2 October 2020
There’s nothing worse than spending too much time on a project and losing money.
I admit it. It’s happened to me. That’s why I stress how important it is to accurately estimate a project’s costs. If you come in too low, you could earn less than what you deserve. On the flip side, if you come in too high, you might lose a valuable client. The key is to estimate costs fairly and accurately.
Here I’ll cover tips for estimating your next project. Plus, you can download a free project estimate template that will serve as a guide.
The short and sweet of it depends on what you do. You’ll want to do what’s most common and fair in your industry. For example, contractors usually charge based on projects. Freelance writers and designers, on the other hand, can charge hourly or by project — depending on their preferences.
If you have a choice, I’ve found that charging by project:
Meanwhile, charging an hourly rate:
You should charge based on what is most common in your industry and acceptable to your clients. If you decide to charge a project-based fee, here’s some pointers on how to more accurately estimate costs.
Put some time into estimating project costs first. Trust me, it’s worth it.
Write down all of the direct and indirect costs that may be associated with executing the work. Direct costs can include your time, equipment, materials, and travel expenses.
Don’t forget to include indirect project costs too. This may include paying employee benefits (if you have staff working for you), and legal and accounting services.
Here’s a checklist of factors to consider when estimating project costs:
Estimate how many hours you think it will take you to work on a project. Be realistic and build in some padding. I’ve found that, in most cases, I use the extra time built in to ensure quality.
If you have employees, write down the amount of time they will work too. If they are salaried employees, make note of the percentage of their salaries you need to pay during the project. Add up the total cost for labor.
As a freelance writer, I just rely on my computer and software. But if you’re a contractor, interior designer, or beautician, you may need to purchase materials. Write down all of the items you need, including their quantities, and their average costs. Then add up your total materials cost.
Depending on what you do, you may need to rent, purchase, or maintain equipment to execute a project. This is definitely true for those who work in construction. Write down your total equipment costs. Include costs for fuel, maintenance, rentals, and more.
Do you have to travel in order to work on the project? If so, add in the travel costs to client meetings and work sites. Consider the cost of fuel, public transportation, air fare, hotels, and mileage (if you drive). If a project requires you to stay overnight, include hotel costs, as well, and the average costs of meals. Then tally up your total predicted travel expenses.
If you need to hire a specialist to support the job, write down their average costs too. You may rely on a contractor or subcontractor to reduce your workload or to focus on a particular area where you don’t have expertise. Write down how many hours you expect them to work and their average rates.
If you offer benefits to your employees, you should always factor in this indirect cost. Consider the cost of health insurance, retirement plans, and more. If you budget for employee benefits yearly, make sure a percentage of the project’s costs go toward this bucket.
Most business owners farm out legal, accounting, bookkeeping, and other services that are outside their areas of expertise. Additionally, if you have a business insurance policy (which, you should!), you can factor the cost of your business insurance into your project estimates.
Look at what you paid for these services last year. Then make sure your project will contribute to these ongoing costs.
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Have you done a similar project in the past? What did you learn from it? Maybe you under- or over-estimated the work. Or maybe you hit the sweet spot by accurately predicting costs.
Are you friendly with people who do similar work? Ask them what they charge! Then find out how they break down the costs and why. You may want to make adjustments, but this approach can give you a head start.
This is the most accurate way to estimate project costs. It involves writing down every expense in detail, organizing them by categories, and making a prediction. Business owners who take this approach like to track the costs along the way too.
This is the approach I use every time I estimate a project.
Sure, it takes time to organize and predict costs from the bottom up, but it’s well worth the effort. You’re more likely to get an accurate (and fair) cost estimate, which contributes to your business’s integrity.
And remember, businesses that demonstrate integrity, especially with pricing, are more likely to secure customers in the future.
Want to take an analytical approach to estimating project costs? Check out our free project estimate template. It’ll help you organize the details on a spreadsheet and track them along the way.
Ready to start estimating projects? Download our FREE Excel project estimate template today!
I earned a B.A. in Journalism from the University of Wisconsin at Madison (go Bucky). After realizing my first job might involve carrying a police scanner at 2 am in pursuit of “newsworthy” crimes, I decided I was better suited for freelance blogging and marketing writing. Since 2010, I’ve owned my freelance writing business, EST Creative. When I’m not penning, doodling ideas, or chatting with clients, you’ll find me hiking with my husband, baby boy, and 2 mischievous mutts.
This content is for general, informational purposes only and is not intended to provide legal, tax, accounting, or financial advice. Please obtain expert advice from industry specific professionals who may better understand your business’s needs. Read our full disclaimer
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