Underbid Restoration Jobs & Missing Revenue: Is Your Estimating Process Eating Your Profit Margin?
For restoration business owners—whether you specialize in water, fire, mold mitigation, or complex rebuild/reconstruction projects—your initial estimate is the foundation of profitability. Yet, many businesses watch their margins erode before a single hammer is swung, largely because of preventable errors in the estimating process.
At Kiwi Cash Flow, we transform the numbers into a clear roadmap for profitability and growth. We’ve found that one of the biggest threats to financial health is the failure to accurately assess and price a job from the outset.
If you’re tired of the guesswork and feel like your hard work isn't translating into sufficient profit, it’s time to examine your estimating process for these critical leaks.
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The Estimate Error: Where Profit Disappears
The financial fate of a job is often sealed when the initial revenue number is established. These issues prevent income from ever showing up in your financial statements:
1. Incomplete or Inaccurate Estimates
This is the most direct cause of lost margin. When an estimate is incomplete or inaccurate, the job is effectively underbid, causing profits to disappear before the work even starts. This is categorized as a preventable revenue loss.
2. Missing Direct Job Costs
Your estimate must reflect every financial requirement of the job. Direct Job Cost Leaks happen frequently when estimators fail to include expenses like permit fees, dump fees, and travel costs. When these "hidden costs" are not priced in, they are absorbed by the business, eating directly into your gross profit margin.
3. Undocumented Scope Creep and Missing Supplements
Just because work is performed doesn't mean the revenue is captured. A failure to document scope creep or submit supplements and change orders means additional work is done without corresponding billable revenue. Without proper documentation, you cannot justify the charges to adjusters or clients.
Connecting Estimation Accuracy to Financial Visibility
An inaccurate estimating process leads to distorted financial statements, making it impossible to identify which parts of your business are truly successful. To gain control, you need visibility:
Assessing Profitability by Service Line
How do you know if your estimating is effective? You need to see if your efforts yield profit consistently. A visibility analysis should reveal whether specific services, like mitigation versus rebuilds, bring in solid margins or if certain lines are losing money. This insight is critical for targeting your marketing and refining your pricing.
Factoring Labor and Subcontractor Costs Correctly
The costs associated with labor are complex. If labor productivity assumptions are bad, the resulting underestimated effort leads directly to lost margin. Furthermore, when using subcontractors for a large percentage of labor, especially in reconstruction, the overall labor percentage must be factored in correctly during the estimating process. Failing to properly apply markup on materials or subcontractors also causes margins to shrink.
Post-Mortems and Job Costing Reviews
You cannot fix what you don't measure. If your estimating process consistently leads to losses, you must establish job costing reviews or post-mortems to prevent repeating mistakes. This process is essential to improve or replicate profitability and ensures that your pricing models reflect labor and material cost inflation.
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Take the Next Step with Expert CFO Support
If you are a restoration business owner who is overwhelmed by financial confusion and tired of watching profits evaporate due to estimating errors, Kiwi Cash Flow is your strategic partner.
Our CFO subscription services provide the tools and support necessary to turn your financial data into actionable insights. We deliver industry-specific financial reports and KPIs that empower you to make data-driven decisions and gain the confidence needed to achieve your goals. We focus on helping you gain control over your finances with precise forecasting and providing the clear financial roadmap you need to unlock profitability and growth. Book a free “right fit” call here, to see how we can help: calendly.com/kiwicashflow