Discussing budgeting can be awkward for the contractor as well as for the client. Many of you probably put together a list of the prices of completed projects to share with clients to help establish a budget. However, I've been in this business for 40 years and have never built two totally identical projects. Many variations impact the eventual cost.
The square footage of a project seems to be the preferred basis for budgeting by contractors, architects, and clients alike. But quoting a single number—for example, $50 per square foot for a pressure-treated deck—can get you in big trouble. If you bid on a smaller job based solely on the square-footage cost of a larger deck you've built, you won't be charging enough. Conversely, if you bid a larger job based on the square-footage cost of a much smaller deck, your price won't be competitive, and you'll have priced yourself out of a job.
That's because there is an inherent "economy of scale" that should allow you to charge less per square foot for a 300-square-foot deck than for a 150-square-foot deck. Some of the items that cause this price variation include mobilization, material ordering and receiving, dust protection, trash hauling, inspections, project management, client management, daily cleanup, punch out, and final cleanup.
While you can surmise that your price per square foot needs to be adjusted up or down according to the project's size, you may not know how much to adjust it. By using the calculator I'll discuss here, you can instantly come up with a more accurate ballpark price to share with your clients.
Understanding the economy of scale
I began to realize that fixed square-foot pricing was flawed years ago when I started doing estimates using the assembly, or template, methodology discussed in a previous column ("Building a Unit Price," Oct/13).
To gain a better understanding of why my assembly estimates did not have a similar cost per square foot, I used the same assembly to estimate prices for five decks where area (50, 100, 300, 600, and 1,000 square feet) and railing length were the main variables.
I divided each price by the square footage of the corresponding project to calculate a price per square foot, then plotted the results for all five on a simple size vs. price chart. I expected the line to descend, but the big surprise was that the plotted line was not a straight line; it was in fact a curve, as shown in the graph at left. (The two lines in the figure are slightly different; the formula creates a curve, whereas the straight lines connecting the plotted points are like steps that the curve smooths out.)
Research showed me that this curve effect, or so-called "efficiency curve," is common in many endeavors of a repetitive nature and is the driving force behind an economy of scale. This curve is the fundamental result of learning and repetition, where the time it takes to do a task falls off quickly at first but eventually levels off at the point where the task is being performed to its highest efficiency.
Not only are there efficiencies in labor, there can also be efficiencies in scope. For example, a three-sided, 100-square-foot, 10-by-10-foot addition requires 30 feet of exterior walls. However, quadrupling the size to a 400-square-foot, 20-by-20-foot addition only doubles the length of exterior wall to 60 feet.
I further reasoned that using this methodology would be an outstanding way to get a ballpark cost for a variety of remodeling projects.
I have since built a library of Microsoft Excel tools using actual estimates for projects like room additions, add-story additions, basements, and decks, where price depends heavily on size.
If you load a similar library into a laptop or tablet, you can use it with clients. Simply inputting the square footage of the project they are considering will give you a much more accurate ballpark estimate than a fixed square-foot quote. Of course, it is still important to make sure your clients understand that a ballpark estimate is just that and that the complexity of a particular design or custom features will affect costs.
Setting up your BallPark Calculator
To set up your own calculator, you need to know enough about Microsoft Excel to input data and formulas in a few fields in the program, but first you need to do the following:
1. Do five estimates, using your own tried and proven system, of various square-foot sizes of the same project type. I used a pressure-treated deck as an example here, but you can use any type of project you wish, as long as it's an area-dependent one—such as an addition or deck—and not a material-dependent project, like a kitchen or bath.
Your estimates should include the smallest and largest sizes that you would build and three intermediate sizes spaced out somewhat incrementally, as in my deck example.
When doing your estimates, keep the specifications the same. Adjust only the quantities of piers, beams, ledgers, joists, decking, railings, stairs, and the like, and the miscellaneous job costs, such as mobilization, protection, hauling debris, portable toilets, project management, and cleanup.
2. Divide your five estimated sale prices by the corresponding square footage to obtain a dollar-per-square-foot cost ($/sf) for each project.
3. Open a new MS Excel spreadsheet and set it up exactly like the one shown below, using the same cells and the same formulas that are listed under "Formulas entered into column 'B.'"
4. Once you have set up the spreadsheet, you can use it to accurately calculate your budgets for any size project by simply entering the square footage in yellow cell B11.
