The Difference Between A Quote & An Estimate.
When sending quotes or estimates to your potential customers do you ever think about the difference between the two? Which one is more effective in securing business? What's your next call?
A quote is a formal document. It explains your pricing for a job or order, and gives your customer a clear cost for the work.
When a customer asks you for a quote, it means they're seriously considering doing business with you. All your sales and marketing efforts have paid off! You've shown that your service has value, and you're one step away from closing the deal.
But don't celebrate just yet. The quotation process might seem like a formality, but it isn't. New business is won or lost at this stage, so it's important to get it right.
In this guide we'll look at how you can make price quotes work for you. With the right approach you'll get a better response. This will also help you pitch your services at the best price – for you.
Why quotes are good for business
Price quotes are an essential part of running some types of business, especially service businesses. They are useful because they:
help you and your customer understand each other.
state the price, terms and conditions of business clearly.
bring you closer to a sale by encouraging the customer to make a decision.
legally protect buyers, which makes them more likely to do business with you.
help you structure your pricing and the services you offer.
encourage transparency between you and your customers.
The difference between a quote and an estimate
If you're starting your own business, it pays to know the difference between the two. A quote is usually a fixed price offer. It means that you have:
studied the work involved carefully.
discussed the requirements in full with your client.
calculated the materials and labor required.
Once accepted, it has legal status in many countries. So you usually can't charge more for the work than you've quoted.
An estimate has less legal value than a quote. It gives the client a rough idea of what the job might cost, but there's no guarantee that the price won't change when the work is carried out.
You may have to explain this difference to some of your customers, so that they know what they're getting. They will probably prefer a quote to an estimate, because it gives them peace of mind.
Think about pricing
Because a price quote is legally binding, think carefully about every quote you supply. Here are some points to consider when it comes to pricing strategies:
Do you fully understand the requirements? If you have any doubts, go back and talk to the client. Make sure you know exactly what's involved. Otherwise you can't price it properly.
Can you meet the deadlines? If the work must be done in a specific time period, do you have the resources? Don't over-commit yourself or your staff, or you may have to pay extra for temporary workers.
Are your prices up to date? Check your fixed and variable costs, including materials and labor. Remember to take everything into account, including currency exchange rates. These can and do change, which might affect your prices.
Have you included a fair profit margin? You're in business to make money, so your quotes need to take that into account. You wouldn't make this obvious, of course, but your pricing should include a sensible profit margin.
What to include on your quotations
A good quote is a summary of your discussions with a client. It should include everything relevant to the job or service you're planning to provide.
Good quotes are brief, yet accurate and comprehensive. They tell the client everything they need to know. Here are some items to include:
Standard business information This includes your company name and address, the client's details, a customer ID number and a quote number.
Pricing An overall total and itemized entries explaining each component. Keep this transparent and detailed, but not so detailed that it becomes confusing.
Any applicable taxes Such as sales tax, if your business is registered for it.
Due dates Or a timetable for delivery of the products or service.
Payment terms What use is an invoice if it doesn’t get you paid on time? Make sure you tell your customer when payment is due, and how to send the money. Include information like - deposits required, due date, how to pay and a 'valid until' date.
Your terms and conditions (T&Cs) These should be written in plain language to avoid confusion. Since this is a legal area, you may want to talk to a lawyer. But government small business websites often have T&C templates that you can use. Chambers of commerce can also help.
Space for signatures Your own signature should already be present, along with the date. Leave a space for the customer to sign too. You could even let them sign online or via email, so you have instant receipt of their acceptance.
Presentation is important. You can use good accounting software to prepare price quotes that look professional, with all the necessary information.
Five tips to get your quotes accepted
You can win new business with effective quotes. Here are five tips to help get more of your quotes accepted by customers:
Ensure your quote is properly constructed Make a good impression. Keep it clear, professional and comprehensive. Maybe surprise your client by adding a bit more value than they expect. Include a call to action at the end, with a simple acceptance process. The better your quote is constructed, the more likely you are to make the sale – the first time.
Send your price quotes within 24 hours Strike while the iron is hot! If a customer asks for a quote, get it to them quickly to reinforce their decision. Consider using cloud accounting software to quickly prepare and send your quote after a sales meeting.
Use a quote engine on your website Why not do business while you're asleep? You can't always be available to respond to customers, so adding a tool to your website can save you time. This works best for simple, fixed-cost quotes.
Follow up within two to three days There's no perfect time to follow up. It depends on your line of business. But it doesn't hurt to be prompt. Send a quote by email, then follow up with a phone call after a day or two to check that it arrived. You can use this call to find out if there are any issues or queries. Doing this will keep you in your client's mind. It shows that you're keen and improves your chances.
If you're not converting quotes to sales, find out why Ask questions! If a customer rejects your quote, ask them politely for the reasons. Use that knowledge to improve your sales and quoting processes.
You can use quality accounting software to measure this part of your business. Track the quotes you send, find out what proportion are accepted, and analyze the ones that aren't.
When quotes can change
Price quotes are usually fixed once accepted. But something unexpected may happen, or the customer may change their requirements.
For example, maybe you're a carpenter replacing a door, and you discover that the frame is rotten and must be replaced too. Or perhaps you're upgrading a call center's computers, and the client decides to increase the amount of memory in the new PCs. In these types of situation it's acceptable to negotiate a price increase. Discuss it in detail with your client first. Then you can provide a new or updated quote covering the changes.
Price quotes are part of customer communication
A quote may be the first formal document a new customer receives from you. If you get it right, that first impression will count. Be professional, courteous, clear and helpful.
Remember to talk to your customers all the time – before and after you quote. Keep them engaged and help them make a decision, without being pushy. Give them all the information they need.
Keep learning and improving your quote process. The better it gets, the more likely your customers are to sign on the dotted line.