Measuring Your Estimate vs. Actual Profitability: Tips for ad agencies, web designers, app developers and IT firms

For professional services firms that bid and contract work, accurately estimating the time and costs of a project is crucial to the profitability of the business. Whether you're a web design agency or any other type of service provider, you need to ensure that your estimates are as accurate as possible to avoid underbidding and losing money on a project or overbidding and losing the opportunity to win new business. In this article, we'll explore some tips for measuring your estimate versus actual profitability and improving your estimates over time.

Estimating Time

When estimating the time required for a project, it's important to break down the work into smaller, more manageable tasks. This can help you identify areas where your team may need additional resources or support, as well as areas where you can streamline your workflow to increase efficiency. Be sure to take into account any unexpected delays or issues that may arise during the course of the project, and build in some cushion time to avoid missing deadlines.

Estimating the Use of Subcontractors

If your firm uses subcontractors to complete certain aspects of a project, it's important to accurately estimate the cost of those resources. This can include not only the cost of the subcontractor's time, but also any additional expenses such as travel or equipment. Be sure to include these costs in your estimate so that you can accurately track your actual profitability.

Estimating Hard Costs

In addition to subcontractor costs, there may be other hard costs associated with a project, such as software licensing fees or equipment purchases. It's important to accurately estimate these costs as well, as they can have a significant impact on your overall profitability. Be sure to keep track of any changes or additions to these costs over the course of the project so that you can adjust your estimate if necessary.

Measuring Actual Time and Margin

Once the project is complete, it's important to measure the actual time that your internal team utilized, as well as the margin on the sale of subcontractor and hard costs. This can help you identify areas where you may have underestimated the time or costs associated with the project, and adjust your estimates accordingly for future projects. By tracking these metrics over time, you can gain a better understanding of your firm's profitability and identify areas for improvement.

Tips for More Accurate Estimating

There are a few tips that can help you make more accurate estimates and avoid underestimating or overestimating the time and costs associated with a project. One is to rely on historical data, if available, to inform your estimates. If you've completed similar projects in the past, you can use that data to identify areas where you may have previously underestimated or overestimated the time and costs involved. Another tip is to involve your team in the estimating process. They may have insights into specific tasks or processes that can help you create a more accurate estimate.

The bottom line (your "Net Net" if you will)

Measuring your estimate versus actual profitability is an essential part of running a successful professional services firm. By accurately estimating the time, subcontractor costs, and hard costs associated with a project, and measuring your actual time and margins, you can identify areas for improvement and make more accurate estimates in the future. By relying on historical data and involving your team in the estimating process, you can improve the accuracy of your estimates and increase your firm's profitability over time.

April 4, 2023
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