What’s the difference between a quote and an estimate?
The nature of some types of businesses make it challenging to come up with a standard price list. For tradespeople and some freelancers, for instance, what’s required in terms of time, skill, labour, and materials frequently vary from job to job.
Offering an estimate or quote provides potential clients with a customised figure for what they can expect to pay, based on what will be required to complete a specific project.
Read on to learn the difference between estimates and quotes, and tips on how to prepare them like a pro.
A quote is a legally binding fixed price a company prepares for a client; as such, they should always be in writing. A quote should summarise the work to be performed and include a detailed breakdown of all the costs and the final total, including taxes.
Once a business offers a quote and a client signs off on it, the price cannot change even if the job ends up costing more than originally anticipated. For this reason it’s important to always quote as accurately as possible, allowing ample time to complete the job and carefully pricing out costs for materials and labour (e.g. subcontractors).
To protect your business from ‘scope creep’, a quote should also stipulate that additional charges for extra work beyond what the initial quote covers will apply.
Unlike a quote, an estimate isn’t legally binding and it isn’ a guarantee of what the actual work will cost. Still, it’s recommended that estimates also be provided in writing. An estimate is offered as a ballpark figure, based on the information available about a project at that moment in time. As such, it’s understood that the estimate is subject to an increase or decrease once the work begins.
Companies should take just as much care when providing an estimate as they would when drafting a quote. Ideally, an estimate should provide a number within roughly 20 per cent of the final price. It’s good practice for businesses to provide more than one estimate, to offer a range of options at different price points.
Tips for costing out jobs
For small businesses, it’s important to appear as professional as your larger competitors whenever you communicate with clients, but especially when negotiating the details of a potential project.
Be sure when you’re preparing your quote or estimate that you include the following information:
1. your business number
2. business contact info (phone, email, address)
3. a detailed summary of the work to be performed
4. a breakdown of costs (subcontractors, materials, time and hourly cost for labour)
5. the total cost
6. a timeline for the work and completion date
7. contract terms, including deposit and payment schedule
Another important bit of information to provide your clients when the quote or estimate expires. Many companies choose an expiry date of 30 days, to protect themselves from the possibility of rising costs for materials or other factors that may influence the cost of the job.
It’s worth repeating that you should always take care to state clearly in writing the terms of your quote or estimate, and offer a client the opportunity to ask questions before approving the work.
That way, both parties can avoid any misunderstandings about expectations and project costs before the work begins.
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The Team at London Accountants