Before you start a new project, you’ll need to come to an agreement on price. For small businesses, submitting estimates and price quotes to new customers is common practice. But what does estimate mean exactly, and how does it differ from a quotation? While the two terms are closely related, there are a few key differences to be aware of.
What is a quote?
First, let’s start by answering the “what is a quote” question. A quote, or quotation, provides the exact price for a job. This fixed price breaks down the full cost of the project, identifying its timeline and scope. One benefit of providing a quote is that by clearly defining the project’s scope and fixing this to a price, you can avoid inadvertently taking on additional unpaid work. This is helpful for defining the contract value.
When drawing up a quotation, you must clearly break down the project line by line to cover all anticipated costs. You’ll need to visit the site and conduct all preliminary checks to be sure that the quote is as accurate as possible. Because it’s a fixed price, it can’t be changed without a new agreement between your business and the client. Quotes are formal contracts that provide a legal standpoint for the work.
What is an estimate?
A quotation puts a fixed price to a work contract, but what is an estimate? As the name suggests, an estimate is an approximated value. It’s more of a “guesstimate” or educated guess about a project’s price, rather than a hard, fixed value. Drawing up an estimate for clients is less time-consuming and can be based on past, similar works.
What does estimate mean for your contracts? Unlike a quotation, an estimate isn’t legally binding and can be adjusted upward or downward due to changes in scope. Project managers often begin a job by providing the client with an estimate, and then change this to a final invoice after more specific details are uncovered. Think of it more as a starting price, rather than a final quotation.
When to use a quote vs. estimate
For small, straightforward jobs you might not need to use a complicated contract. A quick estimate might suffice for a job that can be completed in a few hours or days, without extensive use of materials or other expenses. However, for larger projects a quotation might be a better solution because it offers a clear breakdown of your charges.
When choosing between a quote vs. an estimate, perhaps the most important thing to remember is that quotations are legally binding. If you’re unsure of any costs involved, you should opt for an estimate until you can do your research. Take care not to label your estimate as a quote, or you’ll be held to that price by the client.
Quotation vs. invoice
Another term used frequently in relation to pricing is invoice. Both a quotation and an invoice are used to ensure your business is paid, but the timing of the pair is different. The main difference between a quotation vs. an invoice is that the quote is given before work begins, while an invoice is provided after the work is complete. An invoice lists all final costs along with terms of payment. While the price listed on both a quote and invoice should be the same, the invoice could also include any additional fees that were agreed upon throughout the course of the project.
The bottom line
Quotations, estimates, and invoices are all important documents for small businesses to familiarize themselves with. A quick estimate can get your foot in the door with a new client who is shopping around for the best price. Yet a quote will formalize this estimate, and an invoice ensures you get paid in a timely manner.
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