Effective Estimating – Part 3 of 6
In the last Effective Estimating blog post, We talked about ‘What If’ scenarios, Managing Customer Expectations and then played around with an Excel model that could empower both of those worthy objectives. Today we will be spending some time talking about the place where America’s favorite pastime takes place, the Ballpark.
When it comes to effective estimating, the words every contractor and sub-contractor dreads to hear is “can you give me a ballpark estimate“. If you guess low, it’s the only number they remember. If you guess high, you may never see or hear from them again.
First lets take a look at the definition of the word Ballpark.
“baseball stadium,” 1899, from (base) ball + park (n.). Figurative sense of “acceptable range of approximation” first recorded 1960, originally referring to area within which a spacecraft was expected to return to earth; the reference is to broad but reasonably predictable dimensions.
My response to this inquiry for a “Ballpark Estimate” always started with the statement, “the average cost of a ballpark is $750 million”, which never failed to produce a laugh, and to open the door to a more serious conversation. Mission accomplished! Our best guess at the cost of a cabinet project is about as accurate as our best guess at the final score of next years World Series.
Don’t get me wrong here, I’m not opposed to Ballpark estimates, they are great pre-qualifiers (they get rid of the tire kickers), but I’m not a FAN (see what I did there? Ballpark – Fan) of a single number, nor a guessed at number. I always provided a RANGE like this (based on 2022 results, so they would be higher if you are reading this in 2023 or later):
- The least expensive project we produced last year ran $631.13 per cabinet, and you have approximately 20 cabinets, so the best case scenario is your project will cost $12,622.60 if your selections are for our least expensive material options.
- The average cost for all our projects, taking everything from the least expensive to the most expensive projects into consideration was $1,140.03 per cabinet, you have approximately 20 cabinets, so your project will probably fall somewhere close to $22,800.60 if you selections are similar to what most people chose last year.
- The average cost per cabinet for the most expensive project we produced this past year was $1,605.87 per cabinet, so if your selections align with that project, your project could cost as much as $32,117.40 if your material selections are similar to those of our most extravagant project last year.
This broad range of prices is based on the selections customers made over the previous year (doors, drawer fronts, drawer box type, functional hardware type, wood specie, finish, accessories, etc.), so it’s a good number (not a guessed at number). To get your middle or average number, you simply divide your total sales for the previous year by the number of cabinets you manufactured. This is easy if you only manufacture and sell cabinetry, but if you also sell other things like counter-tops, you may need to start separating those ancillary things from your cabinet sales.
It may surprise some of my friends and acquaintances that as a technology advocate (technology made me money), I actually tracked these metrics on a physical calendar (many Certified True32 Custom Cabinetry Manufacturers can not only attest to this fact, but can probably tell you where I kept these calendars). I preferred loose sheets for each month as opposed to a printed calendar that was bound together into a year of pages, so I simply printed them from MS Word.
On these calendars, I would plan out my production schedule (these numbers would be a by-product os just using the World Domination Custom Cabinetry app today), always writing everything with pencil so it could move around when needed. My objective was to sell $20,000.00 of cabinetry each week (never achieved that goal for an entire year, but it was a lofty goal we did achieve and exceed on a month to month basis), so each months calendar would end up with the end result of what projects we manufactured that month, and I would simply add the number of cabinets sold for each project, the total sale in dollars to each projects listing. At the end of each month I would total up the cabinet quantity and the sales for the month, then divide total sales by cabinet quantity to get my averages for the month, and then add that months totals to my running totals. The running totals would be added to the next months calendar to carry on throughout the year.
At the end of the year, I would go back through the calendars and find my lowest average cost project, and my highest average cost project, and those three numbers became my Ballpark Estimate Acceptable Range of Approximation for the next year. Again, I would use the World Domination Custom Cabinetry app today, which is fairly well explained in the World Domination Custom Cabinetry app course. This process saved a lot of time since I no longer spent the time it takes to create a formal estimate for people that simply could not afford my cabinetry, or were not willing to pay my price.
A couple unexpected consequences were that we had less clients ghost us after getting our formal estimate that was based on what they asked for (the selections they made), which apparently was addressed by giving them the low, average and high range, so if they could not afford what they chose, they knew we had other options that would lower their project cost, and on the other end of the spectrum, we had more people upgrade their projects after hearing the higher number. In other words, this simple Ballpark Estimate process improved our Win/Loss ratio.
Today we covered providing our prospective clients with multiple Ballpark Estimates in an attempt to to separate the wheat from the chaff. In our next article in this Effective Estimating series, we will look at doing something similar with our Formal Estimates to help us sell more projects.
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May the Lord bless the work of your hands, heart and mind.
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