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Winning New Contracts: Differences Between a Quote, Estimate, Bid, and Proposal (Plus How to Write a Service Quote)

FieldPulse | December 8, 2017

Quote vs. Estimate

There’s more than one way to begin a new project with a potential customer. Which terminology you use to make your offer can affect how the project develops – and your bottom line.  While in-house you may use the terms quote and estimate interchangeably, it maximizes your efficiency to be consistent when talking to your potential clients. In other words, clarify your terms and clinch the deal.  

You’ll also reduce confusion and frustration once those projects are underway if the customer has clear expectations from the beginning.

Here is a rundown of the differences between a quote, estimate, bid, and proposal for service businesses and contractors:

How to Write a Service Quote – Precise and Based on Your Scope

Quotes are the most precise way to present your offer to potential customers with clear project requests.  Think of how you “quote” a saying or phrase in daily life; you mean the words to be an exact representation of what someone else said.  Your clients have similar expectations, even if it’s subconsciously — a quote = close representation of final charge.  

When you win clear-cut projects, the expectations will be much more accurate when you give a quote than if you presented another type of offer to your clients, such as an estimate.   A quote of $800 creates a different expectation from your clients than an estimate of the same amount. 

Quotes are best for those easily quantifiable projects, whether it’s due to your years of experience, or because the project has few variables. If you offer a flat-rate service or you’re selling a product with a defined installation cost, writing a quote is likely the right choice. You should avoid quotes if you don’t expect your final tally to be close to your starting offer. 

In summary, think of your service quote as a defined scoped based on quantifiable data.

When to Write an Estimate – A Variable Price Because of Unknowns

Not able to offer a firm price due to unknowns within the project? Estimates may be the solution when the customer just wants a ballpark figure, but often, they expect the project to have surprises, and are less attached to the final price being tight on the margins. 

That being said, you should still be accurate with your offer – forty percent overruns don’t make for pleasant results – or reviews. Offer estimates for projects where you are going to need to account for variables. If your estimate only covers the normal scope of work, then you can offer extras or upgrades in addition. 

Is the estimate too high? A customer feels more confident in negotiating based on options to get the project in line with their expectations. That negotiation over an estimate can win you projects that a quote can’t. If precision isn’t key to getting the job done, consider the power of the estimate – and expect a bit more give and take to seal the deal.

Making Successful Bids – Responding to Specifications

Line by line, detailed expectations – those are the power of bids. 

Often used in government or large corporate projects, bids have a different niche for your small business than either quotes or estimates. Expect more rules and regulations as to how you submit your information. With the bidding process, the customer is the one setting the expectations and requirements. As well, expect competition, too.  While you might be the only company submitting a quote, you’ll likely be one of at least two or three bids.

These customers want to compare your bottom line. They also may be looking at your labor costs, quality or price on materials against the others bidding. Once you submit bids, there’s little room to negotiate, unlike estimates. It can be a longer process, as well, especially for larger government entities. If you understand your competition well, and the expectation of those requesting bids, this can be an excellent process of taking your business to the next level. Like quotes, these projects are fully defined in scope.

Submitting a Proposal – A Chance to Differentiate

Your proposal can be a hybrid of all three of the previous methods. Proposals usually lend themselves to projects where you have multiple options or solutions for the client.  You can have a proposal with multiple components where one part can be an estimate and another part a quote. Think of a proposal as your comprehensive package of your offer.

Complicated projects benefit well from this approach. You can also include more information as to why certain methods or skills are needed. This is a great way to market any advantages that you have over the competition.  Are you more expensive than average because you have patented technological advantages? Are you less expensive because of efficiencies bought out of experiences? The proposal is the time to illuminate your unique position.

You can also use technology more effectively. Got great photos of similar projects? A proposal highlights your work better than a bid alone. Bring in the best of specifics from quoting, your negotiation skills, and the competitiveness of bids to serve up a winning proposal.

Be open to customers desiring proposals, even if the offer is of the same nature.  Some customers want multiple estimates, one with just the basic, necessary work, and another with upgrades or different ways of accomplishing the same thing. A business willing to create a comprehensive proposal stands out from the competition only focused on their usual way of doing business.

Choosing the Right Terminology

Most contractors will utilize many, if not all, of these strategies for winning new business. Some clients will respond better to one kind of offer over another.  Some projects lend themselves better to certain offers – for example, bids work great for government contracts. It’s important to know when to use a quote vs. estimate, for example, based on what works for your clients. 

Don’t be afraid to use all of these techniques.  Businesses that know which method will win which client have the best success in running a service business..

Check out our updated 2020 checklist: 49 Tips for Contractor Success.

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