Project estimating and job costing

Estimating is a much-underrated part of an agency’s profitability. It can often be done in a hurry, without enough thought (or as an afterthought) and in some cases not done at all.

But none of these are viable options for agencies looking to run efficiently, effectively, and profitably. The estimate is all-powerful, guiding timings, budgets, cashflow and payments. Start your project with a wildly inaccurate estimate and you’re likely to end it without making your desired profit (and everyone in a bad mood).

In this guide to project estimating and job costing, we’ll explore some of the established best practices to keep your estimates accurate and high priority across your agency.

What is an estimate?

It would be tempting to skim over this as it’s ‘too obvious’. But it’s not. And getting this part right is pivotal.

• An estimate is your internal assessment of how much time you think you need to deliver a job. 
• A quote is the external price you give to your client for the job.

Sometimes these will be equal, sometimes you’ll take a commercial decision about the quote – more on this shortly. But getting your estimate right (or as near as you feasibly can) will save you some headaches in the long term. 

Why does good estimating matter?

There are a number of clear-cut benefits associated with accurate estimating.

Resource management. Your internal estimate means you allocate work to the right people with the right amount of time. If you just allocate the job without sharing the estimate, your creatives might well spend hours on something you haven’t sold. So your estimate can help avoid overservicing or overscheduling.

Capacity forecasting. Knowing what type of resources you need to deliver the work that's coming in allows you to plan your hiring and new business efforts. The gap between what you’ve estimated, what you‘ve booked and what you still have available is key information. You can see what skills and time you need to sell to keep all your teams busy and, conversely, if you’ve oversold anything to the point that teams will be overstretched. This, in turn, helps you make the right decisions about getting freelancers or recruiting if the increased workload is likely to be long-term.

Profitable project margins. Putting cost and charge rates (sometimes called rate cards) against each task will help give you an idea of your gross and net profit figures for the project. Many agencies have standard profit margins they’re looking to achieve, so this can help to establish if the project is worth taking on.

Optimising utilisation. Over estimating means you often end up with people sitting around with nothing to do, or spending far too long on a project. Under estimating can leave everyone too busy, stressed and burnt out. To really get the best from your teams, you need to be estimating as accurately as possible.

Keeping control over time and budget. If you’re tracking actual time spent in real time, you can monitor how you’re performing against your budget and prevent overruns before they happen. For example, you’re 50% of the way through the allocated time, but are you 50% of the way through the project? This means you can revise your estimate accordingly if you need to, so you know exactly what you still need to deliver the project. 

Some common estimating errors

Here are three ways agencies often end up in estimating hell, trying to please the client and keep the team on board. Of course, you don’t want to irritate everyone... but you do need a practical approach rather than to be a people pleaser.

The reverse-engineer estimating trap

Often, agencies estimate using a ‘top-down’ method, which is taking the client budget and then allocating time to match. But a better method is ‘bottom up’, where you take all the tasks you need to deliver, put your estimated time against them, and then cost this out. 

It may be that these don’t match your client’s budget – in which case you can go back to the client and ask them to either change the brief or up the budget. Or you might make a commercial decision to charge them less if they’re a regular client.

The cost of not estimating

If your pipeline is wobbly and you’re desperate for work, it can be tempting to just take on whatever comes your agency’s way. But while this might keep everyone busy, if you skip the estimating part then you could end up paying. Literally. 

Sometimes, sales people come up with a figure out of nowhere in a meeting, when they’re pushed to ‘just give a ballpark’. Or an account manager thinks they can upsell and just gets a ‘feel’ for what the client might pay. 

But agreeing a project without an estimate means nobody has any real clue how long it will actually take, which has a knock-on effect into your resourcing and capacity planning and cashflow, which then impacts on other, better-planned projects. It’s a domino effect, all for the sake of skipping a process. 

Asking your teams to drive your estimating

It’s a great idea to get your teams involved with your estimating. After all, they’re the ones who’ll be actually doing the work. 

But make sure the time they give you is realistic. It’s tempting for them to add longer in so they can spend hours finessing and perfecting, or to give themselves some wiggle room. If it’s way over what the client will pay, however, you need to take stock and come up with a compromise. 

Top tips for accurate estimating and job costing

Be clear on the scope of the brief. This means making sure you’re asking the client the right questions – if you don’t know what these are, you could ask for input from your teams. Don’t just rashly promise what they ask for straight away. Be completely clear on objectives. Why does the client need this project delivering, who are they targeting, what does it need to achieve? A brief needs to be totally objective, jargon free and clear to all creatives.

Make the estimate a group effort. The teams involved with the deliverables are a key part of your estimate so make sure you have their thoughts on timings and costs. As well as better accuracy, this will give them more buy-in and they’re more likely to feel accountable for the work and will try to deliver on their original estimate. But remember, this is input rather than direction – the final decision needs to be yours.

Create consistency. You might have different members of the team working with the same client, but taking a consistent approach to estimating and charging them offers reassurance to the client that you’re not just randomly plucking figures out of the air. It also gives your team members much more of a clear idea of what’s expected of them. You could have pre-defined job templates. If you go through the same process and stages it almost becomes a shopping list for how you’re going to estimate and quote that client. Look at previous jobs to base your estimates around.

Consider all angles. Together with your teams, look at all the potential risks and impacts involved with the project. You can create a pessimistic version, where everything goes wrong and there are masses of amends, a standard version where everything trundles along nicely, and an optimistic version where you get it right first time and there are no amends (note: this very rarely if ever happens!).

Then you can base your estimate around these scenarios. Is your client high maintenance, are there likely to be a lot of amends, do they have a lot of stakeholders? Look back at similar projects for the same client to see what went well and what didn’t in terms of estimating and costing. 

Clearly communicate the scope and risks. Being upfront with your client is important. It’s far better to charge less at the end of the job than to have to go back and ask for more budget.

Agree on a feedback process. This could be how many rounds of amends are included in your quote or who will feedback at each stage. Being transparent right from the start about what constitutes reasonable amends and what will be charged more for will avoid tricky conversations later.

Quote commercially. Typically, quotes are built from your estimate. However, your internal estimate and external quote don't have to be the same. You may make a commercial decision to charge the client more or less than the estimated value. 

A good way to decide this is using the three Fs: fortune, fame and fun. Essentially, the project might lead onto bigger, more profitable ones from the client, it might help boost your reputation in the industry or it might simply be a great creative project you’d love to work on. 

You could even give your client three options: good, better, best – each meeting various needs and aligning with scalable budgets. Highlight the difference between each option and make your recommendation, but leave the choice up to them. As long as you’re crystal clear about the expectations and deliverables for each choice, and stick carefully to these, you’ll have a definite point of reference if scope creep starts to kick in.

Top tip: if you do discount the price, make sure your client knows they’re getting the full job for a lower price. It goes back to a quote from agency guru Karl Sakas: “Be strategically free, never secretly free.”

Involve your leadership. Ask your senior team to sense check the estimate and quote before you deliver your pitch to the client.

Estimating is a huge part of your agency’s overall project planning, making sure jobs aren’t started until you know just what and who are involved, and for how long. It’s not an exact science, but nor is it a shot in the dark. Rather, it’s an informed and educated assessment of each project on its own merits. One which can drive your agency onto a much more efficient, much more profitable path.