Planning a Project? Learn the Key Differences Between a Quote and an Estimate
What is a quote? A precise price What is an estimate? An educated offer The main differences between quotes and estimates Are bids and proposals the same thing? Final thoughts and FAQ
Quotes, estimates, bids, proposals…it’s not about literature, guessing, or a marriage proposal. This is pure business.
Quotes and estimates are a vital part of dealing with customers and clients whether you work in a trade or a small to medium-sized business that works on projects or offers labor and services.
To better understand the difference between quotes and estimates, we’ll help you learn what they are, their main components, and how to make the right choice with your clients based on their needs.
As they (should) say, happy customer, happy business, right?
What is a quote? A precise price
Imagine that a client comes to your business looking to get some work done on their new kitchen, but you can’t just charge them without knowing the scope of the customer’s needs and evaluating the situation. This is where a quote comes in.
A quotation, or quote for short, is simply the precise price that a client will have to pay for a complete job. This price can only be determined after either going to the location and assessing the work to be done or by having a very clear understanding of the work that the job entails.
Companies offering quotes must pinpoint various factors such as:
- the extent of the work requested by the client
- the timeline of how long the job will take
- the cost of materials and labor
💡 Offering quotes is an essential step when exchanging with customers. It will ensure that the client knows exactly what their work will cost, while also guaranteeing that your business gets paid fairly for the time, labor, and materials that the project requires.
Price quotes are commonly used in a variety of industries, from construction contractors and insurance providers to retail and software. Basically, in any field where a company gives non-standard pricing for its offering, quotations are likely to be the alternative.
Beyond determining the price of a project, quotes are also legal agreements between the customer and the company. Once they’ve accepted, there generally won’t be modifications unless there are large changes to the scope of the work. It can even be used as proof in the event of a dispute between both parties on the job parameters.
💡 Because of the variable nature of work circumstances and material prices, quotes are frequently only valid for 30 days, although this depends on the company and its policies.
Quote components in a nutshell
When it’s time to finally prepare a quote for your customer, there are a couple of key components that will make up an effective price quote. Potential information on a quote includes:
- Contact and business details from the supplier
- Customer contact information
- A unique quote number
- Key dates (when the quote was issued, when the quote will expire, when the work is expected to start and finish, etc.)
- An itemized list of the products/services provided
- A breakdown of the cost for each one
- Potential variation or changes in the scope of the work
- A customer signature
- Payment method instructions/details
Example of a quote
What is an estimate? An educated offer
So, if a quote gives an exact price for how much a project will cost, I’m sure you can guess already what an estimate might entail.
In short, an estimate is an educated prediction of what the final cost of the project COULD be. Estimates are mainly used to get an initial idea of how much your client might pay before giving a full quote. This gives clients a good idea of how your company will handle their project and sets their expectations for what is to come.
Since the price for an estimate isn’t fixed as it would be for a quote, it is susceptible to change based on the realities of the job and the actual materials or labor needed. Most estimates will usually be within 10-15% of the final price.
Good news, estimates also take less time! Often, professionals will use their prior experience with other projects alongside information provided by the client to come up with their estimate.
💡 Unlike a quote, an estimate is not a legal agreement, so don’t count on it if you get into a dispute!
Estimate elements in a nutshell
Because estimates are more informal than quotes, you might give just a verbal estimate to start off, or go directly to a more detailed assessment. In this case, the elements will be similar to a quote. Instead of going into the exact details, estimates give more of an overview of the potential costs and details:
- An estimate of the timeline of the project
- the estimated costs for materials and labor
- Client and business information
Example of an estimate
The main differences between quotes and estimates
Now that you’ve got a good idea of what a quote and an estimate are, let’s do a quick recap of the main differences between them.
|Detail||Exact breakdown of costs, scope, and prices||An overview of the potential final cost, subject to change|
|Legality||Legal agreement, can be used as proof in a dispute||An informal offer, not legally binding|
|Length to complete||More in-depth, requires more time||Shorter time to complete, not as detailed|
|Negotiable||Fixed price for a certain period (generally 30 days)||Possibilities to negotiate at different phases during the estimate process|
Are bids and proposals the same thing?
When businesses work with quotes and estimates, it’s not uncommon that you might also hear talk of bids and proposals.
A bid is more common for big commercial projects, government work, and the construction industry. Companies will bid on projects to try and win the right to work on them, therefore gaining business.
Projects that accept bids will typically already have a well-detailed scope based on the needs of the entity requesting the work. At the end of the bidding process, the person or organization requesting the bid chooses one of the contractors to do the work, usually based on how low the final cost will be.
In a similar vein, proposals are given in response to an RFP (Request for Proposal) by companies that want to do work on a certain project. They must be clear and detailed like a quote, covering all the same information as one (i.e. the timeline, the material and labor costs, the scope, etc.).
It will likely go beyond that. By writing a solid proposal, an organization is trying to prove the added value that their company offers in comparison to competitors. Unlike bids, clients will generally choose the best proposal instead of the cheapest, the proposals will also vary, while bid offers respond to the same expected scope.
Final thoughts and FAQ
Now you know the essentials of estimates and quotes and what the main differences are between them. We’ll send you on your way by answering some frequently asked questions to make sure that you have as much information as possible to successfully provide quotes and estimates to clients!
Is an estimate legally binding?
As you’ve seen in the table of the main differences, an estimate is generally more informal. Because of this, an estimate is NOT legally binding, unlike a quote.
What happens if your work estimate is very different from the final cost of the job?
Because estimates are purely educated guesses of what the final price could be, it’s not always possible to get it exactly right every time.
Estimates are generally reevaluated throughout the project, while a quote will offer the true final cost. If your original estimate was too much, businesses may offer extra work or other upgrades that can be added with the client’s agreement.
Are verbal agreements as valid as written estimates and quotes?
Which would you prefer: A short conversation with no record, a piece of paper with handwritten estimates, or a newly printed sheet with clear business information?
Although verbal agreements can be used, it’s preferable to keep a paper trail of estimates and quotes. This way, companies and clients can ensure that there are no misinterpretations of the work to be done.
On top of that, digitally formatted estimates or quotes with the company’s contact information and logo will prove that your company handles your work professionally.
Do you need to provide terms and conditions on estimates and quotes?
Terms and conditions are an important part of quotes, although less necessary for estimates. Including them in both documents can still be a good idea. This lets customers know exactly how your company will handle the project by providing information such as payment methods, potential penalties, and more.