Tag Archives: Square Foot Estimating

Why Square Foot Pricing is a Flawed Pricing Model

New Jersey based remodeler, Neil Parsons, of Design Build Pros  is a remodeler who I think has done a good job of figuring out how to really talk to homeowners in an engaging way . And it looks to me like he does a good job of using social media tools like FaceBook, Twitter LinkedIn, Pinterest,  Google+, YouTube and Houzz too.  He’s written a good blog post for his remodeling company’s website site explaining to homeowners and prospective clients why Square Foot Pricing is a flawed pricing model.

Square Foot Pricing for Home Remodeling | Design Build Pros

I just wish a lot more contractors understood this too (see my article The Hidden Dangers of Square Foot Estimating)

 

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The Hidden Dangers of Square Foot Estimating

EstimatingMarkupIcon“There is no such thing as a good, fair, or accurate Square Foot Price for an estimate. At the very best, a price based on square footage (the footprint) is nothing more than a WAG or SWAG ( Wild Assed Guess or Sophisticated Wild Assed Guess). Square Foot Estimates are inaccurate, undependable, and dangerous to use.”

What follows is the Sample Deck Estimate that I’ve used several times to illustrate the lurking problems with using Square Foot estimating systems for projects. (warning don’t use these numbers because they are semi-fictional and arbitrary just for the purpose of illustrating this example.)

Deck#1-16 x 32 feet

Take that off as two Systems; The Deck measured by the SF and the Railing measured by the LF.

Take-off Dimensions
Total
Units
Unit Price
Totals
Deck 16′ x 32′
512
SF
16.65
$ 8524.80
Railing 16’+16’+32′
64
LF
43.95
$ 2812.80
Project
Price Total
$ 11337.60
As
a per Square Foot Price
$ 22.14

So (theoretically) if I want to estimate by the Square Foot I have just figured out that “I can build decks for $22.14 per SF.”

Deck#2-8 x 16 feet

So the next customer wants a deck and I tell him I can build decks for $22.14 per SF and he says that he’d like one 8’x 16′ and that works out to 128 SF x $22.14 per SF which comes to $2834.40. Great! Project sold! That was easy.(or was it?)

Checking the price I just gave I go back and estimate the project using the System Costs Method that I used in my original example that gave me this SF Deck price in the first place it works out like this:

Take-off Dimensions
Total
Units
Unit Price
Totals
Deck 8′ x 16′
128
SF
16.65
$ 2,131.20
Railing 8’+8’+16′
32
LF
43.95
$ 1,406.40
Project Price Total
$ 3,537.60
As a per Square Foot Price
$27.64

and deck # 2 SHOULD Cost $ 3,537.60 and not $2834.40.

That’s a difference of $703.68. So what did I do there? ‘Give the guy a %20 discount because his deck was smaller and easier to do????? I don’t think so. I just gave away my time and money. Not only am I doing the work cheaper than I should but since the project is smaller I am also losing in total sales volume so I’m making less money twice as fast! How’s that strike you?

Square Foot Pricing doesn’t really work and you shouldn’t even be thinking in those kinds of terms.

I’ve got a pretty detailed method of looking at a deck project (at lot more detailed than the 2 System Costs method I used in my example above) but for basics in addition to considering species I think contractors would be better off and better businessmen if they looked at, took-off, and priced deck projects according to the following basic schedule of values.

Excavating for Pier Footings
(price varies according to soil conditions)
Each
Concrete Pier Footing Each
Post Each
Beam LF
Ledger LF
Deck Framing System
(price varies according to joist sizing & spacing)
SF
Deck Surfacing
(price varies according to angle and/or decking patterns)
SF
Railing System LF
Stairs Per Tread

 

A Square Foot Estimate is often nothing more that a SWAG and with a potential of 20% error I don’t think it should be used for anything more than conversational and hypothetical talk over coffee or a beer. For real “business-like” pricing I would use the Systems Estimating Method.

Square Foot estimating and pricing should really be limited to just the bantering builders and remodelers do with each other while getting their coffee in the mornings. With a potential of 20% error it has little relevancy and practical use when it comes time to actually get in to production and build something. When you hear someone say —“I know that I will have to keep a much closer eye on my bottom line with this one.”— You don’t (and can’t) do that with Square Foot Estimating.

For the purpose of estimating building and remodeling there are basically four types of estimates. These types may be referred to by different names and may not be recognized as definitive, but most professional contractors estimators will agree that each type has its place in the construction estimating process.

1. Order of Magnitude Estimates: The order of magnitude estimate could be loosely described as an educated guess. It can be completed in a matter of minutes. Accuracy is plus or minus %20
2. Square Foot or Cubic Foot Estimates: This type is most often useful when only the proposed size and use of a planned building is known. Very little information is required. Accuracy is plus or minus %15.
3. Systems (or Assemblies) Estimate: A systems estimate is best used as a budgetary tool in the planning stages of a project. Accuracy is expected at plus or minus %10.
4. Unit Price Estimate: Working drawings and full specifications are required to complete a unit price estimate. It is the most accurate of the four types but is also the most time consuming. Used primarily for bidding purposes, accuracy is plus or minus %5″

There is also a fifth type of estimate worth a precautionary mention

5. Stick Estimates: The stick estimate is essentially a Unit Price estimate taken to the anal retentive extreme. Every stud, box of nails,and possible procedure imaginable is listed and accounted for and assigned a value. While a lot more time consumming accuracy is no better than it’s related cousin the Unit Price Estimate.

As a guide to how I think each of the four main estimating methods can be used effectively I’ll offer the following scenario.

I run into Joe Blow downtown one morning buying the paper and he says “Hey I was thinking about putting a deck on my house how much does that cost?”

I think I know Joe Blow’s house so I say, “Well Joe, I think you’re talking about five or six thousand dollars” (Order of Magnitude Estimate, given free, no charge!)

Joe says “Hey that’s not that bad, you have one of you business cards handy. I’ll talk with my wife and we’ll give you a call”

I get the call a week later and go over to meet with Mr. and Mrs. Blow. We talk about a couple of things. The size and the shape that they want and checking a note sheet that I have (it’s actually based on the “Speedy Reckoner” section of the HomeTech estimating books) I take a couple of SF costs and using my calculator I say ” I think we’re talking around $5200 for pressure treated and maybe around $6400 for cedar”(#2. Square Foot or Cubic Foot Estimate, still for free)

Mr. and Mrs. Blow look at each other and say, “Gee cedar sounds great. We want a cedar deck”

I then say “Okay lets figure some things out here and come up with a construction agreement” I open up my price book or laptop and we start to compile their project. There’s 32″ of a connection to the house (ledger) @ x$ per LF. There are three posts and piers @ y$ each, cedar decking @ z$ per SF, etc etc. “What railing design would you like? Okay that one is xx$ per LF and that one is yy$ per LF. Okay you’d like YY design, that one is really nice, fancy too, let me see that makes the project price well lets see… $6920. Well that’s a little bit more because of the YY railing design. Okay you like what we’ve got here let’s write this up and we can get going on this in a week and a half. (3. Systems (or Assemblies) Estimate, job sold.)

Where does #4. Unit Pricing come in? Lets say I haven’t sold a definitive job but I have sold a contract to design a deck and develop accurate pricing for what ever design I develop then I could use Unit Pricing or I could use Unit Pricing on a set of plans and specification that they had prepared by a designer or architect. Or I could have used a combination of Systems Estimating and Unit Price Estimating to deal with the condition on one corner of the deck where I had to work the deck around this one tree that Mr. & Mrs. Blow wanted to keep to help shade the deck.

In all the models where I’ve looked at this cost per Square Foot issue (SF of Kitchen SF of Bathroom SF of Deck and more) to the best of my knowledge in every single one as the project gets smaller the cost per SF always goes up.

If you talk to enough contractors about this someone always says in defense of SF estimating. “Well you just have to know how much to raise the SF cost as the project gets smaller”, Well how do you know that? How do you know or determine what that quotient is? There is just no way to accurately come up with a number for that. (Well actually there theoretically is but that’s one helluva a complicated algorithm to create and it would be different for every different kind of project).

‘Fine tuning’ SF estimating is kind of analogous to saying I could shoot more accurately if I had a laser sight on my flintlock musket. No you wont, it just ain’t gonna get any better. The flintlock is just inherently inaccurate as soon as the ball leaves the barrel and no sight is ever going tomake up for that inaccuracy.

Other articles discussing the application and inherent problems in Square Foot Estimating:

The Myth & Math of Square-Foot Cost
by Dennis A. Dixon
Journal of Light Construction March  2006

 

 

 

Unit Pricing Pitfalls
By Sal Alfano
Journal of Light Construction July 1999

A building’s shape affects square-foot costs

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