The Important Differences Between a Quote, Estimate, Bid, and Proposal
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 vs. estimate with flexibility, it maximizes your efficiency to be consistent when talking to your potential clients. 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.
Quotes – Precise, and Based on Your Scope
These are the most precise way to present your offer to potential customers. Think of how you “quote” in daily life; you mean those words to be an exact representation of what someone else said. Your clients have similar expectations, even if it’s only subconsciously. If you win these projects, the expectations will be much closer than if you presented another type of offer. “You quoted me $800,” is a different expectation from your clients than an estimate. Quotes are best for those easily quantifiable projects, whether from your years of experience, or because a project has few variables. If you offer a flat rate service, or you’re selling a product with a defined installation cost, quotes might be the right choice. Avoid quotes if you don’t expect your final tally to be very close to your beginning offer. Think of your quote as a defined scoped based on quantifiable data.
Estimates – A Variable Price Because of Unknowns
Not able to offer that kind of firm price? Estimates may be the solution when the customer just wants a ballpark figure. Often, they expect the project to have surprises, and are less attached to the final price being tight on the margins. You should still be accurate – forty percent overruns don’t make for pleasant results – or reviews. Offer estimates for projects where you want 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 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.
Bid – 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 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. And 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.
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 for government contracts. Know when to use a quote vs. estimate, for example, based on what works for your clients. And don’t be afraid to use all of these techniques. Businesses that know which method will win which client have the best success in growing their companies.