Ask any builder who has been around for a while and you will hear a familiar story.
The contract looked healthy. On paper there was eighty or a hundred thousand dollars in gross margin. By the time the last variation was done and the keys were handed over, the final result was barely a profit.
Somewhere between the first quote and the final invoice, the money disappeared.
According to Thomas from V2E, a big part of that problem comes back to how builders estimate in the first place.
Pricing backwards instead of building from the job up
In theory, estimating should be simple.
You work out exactly what goes into the job, understand what each part costs, then add your margin. You sign a contract that reflects the reality of what you are going to build.
In practice, many builders do the opposite.
Instead of starting with a detailed scope and quantities, they lean on:
- Package allowances
- Square metre rates for each trade
- Historic “rules of thumb” for different parts of the house
The plastering “should be” about this much. The electrical “should be” roughly that much. Flooring, tiling, roofing, earthworks, piering all get thrown into the mix as allowances rather than properly measured items.
On a busy day, this feels faster and simpler. You get a number on the page and can push out more quotes.
The problems show up later.
The double handling trap
Once the job is sold, someone has to make it real.
A project manager, estimator, site supervisor or even the builder themselves sits down and works out the actual numbers.
The square metres of flooring allowance now needs to become:
- How many sheets of flooring
- How many tubes of glue
- How many fixings
- How many hours of labour
The plastering allowance has to be broken down into sheets, angles, beads, compounds and hours. The same thing happens with cladding, insulation, roof sheets, framing, concrete and everything else in the job.
That means someone is effectively doing a second takeoff for the same project.
Not only does this chew up time, it creates two big risks:
- The detailed takeoff does not match the original allowance
- The budget becomes something the team has to “make fit” instead of something built from reality
If the properly counted quantities add up to more than the allowance, the margin starts to shrink. If that mismatch is repeated across multiple trades, it adds up very quickly.
All of this is happening quietly in the background of many building companies.
Why location and builder DNA matter more than averages
Another common trap is pricing off “average” rates that do not reflect the reality of where and how you build.
Thomas gives a simple example from his own backyard in South Australia. Take a standard project home design. Build it once in Adelaide. Build it again 90 minutes north in a country town.
Even with the same soil type and footing design, the true costs are different.
- Trades in the country may charge more per hour
- Materials may need to be brought from further away
- Plant operators may only be in town on certain days
- Travel time and fuel costs increase
On paper the house looks identical. In real life, the cost base has changed.
The same thing happens across states.
If you are a regional New South Wales builder and you price off Sydney rates because that is what the “market data” says, you can easily end up out of step with your own reality, in either direction.
Then there is the way you build.
Two builders can hand over homes that look the same but have completely different systems behind the plasterboard. One may stick build frames with their own crew. Another may buy pre nail frames and subbie everything out. One may use a specific membrane system with double battens and specialty tapes. Another may keep it simpler.
All of this is part of what Thomas calls the “builder DNA.”
If your estimating does not reflect that DNA, your allowances are guesses, not real numbers.
Subjective pricing versus objective quantities
One of the most powerful ideas in the V2E approach is separating the “what” from the “how much.”
As soon as you talk about price, things become subjective.
- One builder may have better buying rates than another
- One carpenter may work faster than another
- One trade may charge per square metre, another per linear metre
If you try to standardise prices across that mix, it gets messy quickly.
Quantities are different.
There is one correct answer to questions like:
- How many rough in points are in this house
- How many metres of stormwater are required
- How many metres of under slab conduit are needed
If you can get to an accurate bill of quantities, built from how the job will actually be constructed, you can then apply your own rates on top.
One builder told Thomas, “I do not need you to tell me what my plumber costs. I need you to tell me how many rough in points there are, how many metres of pipe, how many metres of stormwater. Then I can get my plumber to quote properly.”
When an external estimator focuses only on the quantities and leaves the rates to the builder and their trades, the conversation stays objective.
You are no longer arguing about whether someone else’s rate “matches” yours. You are looking at a clear scope and deciding how much you want to charge for it.
How guesswork kills margins in real projects
Most builders can point to a project that looked good on paper and did not deliver.
On the podcast, you talked about building high value acreage homes with average contract values around 1.8 million dollars. The homes were beautiful. The marketing and photography were strong. But the profit was not where it should have been.
Part of the problem was pricing Gympie homes with Gold Coast numbers and assumptions. Travel, new trades, unknown suppliers and changed conditions all added cost. Package based estimating hid those differences until it was too late.
This is a common pattern.
The dangerous combination looks like this:
- Loose allowances at the start
- Real quantities only worked out after contract
- Changes in region, trades or systems not properly reflected
- Rising supplier prices absorbed rather than re quoted
- No clean link between what is on the plan and what is in the budget
By the time it all comes together, the original margin has been chipped away by a hundred small cuts.
A better way: scope first, price second
Moving away from allowance based estimating does not mean slowing your business to a crawl.
It means changing the order and method of your work.
A safer model looks like this:
- Build an accurate scope and bill of quantities first
- Use proper takeoff methods
- Reflect how you actually build
- Capture all the hidden items like fixings, membranes and build ups
- Apply your own rates on top
- Use your trade prices
- Factor in your overheads, travel and labour reality
- Check margins against the full scope, not guesses
- Lock in the contract price with confidence
- You know what is inside the number
- You can explain it to the client
- You have less risk of nasty surprises later
This is where tools like V2E’s 3D construction models and detailed BOQs come into play.
By modelling the project in three dimensions, resolving clashes between architectural, structural, survey and interior plans, and producing a line by line BOQ, the guessing is removed.
Builders can then:
- Check the model visually to build trust in the quantities
- Share the model with clients to explain costs like piering or retaining
- Share it with trades so they can quote from a clear scope
- Push the BOQ straight into their project management software
The end result is simple. You know what is in the job before you sign it.
Where to start if you are losing money
If you recognise yourself in any of this, Thomas’ advice is to start by reviewing your process, not just blaming your staff or your trades.
Look for:
- Points where you are doing the same estimating work twice
- Packages or allowances that regularly blow out
- Jobs where the location or build method changed but the pricing method did not
- Areas where nobody can clearly explain how a number was arrived at
From there, pick one pilot project and run it through a proper scope first, price second process, whether you build your own internal system or partner with a specialist.
Measure the difference in:
- Time spent redoing work
- Variance between estimated quantities and actual
- Stress levels around ordering and budget tracking
- Final margin compared to the forecast
For many builders, that exercise is enough to realise the true cost of guesswork.
In a market where input costs are volatile and expectations are high, allowance based estimating is a luxury most builders can no longer afford.
The builders who will still be here in ten years will be the ones who know exactly what is in every job, before a single peg goes in the ground.
Find out more about V2E https://www.v2e.com.au/
Author: TGB Editorial
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