AMI’s estimate hack (how to actually come in on budget!)

Hey there, it's Drew. I'm in Chicago again. It seems to be my city of preference these days. So I was with a bunch of agency owners today, and we were talking about the challenges of accurate estimating. And the reality is most agencies grossly underestimate their work. And the reason that happens is because, ironically, we don't take into account reality when we put together those estimates. So if you're a typical agency, you get together the team of people who are going to touch the project or do the work, and you ask each of them how long it's going to take them—in their best estimate—to do their portion of the work. And so they give you what they believe is an accurate answer. The problem is it doesn't actually factor in the real life that they are doing this work in. So it it assumes that they are working in a vacuum, that there are no interruptions, that they're not getting email pings on their computer, that no one's standing in the doorway to ask them a question, that they're not getting a text from their kid saying they forgot lunch money and how are they going to eat lunch today, that they're not worried about their dad who's having a surgery soon, that basically that they are doing this work in a vacuum that none of us live in and none of us work in. So as a result of all those distractions, all those interruptions, the two hour job actually is a three hour job, or four hour job, or even worse. And so we can try and factor in reality, or you can do what I call the Drew hack. And the Drew hack is to prevent you from underestimating jobs, promising a client a deliverable at a certain dollar amount, and then having to eat the overage, having to write that off, and having to burn through all of your profitability because you estimated inaccurately. So here's what you do: You gather up the information, you figure out what you think the job would cost. So you figure out how many hours, and what billable rate, however you do that. And whatever number you come up with, you multiply that by 1.3. That's the Drew McLellan 1.3 estimating hack. And what you're going to find is, that's actually an accurate estimate. You will be able to do the job within that dollar amount or within those number of hours and have the job be profitable and not write time off. We tried an experiment with an agency recently where they were in a single-digit profitability situation, and all we did—all we changed—was we implemented the 1.3 hack. And I'll tell you, the account executives were not excited about it. They all thought their clients were going to push back and really not agree to do the work because the estimates were too high. We did the projects for six months. We didn't change anything else—no staff changes, no client changes, nothing else. And in six months, two really interesting things happened. Number one: not one client batted an eye at the 1.3 pricing. Not one project was refused because of the new pricing, and in fact there wasn't even a discussion with the clients about the pricing. They got the estimate they said, "Yep, that's fine," and away the agency went. So that was a surprise to the agency, number one. And number two was their profits skyrocketed into double digits. No other change. Just better, more accurate estimating, and not counting on the human ability to estimate accurately, but instead employing this 1.3 multiplier, which then takes your unrealistic work in a vacuum or a bubble estimate and adds a little bit of reality to it. So my challenge to you is give it a try. Just try it for a couple weeks, a month. Notice three things: One—how did the clients react? Because if they're a typical client—because I have a lot of agencies doing this—they're not going to bat an eye. Two—are you writing less time off of jobs after you close them because the estimates are more accurate? And three—are you more profitable? And if the answer to those questions are no the client didn't object, yes I'm writing less time off, and yes I'm more profitable, then guess what? Keep doing it. Talk to you soon.