Quote vs. Estimate
If you own a business, chances are you get requests for quotes and estimates all the time from potential clients wanting to know how much your goods or services cost. But did you know that the two are fundamentally different? Quotes and estimates are often mistaken to mean the same thing, even though they perform different functions within an organization. In this post, we delve into a comprehensive Quote Vs Estimate comparison.
What Is the Key Difference Between an Estimate and a Quote?
Once you understand that estimates and quotes are different documents, you can get to the nitty-gritty of what they entail and how they are used. This will help save you time and money while saving you from legal problems, customer dissatisfaction, and misunderstandings. Here is the breakdown:
An estimate is a rough approximation or educated guess about what a project may cost. It is usually prepared without all the exact details of the job and is more common during first encounters with a potential client, such as during an inquiry phone call. Because it is a guestimate, an estimate is subject to drastic change, especially as detailed projects become more clear.
A quote, on the other hand, is a representation of the exact cost of a job. It includes a fixed price and set terms and conditions that will not change once the potential customer agrees to and signs it. Typically, you issue a quote when you have all the information you need to calculate the cost of a project, including the material and labor costs. A quote signed by a customer forms a legal contract between you and them and can be used as evidence or a point of reference in a legal dispute.
When to Use a Quote Vs. An Estimate
You use a quote when the project in question is simple and straightforward and can be completed in several hours or days without extensive variable expenses or material use. However, a quote is more suitable for the job when the project is complex. A quote gives a more detailed breakdown of the timeline, costs, discounts, taxes, timelines, and payment terms, making it ideal for long or labor and material-intensive jobs. Also, if you are unsure of any costs involved in a project, use an estimate until you can get exact figures. Make sure you label it as such to avoid being held to the indicated price.
Tip: In most industries, a quote is only valid for a limited period of time. This helps protect a business from the obligation to honor a price when conditions like labor and materials costs have changed and could lead to a potential loss. Therefore, always include a timeline in your quote, e.g., valid for 30 days, to protect your interests.
How to Calculate a Quote vs. Estimate
If you have been in the business for long enough, you might be able to come up with an estimate on the fly. You may turn over the factors in your mind and, from experience, instinctively know how much a project might cost. If you are not there yet, you can use unit price estimates to come up with a figure. For example, you may charge $50 an hour for a contracting job and estimate total costs depending on the number of hours you think you will need to complete the job.
Quotes are much more complex than estimates and need keen calculation. How exactly you make these calculations will depend on your business, but you will need to factor in labor costs, material costs, and subcontractor costs where necessary. Overall, the process may include talking to independent contractors or freelancers, researching labor and materials costs, and taking measurements.
It is also important to consider both variable and fixed costs when calculating a quote. Fixed costs remain constant across projects, while variable costs may change depending on the parameters of the project. For instance, a cleaner may charge $50 dollars to clean a home plus a variable fee of $20 for extra rooms, extensive messes, etc.
Quote Vs. Estimate (FAQs)
Estimates are important because they act as an initial guide when a client is considering your business. They can save you the time it takes to create a quote, especially if the potential client decides to pass on your offer. That said, however, quotes help you generate new business and can be legally binding, making them ultimately more important for your business.
Yes. You can handwrite your quote, and it would still be valid. But since it is a legally binding document with serious repercussions for your business (if signed), you are better off typing it in a legible and professional font. Illegible scrawls can mar the impression you make on potential clients and turn them off your business, even when the document is a simple estimate.
Yes. If you have set terms and conditions for how you conduct your business, you should always include a copy in your quote or estimate. It may not be necessary for the latter, but it creates an air of honesty and professionalism that potential clients will respect. Terms and conditions also prevent misunderstandings down the line by telling the client exactly what they should expect from you.
Because an estimate is a rough guestimate of how much a job would cost, it needs to be clear, but there is no pressure to make it very detailed. Use general terms to describe the project, supply the approximate price, and indicate clearly that the cost is subject to change. When preparing a quote, however, there is no room for error. Make sure you include the following:
ᐅ Your company’s name and contact information
ᐅ The potential client’s details
ᐅ A quote number
ᐅ A quote date
ᐅ A list of the goods or services requested by the client
ᐅ Their unit and total costs
ᐅ Taxes, labor and material costs, discounts, and more
ᐅ A detailed project scope, including what is not covered by the quote
ᐅ Terms and conditions of the quote
ᐅ Any VAT element
An estimate is not a legally binding document because it is a mere guess of cost and does not cover the full scope of a project. A quote, on the other hand, is more comprehensive and reliable, but it is only legally binding when signed by the client and converted into an official offer.
When it comes to the Quote Vs estimate conversation, the key thing to remember is that estimates are a rough idea of product or service price, while quotes are more precise. You should only use an estimate as a guide and not as the official representation of project costs. Also, only ever prepare a quote when you are sure of all the costs involved and are willing to meet the promise indicated therein.