September 5th, 2008 by John Reeve

Whether you flat-bid or bill hourly, the ability to accurately estimate projects is crucial for delivering within budget and avoiding client disappointments. While completing over 300 projects for more than 100 clients at Pelago, we’ve spent the last nine years honing our estimating skills into an art form. Follow these four steps to create accurate estimates when quoting your next project.

1. Break it down

The more you can break down a project into its basic components, the easier it will be for you to estimate. By estimating the hours needed on a granular level, you will have more precision in your estimate. There are a few ways you can break down the project, how you choose to do it is up to you.

We usually try to break a project down into modules, and then further down into the types of work required for each module. For example, an ecommerce site could be broken down into modules like Product Admin, Order Admin, Customer Accounts, Store Front, and so on. Each of those modules can be further articulated by work type; Engineering, Production, and Database.

If the project is a simpler one and you are designing and building pages using HTML & CSS, break it down by the number of pages you’ll be building. A good formula for HTML production is to estimate several hours for the first page, and then an hour or two to build each additional page.

Breaking down the requirements like this gives you smaller chunks of functionality that you can easily wrap your mind around and estimate accurately. When you’ve estimated each piece, add them all up for your total.

2. Add time for project management

Now that you have an idea of how many hours the project will require, it’s time to make your first adjustment. Add 10% to 20% more hours to accommodate for project management. These are hours that will be used to compensate you for the time you spend corresponding, meeting, and emailing with the client. It will also cover the time you spend managing any subcontractors or team members. Freelancers can get away with a smaller markup, while design teams should use a higher percentage.

3. Mark it up, again

In an ideal world, our estimate would be complete. But it’s not an ideal world. There will always be unforeseen events and circumstances that are going to increase the original estimate. So we might as well account for them in the beginning. Mark up your estimate by another 25% to 33% to account for the fluctuations that are certain to occur. If the project includes any type of web-based software, it is highly recommended that you do this.

4. Add a margin of error

Some times you will come in under budget, some times you will come in over. Including a margin of error in your estimate gives you some wiggle room if conditions change during the project, and gives the client a realistic range of what the final project will cost. We usually use a margin of +/- 15%. For example, if our final estimate was $10,000, our estimate will show a final total of $8,500 - $11,500.

And that’s it, really. Now you have a number that will accurately account for the time needed to complete a project. Your estimate may seem high with all these markups, but it is far better to come in with a high estimate and deliver under budget, than it is to bid low and hit up the client for more money, or worse, pay for the overages out of your own pocket.

Tags: estimate, project management, Small Business, time tracking, web design

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