Cost estimating is one of the most critical aspects of running a professional services business—especially when bidding on government contracts. For Minority- and Women-Owned Business Enterprises (MWBEs), getting this right can mean the difference between securing a profitable contract and facing financial stress. It’s not just about crunching numbers; it’s about knowing your worth, covering your costs, and ensuring your business thrives.
Start with the Basics: Fixed and Variable Costs
A strong cost estimate begins with a clear understanding of your expenses.
- Fixed Costs:
These are your consistent expenses—rent, utilities, administrative salaries, and marketing—that don’t change no matter how much business you do. Your pricing needs to account for these costs to keep your business sustainable. - Variable Costs:
Variable costs, like direct labor, subcontractors, and travel, are tied to specific projects. Estimating these accurately ensures you don’t undercut yourself when pricing contracts.
Knowing your fixed and variable costs is foundational, but it’s just the start. To succeed, you must also think about value, profit margins, and competitive pricing.
Why Cost Estimating is Crucial for MWBEs
Government contracts often come with thin margins, so every dollar matters. Underestimating costs can leave you in the red, while overestimating might price you out of the competition. That’s why having a strong cost estimating process is critical.
But here’s the truth: not every MWBE has the capacity or expertise to handle cost estimating on their own. And that’s okay. I recommend that MWBEs understand the fundamentals but also consider partnering with or outsourcing this task to experienced professionals.
Why You Should Consider Outsourcing Cost Estimating
Working with an expert can help you avoid costly mistakes and position your business to win contracts. Here’s why:
- Accuracy: Professionals have the tools and expertise to capture all direct and indirect costs, ensuring your estimates are complete.
- Competitiveness: An experienced cost estimator knows how to research similar contracts, prevailing wages, and industry benchmarks to make your pricing competitive without sacrificing profitability.
- Efficiency: Outsourcing allows you to focus on other aspects of your business, like building relationships and delivering excellent services, while the expert handles the numbers.
How to Find the Right Resource
If you decide to partner with a professional, look for someone with experience in your industry and a track record of success with government contracts. Here are some tips:
- Ask for References: Talk to other MWBEs or contractors who have used their services.
- Check Their Expertise: Ensure they understand the specific requirements of government contracting, including prevailing wages, labor classifications, and escalation clauses.
- Look for Transparency: A good cost estimator will explain their process and ensure you’re comfortable with the numbers.
- Start Small: If you’re unsure, test their services with a smaller project before committing to a long-term partnership.
Tips for MWBEs Doing It Themselves
If you choose to handle cost estimating in-house, here are a few things to keep in mind:
- Break Down Costs: Read contract documents thoroughly to identify all direct and indirect costs. This includes labor, travel, deliverables, and administrative requirements.
- Research Competitors: Understand what similar businesses are charging for comparable work.
- Plan for Escalation: For multi-year projects, account for increases in wages and materials.
- Track Your Numbers: Keep records of past estimates and actual costs to refine your process over time.
A Personal Take
I’ve seen firsthand how important accurate cost estimating is for MWBEs. Early in my career, I made mistakes—both underpricing and overpricing—that taught me hard but valuable lessons. Over time, I learned that partnering with the right professionals can make a huge difference. It’s not just about getting the numbers right; it’s about gaining confidence in your pricing strategy and freeing yourself to focus on what you do best.
Final Thoughts
Cost estimating is a skill every MWBE should have, but it’s also okay to seek help when you need it. Whether you tackle it in-house or partner with an expert, the key is to be thorough, strategic, and confident in your approach.
Winning contracts isn’t just about having the lowest price—it’s about showing that you understand the project, can deliver exceptional value, and have the financial foundation to perform. With the right tools, knowledge, and support, MWBEs can master the art of cost estimating and position themselves for long-term success. Want to learn more, register for our Cost Estimating for Professional Services workshop.
