So what is an estimating system? Is it a pad of paper, pencil, and calculator? Is it a computer and Timberline ® estimating software? It is and it isn't. Those things will allow you to compile your estimate, but we're looking for a method of coming up with costs. Your system or method to calculate costs, above all else, should be easy to use. Someone you hire should be able to come in and understand your estimating procedures in a couple hours. Another consideration when developing how you estimate work is making sure that everything is consistent - if you are going to estimate using square footages of surface make sure your production tracking also tracks by square footage.
There are 4 main methods of calculating estimates. Each has it's pros and cons. Some are easy and quick to perform while others are much more difficult and time consuming.
The least likely to keep you in business for any length of time is guessing (aka WAG - Wild Ass Guess). This method has put uncountable companies in bankruptcy. The idea behind the "Guestimate" is basing your prices on rules of thumb. Essentially, it's a short cut to giving your clients a quick and easy number. We all know that there are no short cuts in business.
The square foot unit cost (aka SWAG - Scientific Wild Ass Guess) is a little more likely to keep you in business past a few months. This method is based on a cost factor for a given area. This method will be less likely to cause you problems if you have years and years of data to back up your prices. The problem arises when it doesn't account for any other variables. You may have built the last 20 homes at $3 / sf for framing but this new home may cost $3.50 because it has some odd angles or 20' tall walls. With this method you need to be flexible and wary of just applying a number to it without considering all the variables.
The next method will catch most of the errors that the square foot cost misses through by counting every piece. This method, "Piece Estimate", is by far the most accurate method of determining job costs. Each material will have a line item for quantity and labor required to install it. This requires you to perform a quantity survey for each material and to know what production rates your crews have to apply a labor factor. The main thing to remember with this method is to account for everything once - less than once and you'll lose money and more than once and you won't win the bid. Another plus for this method is you'll have a listing of all materials to purchase from. The downside is that it takes quite a bit longer to do.
The last method combines the "Area" and "Piece" methods together, the "Unit Price" method. This method is mostly used by companies that have years and years of data that they have unit prices for each material installed for a given area or lineal footage. It's not as accurate as the Piece method or as quick as the Area method but falls somewhere between the two - quick and accurate.
As stated previously, each of these methods have its place in estimating. It's up to you, as the estimator, to determine when and where to use that method to give you the most accurate price possible.