Make an estimate in 5 simple steps: Free estimate template

Make an Estimate in 5 Simple Steps: Free Estimate Template

By Nguyen Oanh
Published: 6/27/22

Knowing how to make an estimate differs between an accounting expert and an amateur! A winning estimate will lead you to a healthy relationship with your client and help them become a happy and loyal customer.

But what's an estimate? How do you make an estimate? What do you say when giving an estimate? Are an invoice and an estimate the same?

Don't worry! We’ll answer all these questions, tell you the best practices when making an estimate, and give you a free estimate template in this article.

Let's get into it now!

What's an estimate?

Estimates are the closest and most educated guesses for the final cost of a project, job, or service with non-standard pricing. Unfortunately for accounting, estimates usually involve a certain level of uncertainty. You might ask what we can do with a value that we're not sure about?

An estimate is usually used in basic accounting in order to complete other financial documents such as a quote and to have an overview of the work or services to be done for a client. Furthermore, it will help your customer decide if they want to collaborate with you.

For example, if the costs to repair a car are too expensive, they might just think about buying a new one instead. Estimates show clients how much they might have to pay for the work, labor, and material, and allows them to know if it is worth their money by analyzing the pros and cons.

To advise clients and provide them with accurate information you have to understand how to make an estimate and different estimation methods. Keep reading, we’ll present it all to you in the next part!

Bonus: You will have a free estimate template at the end 😉

5 easy steps to make an estimate

Follow these 5 simple steps to make a winning estimate:

1. Evaluate your resources and estimate a timeline

If you want your customer’s trust, you have to be sure of what you do. Ask yourself some questions to evaluate if you can respect their expectations and desired timeline.

  • How long will the job take to be completed?
  • How many resources will be required? (materials, investment, human resources, etc.)
  • What do your competitors do and what added value does your company bring?

It is important to be realistic about your job and make sure that you can handle it before promising anything to your customers.

2. Shoot for the moon, land among the stars!

Once you are sure about what the customer wants, set a higher goal to motivate your team and also the client. Don’t be afraid to aim higher and challenge your team. But be careful to not be unrealistic.

A good goal should be based on the real capacity to reach it. It is essential to have a global overview of your estimate when it comes to the resources, timeline, and quality before setting a goal.

3. Keep an eye on your competitors

It is important to do some research on what your competitors might offer for the same job before making an estimate. You don’t want to propose an estimate with a wildly expensive price (unless you can justify it) or a very low price compared to your competitors.

The cost of your work and services also corresponds with the customer experience that you give. For example, if your price is higher than your competitors, you might put your focus on how to improve and maintain a quality customer experience and convince them with your professional skills.

4. Be ready for every scenario

The client can change their opinion at any time so don’t prepare just a single proposal. Prepare different estimates with advantages and disadvantages, alternatives pricing, backup plan, etc.

Though there is no need to go overboard, you don’t have to write multiple estimates for every single client. Just make sure to keep alternatives in mind to help with any potential negotiations.

If you propose a lower price, you should explain why this is advantageous for the customers without making them doubt the quality of your work. On the other hand, if your estimated cost is high, convince them with your years of professional expertise and show them that the materials used and services provided are worth their money.

5. Provide detail, but not too much

Be detailed but not too detailed while making an estimate. Why do we say that?

You need to be realistic and tell them what resources you have in detail such as how many machines, the number of workers you plan to use, the type of equipment, and of course the labor rates that clients will have to pay. This way your customers will be reassured about the process and your attention to detail.

Your estimate doesn’t have to include every single detail with the cost of each material or necessary equipment. You probably won’t even know this until you prepare a quote. But it should contain an estimated total price for the completion of the project based on the information you have.

Free downloadable estimate template

Being professional is not just about being on time and wearing a uniform. It is also making the effort in how to present an estimate to your client. We have prepared a free estimate template for you! All you need to do is be ready to make the deal!

Different estimation methods

Now you know 5 easy steps to make an estimate, but what about techniques for estimation? Don’t worry, we have prepared 5 estimation methods to help you convince all your customers.

Top-down estimate

The top-down estimate is a method in which we estimate the budget first and then divide this budget by the different parts of the project. This method helps you avoid exceeding your budget as long as you can agree with the customer that the budget is enough to finance the project.

Although this technique helps you maintain your budget, it is not error-free and doesn’t fit a project in which the budget is flexible.

Analogous estimate

The analogous estimate method is when you reuse the estimate of an old project for a new one. You can do this by using your own project experience, looking at trends in prices, and modifying similar projects to fit the new ones.

It is quick, simple to do, and you don’t need lots of information. It is quite similar to the top-down method because they both use the ballpark technique to estimate a value.

The only disadvantage is that you have to update project information because the old and new projects might have similar costs but the value likely won’t be the same.

Bottom-up estimate

Quite similar to the top-down estimate method, all you have to do is reverse the concept. Instead of dividing the budget by a number of tasks, you calculate how much the tasks cost and assess the budget later.

In other words, the total cost of the tasks will define the estimate that you need to finance the project. This method gives you an accurate estimate and ensures the fluidity of the process without thinking about the lack of budget.

The con of a bottom-up estimate is that the process takes time because you have to verify the details with clients and you risk overshooting their budget.

Delphi method

Delphi method or estimate-talk-estimate technique (ETE) is an estimate method that requires the opinion and judgment of a group of knowledgable experts by doing a questionnaire on a specific topic. The pros are that you can get advice from experts and benefit from their experience.

Relying on the judgment of an external expert is like a double-edged sword, you benefit from their expertise but you risk losing your control and depending on them. On top of that, this method takes longer than the others.

Parametric estimate

The parametric estimate is an evolution of the analogous estimate method. It takes the old information from previous project estimates to modify new estimates. But the difference is that instead of just looking at previous projects that were similar, they break the previous projects down into variables.

For example, how much did this material cost, how many team members were needed, and what were they able to deliver. Then you can determine new estimates based on changing those variables and adding or subtracting to find the new cost according to the demand of customers and the project requirements.

However, a new project estimate has more changes than just the variable cost. This is why you have to be careful when reusing old estimates.

The difference between an invoice & an estimate

The key difference between an invoice and an estimate is that the estimate is used at the start of the business transaction and doesn’t show the money owed by the customer. The word “estimate” is used when it comes to measuring uncertainty in a project’s cost.

💡 Little reminder: An invoice is an accounting statement that a vendor will send to its customers to remind them of the amount they owe. It will be sent before the payment is received by the vendor.

An invoice and an estimate are very different, but they are both important for businesses.

Best practices when making an estimate

Set a competitive price

Setting a competitive price is not synonymous with setting a cheap price. A cheap price is not totally ideal. It might cause doubt in the customers about the quality of your product and service. On the other hand, if your price is too high, it makes some customers hesitate to collaborate with you.

Pricing is not easy and it can be risky if you set a price randomly. In this case, you should check out your competitors and compare their prices to yours or do research on market prices.

Customizable estimate to meet the needs of customers

Nowadays, customization increases customer satisfaction and customer loyalty toward a business. Customizing estimates can allow you to tailor them to meet the needs of customers and answer all their requests.

Don’t forget to update the information and the format of the estimate, especially if you’re reusing an estimate from an old project.

Be transparent with your information

Estimates don’t include the exact values but it is important to explain to the customer how the price was chosen and be transparent about every calculation you put into your estimate.

Make sure to include a contact address in the estimate in case your customers want to ask you for more information.

Make your estimate sell itself

When you present an estimate to a client, they might ask: “Can I trust you?”, “Is it a scam?”, “Where does this value come from?”, “How many years have you worked in this field?”.

Not only should you be able to answer all these questions, but your estimate should too! Its presentation is important to impress the customers. It should contain important elements such as:

  • Your exact address
  • Your contact information
  • Even badges, awards, or customer testimonials from well-known review sites (not mandatory)


How to send an estimate?

The fastest and easiest way to send an estimate is by email with an attached document. You can also send an estimate by letter but it is not recommended because it contains important information and is more time-consuming.

What do you include when giving an estimate?

6 elements you should include when giving an estimate:

  • A detailed description of the job
  • The timeline estimate
  • The cost estimate of each item and the total cost
  • Potential payment terms, ex: penalties in the event of late payment, etc.
  • Logo, company address, contact address
  • Disclaimer or trust badges from review sites (if applicable)

Is a quote an estimate?

No, a quote is not an estimate. An estimate calculates the amount that a project might cost while a quote is the exact, and often, final price. You can sign a contract after you accept the quote.

In conclusion, an estimate is an important element that you should consider in your business transaction. You can check out some online estimate generators to optimize your process. There are many estimate methods but be careful to consider all the pros and cons before choosing the best one for your business.

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