item Template + O&P Calculator** in this chapter's downloads. ## Where this connects Once you know your real numbers per job — your average ticket, your margin, your costs — income stops being a hope and becomes math. In Chapter 12, we use those numbers to set and reverse-engineer real goals. > **Remember:** Profit is won or lost on the estimate. Price line by line, build in > overhead and profit on purpose, and never do scope growth for free.