There’s many reasons why someone would need to work out how much building a new home would cost. However, the purpose of each cost estimate is distinct in the building procedure. Here, we’ll discuss how to gauge construction estimation so you can win contracts, maintain your profit margin, and enhance your business’s standing.

In this guide, we will cover the following topics:

  • What are construction estimates
  • Types of construction estimates
  • The best time to estimate a job
  • Knowing your customers’ expectations
  • Define the project scope
  • The design phase
  • Preparing construction cost estimates
  • Who is responsible for the preparation of cost estimates
  • Hand calculations of constructions costs
  • Take off
  • Handling Suppliers

The cost of a construction project is vital in ensuring that it is profitable. If you undervalue your estimates, you will lose money. If you overvalue them, you are likely to lose bids. In either case, incorrect cost estimates can severely damage a builders company. They can eat away at your profit margin or reputation.

There are several reasons why cost estimation is performed for a construction project. Each measure has a distinct purpose in the construction process. This post will explain how to estimate construction costs to win jobs, maintain profit margins, and improve your company’s reputation.

What is estimating?

The total cost of a construction project is quantified by estimation. Indirect expenses, overhead costs, and a profit margin, in addition to direct expenses, are all taken into account. Construction estimates are produced so contractors can use them when bidding for a construction project.

What are construction estimates?

The construction estimate is one of the most critical steps in the early stages of any construction project management process, as it forecasts how much the structure will cost to build.

Beginning with the bid estimation phase of a project, an accurate estimate is achieved by using all construction-related documents, historical data, and other known costs.

Thorough estimation is crucial to any builder’s profit margin when leading a build; therefore, accurate construction estimates are vital for project viability. In addition, builders are more competitive when trying to win new business for their company.

Types of Construction Estimates

The construction industry uses five distinct cost estimates that fulfil various needs. Every estimate is created for a specific purpose; some are designed for individuals, while others are designed for teams. 

For example, the client may want to know if they can afford the project, the builder may want to see if they will make a profit, a construction company might need to prepare a bid, or an engineer might want to know whether the material or construction techniques are too expensive. 

The main estimates used are:

  • Feasibility Estimate
  • Intermediate Estimate
  • Preliminary Estimate
  • Substantive Estimate
  • Definitive Estimate

Feasibility Estimate

Before you start working on the project, you should first perform a feasibility assessment. This is where you assess the project’s magnitude and determine whether it is worth your time. The project may employ a construction method your company needs to be equipped to perform, which would be too costly to implement, so now is a good moment to find out.

It is the least reliable estimation for a construction project and is primarily based on historical data or previous experience. The goal is to determine whether you should continue the project.

Intermediate Estimate

After deciding that a project is feasible, you should construct an intermediate or base estimate. This estimate looks at the size, scope, and complexity of the job, as well as any issues or difficulties that might arise. Of course, it still needs to be an accurately estimated job, but it is based mainly on knowledge, prior experience, and historical data.

Preliminary Estimate

The design data is now included in the cost estimates. The preliminary estimate classifies the expenses and begins to examine the design specifics. Calculation errors must be detected and corrected here.

Substantive Estimate

After the design is finalised, material costs are estimated more precisely. For example, this phase might indicate whether the budget can accommodate gold trim instead of silver or reduce material costs. This is the last chance to make alterations.

Definitive Estimate

Everything should be determined at the last step, the definitive estimate. Then, after contracts have been signed and alterations have been completed, an accurate cost calculation may be generated. This estimate is the most accurate of the three and should be named an accurate cost calculation. Construction can begin.

The best time to estimate a job

You must begin the cost estimation process before construction begins while the idea is still being considered. You must know the project’s cost to provide an accurate quote or win a bid. In addition, you need to find out whether you have taken on too much or will lose money. After construction begins, you may evaluate the cost estimate, but you must generate a detailed estimate beforehand to avoid problems or losses.

Knowing your customers’ expectations is critical.

The first step in construction estimating is ensuring that you and your client are on the same wavelength. In addition to getting their approval of the construction plan, you must ensure that they are well-informed about what the plan entails and how the construction process will play out when it is completed. You should avoid having any misconceptions or unrealistic expectations that would result in higher costs after your project.

Define the project scope

The first step is to determine the project’s scope. This is where you establish your client’s expectations, the project’s function, complexity, and design, as well as any legal or regulatory issues that might affect the construction process, the project’s location, and things like eco-friendliness or any other specialised concerns the project must address.

The design Phase

Once the project’s scope has been determined, a design is created. The cost-effective and practical approach to materials and construction is determined at this stage. The schematic design estimate is included in the construction documents that bids are based on.

Preparing construction cost estimates

Construction cost estimation for a project bid is created using data from the construction documents like design estimates, subcontractor quotes, quantity takeoffs -material costs, construction processes, direct and indirect costs, and profit margins. The more competitive your bid, the better your chances of accepting it, provided you keep quality high.

Even if your bid was rejected, you might still have incurred costs preparing it. In addition, it may be the last stage for some projects. You should remember that these costs must be recouped and may have to be covered by other projects you’ve been awarded, an indirect cost that must be included in future estimates.

Construction costs

It is crucial to include every cost associated with running a company, whether direct or indirect. Your indirect expenses will consist of rent and office maintenance costs, taxes, utility bills, and bid development costs, whether or not your bids are accepted. We will examine these issues in more depth.

Project management requires control of construction estimates.

Before construction begins, control estimates are calculated as part of project control. Project management ensures that the job is completed on time and within budget. Project owners and investors are pleased when control estimates are done well.

Hand calculations of constructions costs

Estimating used to be completed with a pen, a slide ruler, and a calculator, requiring a great deal of knowledge and expertise. They consumed a lot of time, sometimes months or even years, before contracts were signed or construction began. Hand-done estimates were error-prone and could cause a construction company to go bankrupt if too many mistakes were made. The whole process was intimidating.

The creation of spreadsheets made estimating the price of modest construction projects slightly more straightforward, but their defects frequently resulted in inaccurate estimates. Fortunately, technological advances have made it much easier and quicker to generate accurate construction cost estimates.

Labour costs shouldn’t be underestimated

The costs associated with labour can take time to predict. In addition to hourly rates, there are various factors to consider. Therefore, you should treat your workforce as more than just a batch of numbers and statistics. Estimating labour costs is only possible with a work breakdown structure, which categorises all the work activities needed to finish a construction job.


To ensure that the material quantity takeoff is accurate, the quantity and measurement of all the materials required for the project must be recorded. For example, doors, timber, carpet, air conditioners, nails, light switches, wiring, tiles, etc. Accurate estimates based on these costs are crucial for a successful project.

It’s essential to consult suppliers

It’s important to communicate with your suppliers when building an estimate, as they are critical to the process. As you establish your budget, you can get valuable information from your suppliers, such as whether material costs will likely increase. Your suppliers should be considered experts on the job site because they can only help you keep costs down.

Construction project management software can help simplify estimating and managing your project. In addition, some tools let you estimate and track costs as you progress with your project.

Costs of equipment

The costs of the equipment required to finish the job are calculated here. Whether you purchase it specifically for the job, lease it, or already own it, you must account for the costs. You must also consider the expenses of operating the equipment, transporting it, and securing it if you want to leave it onsite.

Final thoughts: The construction estimate is the most important construction document to get right

The estimate is the most important of all the documents you produce for your next build. It is the difference between having a profitable year vs making a loss. 

Once the construction estimate process has been completed, and all the documentation for your project is finished, you will have a full view of what everything should cost. Of course, you might amend some costs or find that scheduling or other delays will add to the budget, but the construction estimate process is done once all the documentation for your project is complete, and you have a full view of what everything should cost.

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