The Art and Science of Accurate Business Estimates

Each time you sign a new client and accept a new project, you might not know exactly how much it’s going to cost. Especially if a client asks you for a custom job, something outside your normal menu of services or projects, you can guess on a likely price — but there is no guarantee you will be even close to accurate. Estimation is as much an art as it is a science, and it’s likely you have been doing it wrong.

The problem is that many clients see estimates as locked-in prices for the final product. Even if you assure your clients that the estimated number you provide is possibly much too low, your clients will be upset if you exceed your estimate by nearly any amount. Thus, it is incredibly helpful if you make estimates using a free online estimate template  — which can save you a bit of work.

photo/ Gerd Altmann

First, Understand the Purpose of Estimates

If you are a freelancer, you might consider refusing to give estimates. After all, it allows your clients to shop around for the cheapest option without even considering the quality of your work. Plenty of freelancers do find work without offering estimates — but it isn’t an advisable business strategy. Many clients see an unwillingness to provide estimates as unprofessional and untrustworthy; at best, they will assume you charge too much, and at worst, they will suspect you of illegitimate business practices. Giving the wrong estimates is dangerous, but giving no estimates at all is perhaps unethical.

Clients request estimates for two reasons: sanity and security. First, they want to make sure you aren’t screwing them by charging significantly more than market value. Undoubtedly, they will run to your competitors for their estimates, but that isn’t necessarily bad. If your work and prices are competitive, you stand a fair shot at winning their business.

Second, clients ask for estimates to determine whether what they want falls within their current spending limits. Often, non-trivial projects in unfamiliar fields are difficult to price, so clients will come to experts for advice. This doesn’t mean you should low-ball your estimates to fit projects into clients’ budgets; rather, you should be honest about what services cost, so both you and your clients can afford to eat every month.

Next, Create an Empathetic Environment

Some of your clients should know the challenges of creating an accurate estimate, but just because they have experienced your side of the struggle doesn’t mean they’ll automatically empathize with you. In fact, many of your clients view cost estimation as a hard science — which is a big reason they are so harsh when your estimates are off at the end of the project.

You should make it a habit to develop empathy in your clients come estimation time. Before you provide them with their requested estimate, you should ask them to participate in an exercise: Ask them to tell you precisely how many minutes it will take them to reach their favorite restaurant.

While they might be able to give you a range — between five to 10 minutes — they know that the precise about of time will depend on dozens of unknowable factors. If they are departing from an unfamiliar location, like your office, their estimation will likely be even more off. Using this example, you should explain that estimates can be close, but they are rarely perfect. If your clients are human, they should be more understanding of the challenges of estimation.

Finally, Explain Your Estimation Process

Instead of inputting random numbers to satisfy your clients, you should strive to produce the most accurate estimates possible. This is where science comes in, and likely your business will have its own, unique procedure for getting the numbers right.

Generally, you should talk at length with your clients about their needs and wants. You should get detailed in your discussions, so you aren’t surprised by last-minute requests. You should also request a copy of their budget. Unfortunately, most clients’ expectations are two to three times greater than they are willing to spend. In these cases, you will need to explain the issue — politely and professionally — and ask whether they are willing to compromise on their vision or their budget. Most will choose the latter.

Using the information you gather from your client, you should be able to craft a list of required materials and a schedule. Adding together your rate, costs, and other considerations, you should be able to produce a somewhat accurate estimate. Then, you can plug that number into the aforementioned online template and hand it over — but not before you explain this imprecise science to your clients. You should answer questions about rates and costs without budgeting on your prices — unless you are willing to settle for less money than you deserve.

Author: Michael Ramos