Accurately estimating your professional services projects is essential for success, but it can be difficult to get right. If client estimates aren’t accurate, it can lead to unprofitable work and dissatisfied clients. In extreme cases, it may result in the loss of the client altogether.
This guide provides step-by-step instructions and insight on how to develop accurate estimates for your services business. Learn all about what goes into project estimates and how you can use them to provide value to clients and maximize profitability.
Understand your clients needs
Before you start developing an estimate, it’s important to understand exactly what a client needs and what the scope of your project is. Take time to ask questions and listen closely to their answers–this will help you paint a clear picture of your client’s expectations. Also consider if specialized skills or experts are needed as this will affect cost. Get a solid understanding of all aspects of the project before moving forward with creating an estimate.
Look at Past Projects
This is by far the most underused tool available when estimating projects. Your business probably has a vast database of similar work done so why not utilize it? Examining similar projects that you’ve worked on in the past can help you create more accurate estimates. Look at how long it took to complete them and any unexpected costs that occurred.
Break Down the Project into Tangible Pieces
Once you’ve discussed the project with your client and gained a better understanding of their expectations, break the task down into smaller bite-size pieces. Each individual component should have a unique value assigned to it. The more accurate and specific your breakdowns are, the better prepared you’ll be to develop an accurate estimate for the entire project. Doing this also creates transparency between yourself and your client, allowing you both to see exactly how costs are being allocated.
Calculate Resource Requirements
To ensure you’re providing accurate estimates, you must calculate the resources required for each component. This includes personnel, materials, and relevant overhead costs. Break down individual tasks by labor hours, taking into account the experience of your staff to ensure your estimate will cover the cost of executing the project successfully.
Factor In Overhead and Margins
Before you submit your estimate, be sure to factor in overhead and adequate margins. This includes costs such as software licensing, machinery lease agreements, occupancy costs, and insurance. The overhead should already be factored into your billing rates. If not our sister company AgencySoft has a billing rate calculator that does that for you.
You can download it free of charge here.
Also, keep in mind that different project types are subject to separate profit margins. For example, an accounting firm will have a different margin for a straight consulting project vs an audit vs tax work. Consider factors such as the risk involved with the project, required turnaround times, and pricing strategies relevant to the customer when adding margin percentages to your estimate.
Account for Variables and Uncertainties
When creating your estimates, try to anticipate any uncertainties that may arise. For example, if you’re working on a custom product with many moving parts that have not been experienced before, account for any possible delays and unexpected problems likely to come up throughout the process. Document all these variables in advance and include them in your estimate. Doing this will help you avoid miscommunications between everyone involved and make sure you don’t underestimate potential expenses later on.
Look at the Market
Make sure that your estimate is competitive. If you are lucky enough that your business is in a small niche or that you are the market leader, then this is less important. If not then get feedback from clients and prospects as to what your competitors are quoting for similar work.
Get Advice
Talk to people who have done similar projects. Talking to other professionals who have done similar projects can also give you a better idea of what’s involved and how much time it will take to complete. Have another member of the team sense check or critique the estimate before sending it to the client.
And most importantly….
Make sure you have the right technology
One of our specialties is assisting businesses like yours to select the right software so we can honestly say that there are a lot of software solutions on the market that can help you estimate client work. These solutions will also allow you to plan, resource, monitor and control the work. This technology will also serve as a database for you to refer back to when estimating similar projects.
Following these tips can help professional services businesses create more accurate estimates. Doing this will reduce unprofitable work, keep clients satisfied, and help ensure the success of their business.
