Quote vs. estimate: What's the difference?

9 minutes

Communication is key in every industry, which is why you and your clients must understand the terms and meanings behind the various business processes you use every day. Understanding the difference between a quote vs. estimate can ensure a smooth relationship with your customers and help you get paid in a timely, reliable manner.

If you find yourself shaky on the distinction between estimates and quotes, then keep reading. This article will cover the basics of each and determine the best times to use an estimate or quote in your business.

Definition of quotes, estimates, bids, and proposals

Construction companies and other contractors frequently use quotes and estimates to complete their projects, though any industry can use these tools.

It's not uncommon for terms like "quote," "estimate," or even "proposal" to be used interchangeably. But each term has a specific definition and purpose. Understanding their distinctions can help you avoid disputes and establish credibility with your customers.

Below, we'll address the widely accepted definitions of some of the most common terms used in business.

What is a quote?

A quote provides your client with an exact price for a job or project. A quote includes the final, fixed price and a detailed analysis of all the costs involved in the project.

In some cases, a quote will also include a timeline for completion of the work, which helps customers understand what to expect when it comes to the scope of the project.

A quote is legally binding. Once you provide your client with a written quote, it has the same legal force as a contract. This protects your clients from a price hike once the job is completed. It also protects the contractor from being asked to take on extra work.

Once the job is finished, you can convert your initial quote into a final invoice to bill your customers. To reiterate, however, the total cost of the invoice must match the price of your initial quote; otherwise, you may have a hard time getting your contract paid.

What is an estimate?

If a quote represents the fixed price of a particular project, an estimate represents an approximation. An estimate is an educated guess regarding the cost and scope of a project.

An estimate will often be used as a starting point in developing a new project. A contractor might provide their client with an initial estimate, then make adjustments if the project scope, time spent, or materials change along the way.

Unlike a quote, estimates provide no legal standpoint for the work. It's not unusual for estimates to change with time, and the final cost won't necessarily match the numbers on the initial estimate. 

Still, your customers expect an accurate estimate, usually within 10-20% of the final price. This is why many construction professionals rely on estimating software to prepare confident, accurate estimates.

What is a bid?

While estimates and quotes have specific definitions, the terms "bid" and "proposal" can be a bit less clear.

A bid usually refers to a contractor's offer to provide a particular product or service. A bid might be used when multiple contractors are competing for the same project. This allows customers to find the best price before the work begins.

A bid will often contain the same information as an estimate, including materials needed, timeline, and final costs. However, if the customer accepts your bid, you'll likely be held to the terms just like if you'd provided a detailed quote.

What is a proposal?

A proposal might look the same as a bid, providing a rough idea of the scope and cost of a particular project. While bids are used when contractors compete against one another, an individual proposal is the plan that describes the steps needed to complete a given task.

For example, a customer might request that a contractor create a proposal for a particular task, including an estimate of the costs and needs. They can then review the proposal before drawing up an official contract.

Unlike a bid, however, a proposal might be negotiable, allowing you and your client to make adjustments according to specifications or changes in the project scope.

The differences between quote and estimate

Now that you understand estimates and quotes a bit better, it might be time to highlight some of the major differences between these documents. There are three distinctions that you'll want to pay attention to:

Quotes are exact

The main difference between a quote and an estimate is the level of detail and accuracy associated with a quote. Once you provide a customer with a quote, you are locked into that price and timeline.

This means if you work in a retail or supply industry, your customer is entitled to the price you initially quoted them, even if the cost of supplies or products changes afterward.

Quotes are legally binding

Once you provide your client with a price, your quote takes on the same legal force as a contract. Your client doesn't have to accept your quote, but if they do, you will be legally obligated to uphold the prices and terms you initially quoted.

This is particularly important in making bids. A customer might accept your bid, at which point you'll become contractually obligated to provide your services according to the details you have proposed in your bid.

Estimates are negotiable

Unlike quotes, estimates can be considerably more flexible. The final costs and timeline don't have to be an exact match, which gives you some "wiggle room" in completing the project. But this also means that you and your clients might be able to discuss the exact specifications of the work they need and make adjustments as necessary.

Estimates are better suited to project proposals, where your client can review your initial offer and then make adjustments to suit their company's needs.

When to use a quote

Sometimes, it's hard to decide whether to use a quote or an estimate when you're starting a new business relationship. To help you decide, here are three common reasons why you might offer your clients a quote:

1. You're trying to secure a bid

Sometimes, the most challenging part of any job is landing one in the first place! A detailed quote can help you stand out from the competition, highlighting the unique services or price points that your business offers.

The more detail you can provide upfront, the more comfortable potential clients will feel about committing to your company.

2. You're providing a regular service

Many industries provide regular or routine services where costs remain stable over time. For example, if you provide roof repair work, you'll likely charge the same price per square foot, depending on the building materials used.

These kinds of fixed costs make it easier to provide your clients with the exact details they need. This can save you the time-consuming work of generating new quotes for every project.

3. You want to protect yourself from extra work

Business contracts work both ways. A quote will protect clients from being taken advantage of by unscrupulous business owners. But a quote will also bind you to the work you've agreed to perform — and nothing more. This could save you from having you and your employees asked to provide an additional service if you didn't agree to do so beforehand.

When to use an estimate

There are many other times when it's appropriate, if not desirable, to use an estimate. Here are three common reasons why your business might rely on an upfront estimate before committing to a job:

1. You're unsure of the exact price of materials

Unfortunately, you may not have all of the essential details nailed down before you begin. This is especially true when you're starting a new project or trying to meet a particular set of customer expectations.

Creating an estimate allows you to sketch out a general idea of what the job might entail and add additional detail as you move forward.

2. You're unsure about what your client expects

What do you do if you are hired for a job, only to discover that the customer is unclear about the project's final goal? Perhaps the scope is subject to change, as well.

For instance, a client might hire you to build an additional bathroom in their house. If they haven't decided things like the number of sinks, what sort of tub/shower they want, or other design points, it could be hard to build an accurate quote.

A quote demands that you have a thorough understanding of every project your business takes on. With an estimate, you can provide some preliminary detail about the cost of your services and materials and work with the client to make changes along the way as needed.

3. You want to assist clients with different phases of the process

Many projects proceed in distinct phases, which means that it's up to you to estimate the cost and schedule of each part of the journey. When you work in stages, you'll likely need your client's input, who can provide guidance regarding timing, logistics, and other relevant data.

Small businesses, for example, might need you to coordinate remodeling projects with their schedule so that they don't lose a customer by having too much downtime.

This also allows you and the client to negotiate on the details of a task, finding ways to optimize the final product while shaving away costs on certain materials or other design details.

Again, when you're working with small businesses, this might be particularly important, as you may be dealing with input from multiple departments.

Information to include in your estimates and quotes

Whether you're creating an estimate or a quote, you'll want to be as detailed as possible. While estimates won't always have all the information you prefer, the more detail you can include, the more valuable these documents will be.

Client details

Start by recording all of the important info about your client. This includes their contact information and the exact location where you'll do the work. You may also want to specify a business contact to ensure you're working with the same person each time.

Reference number and date

Next, you can record a reference number for your estimate or quote, which you can use for tracking purposes. You can also match it with an invoice number to help your accounting processes. Adding a date can also help in the contract.

Detailed summary of services

Most importantly, your estimate and quotes should include a detailed summary of your services. This should include subtotals for the cost of materials and labor and a general timeline for the work.

Additional documents

Depending on the nature of your business, you might need to include additional paperwork related to the services you provide. For instance, providing safety documents might be helpful for your clients so that they can understand the nature of the work that you'll be undertaking.

Final totals

Whether you're preparing an estimate or quote, you'll want to include a final total. Remember, this total will become a legal contract, so using accurate numbers is important. It should also be clear how the total reflects the individual cost of materials and labor from your summary.

Previous client testimonials

Finally, it never hurts to include some prior client testimonials. When trying to secure a bid, these reviews can highlight your business's difference for other customers and help you land more work.

Invoice faster. Connect better.

Small businesses can streamline their invoicing process by using the latest software to send and manage their invoices. With the right tools in place, you can secure more bids and win more work, all while getting paid faster than ever before.


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