Quote vs. Estimate: What's the Difference?

  • Accracy
  • 26th Nov, 2023

As a small business owner, you probably spend a lot of time explaining your prices to potential new customers. Estimates and proposals are two ways to give customers an idea of how much their project or service might cost. They're used by businesses that can't provide standard prices for their goods and services because the time and materials for each project vary depending on the client's needs.

Quote vs. Estimate: What's the Difference?
Operations

While estimates and quotes serve a similar purpose, the terms aren't interchangeable. There's a big difference between giving a quote vs. an estimate. Using the correct term at the right time can ensure your customers have the information they need to make a decision.

To help you get clear about the difference between a quote vs. an estimate, we'll define each and provide some guidance on when you might use one or the other.

What is an estimate?

An estimate is essentially a rough, educated guess or "guesstimate" of how much the job may cost. It's based on the information you have available at the time. When you provide an estimate, you base it on limited information and your own experience performing similar jobs.

An estimate isn't legally binding—it can change drastically once you get more information.

When you should use an estimate

You should use an estimate when a customer needs a rough idea of how much your services might cost. They've not yet committed to the project (and might not have the budget for it), so you don't want to spend too much time digging into the details.

For example, say you own a contracting business, and a potential client wants to know how much it will cost to remodel their laundry room. You might ask the customer about the size of the room and visit their home to take a look at the existing space and discuss what they want to have changed. Then you provide an estimate based on this preliminary info—in this case, you think the project will probably run about $7,000 to $10,000.

If the customer decides that's more than they're willing to spend, you haven't invested too much time into researching the cost of labor and materials on the project. If they like the estimate, you can start gathering more information to come up with a quote.

Estimates are common in labor-based industries like construction and trade work. They're also used by event-based business owners like photographers, caterers, event planners, wholesalers, and consultants. Most small businesses provide free estimates as a way to attract potential clients and start building a relationship.

What is a quote?

A quote is an offer to perform a job for a fixed price within a specific timeframe. A quote is usually legally binding. Once you give a potential customer a quote, you can't change it unless the customer asks for something outside the initial scope of work.

If the project scope changes after the customer accepts the quote, you'll need to complete a change order. Then you and your customer can come to an agreement about the additional charges.

When you should use a quote

You should use a quote only after you've gathered plenty of details about the project. You may need to visit the job site, take measurements, and do some research to know exactly what's needed to complete the project.

Let's return to the laundry room remodeling example above. After the potential customer approves your estimate, you might research the cost of the flooring, cabinetry, and fixtures the customer wants. You might also meet onsite with your plumbing and electrical subcontractors to get quotes from them.

During this process, the customer might decide they want to change the location of their appliances and install a utility sink where there wasn't one before. Or you may discover that their existing pipes are corroded and will need to be replaced as part of the project. These changes could drastically increase the cost from your original estimate. Aren't you glad you're not locked into an exact price just yet?

A written quote has much more detail than a written estimate and may not be a round number. You might ask the customer to sign the quote as an addendum to a contract before you begin work.

Like estimates, quotes are used in industries where the costs of a project or service can vary a great deal, such as construction, even-based businesses, consultants, and wholesalers. While small businesses usually provide free estimates, they might charge for in-depth proposals.

For example, a general contractor might charge a $400 design fee to cover the time and expense of coming up with a detailed plan and quote on a project. If the customer decides to move forward with the project, the $400 they've already paid might count toward the total they'll pay for the project.

How to calculate a quote vs. estimate

There are several ways to come up with an estimate. Experienced business owners might be able to just go with a gut feeling of how much a project or service will cost. Others might base an estimate on a unit price.

For example, a painter might charge $3 per square foot, or a caterer might charge $25 to $100 per guest, depending on the style of service. Typically, an estimate is a round number.

Calculating a quote is more detailed. The exact method you use for coming up with a quote depends on the type of work you do. However, it might include taking measurements, researching the costs of materials and labor, and speaking to any freelancers or independent contractors you might need to call in for certain aspects of the job.

In any case, you want to make sure you account for both fixed costs and variable costs in your quote. Fixed costs are expenses that don't change from project to project. Variable costs change depending on the side of the project.

For example, a plumbing contractor might know they need to pay a fixed fee of $170 to have their plans reviewed and approved by the city's planning department, plus a variable fee of $10.00 per plumbing fixture installed in a project.

Qquotes are usually only good for a certain amount of time, such as one month or 90 days. This limited window protects you from being locked into performing a job at one price when the cost of labor and materials has risen dramatically.

What about a bid or a proposal?

Two other terms that people might use in place of quote and estimate are bid and proposal. Bids and proposals are similar to quotes, because you're offering to perform a specific job at a specific price within a certain time frame. Bids are usually used for larger commercial or government projects. Proposals are common in advertising, technology, and other service-based businesses.

It doesn't really matter whether you use the term quote, bid, or proposal. What matters is client expectations. For example, a customer might call a contractor and ask for a bid on remodeling their bathroom when what they really need is a ballpark price or estimate.

In that situation, you should discuss the details with the client and explain your process for providing estimates and quotes. If you and the customer don't get on the same page, you risk disappointing them and losing their business.

If you need help getting started, Microsoft has a variety of bid and quote templates you can download and adapt to fit your needs.

How Accracy can help

There are some key differences between estimates and quotes, although they both serve a common purpose: helping you and your customers get on the same page about how much a project or service will ultimately cost. Estimates give customers an idea of what to expect, while quotes provide more detail and specify a fixed dollar amount.

If you're new to proving estimates and quotes (or just want to do a better job at calculating them), Accracy can help.

Accracy is America's largest professional bookkeeping service for small businesses. We handle your bookkeeping and tax filing for you so you can focus on running your business (and winning new customers).

Whether you need to generate estimates, quotes, or both, you can use your Accracy data, which provides a complete summary of all of your past expenses. That historical data can help you put together a more informed quote or estimate. For example, you can look at what you've spent on cost of goods sold, supplies, and freelancers or subcontractors in the past to get an idea of your labor and materials costs for an upcoming project.

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