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Running a business

Understanding estimates, bids, quotes and proposals

When it comes to negotiating the terms of a new project, it’s important to know when to use estimates, quotes, bids, or proposals. Each one carries a different meaning that can be interpreted in several ways.

Understanding the difference between a quote, estimate, bid and proposal will allow you to clearly state how you would like to proceed, paving the way for a better working relationship.

Estimate

An ‘estimate’ is perhaps the most straightforward term to remember, as it’s simply an estimation of how much a job will cost. Usually, a contractor will provide an estimate when they have limited information about the job at hand, meaning the figure may increase or decrease when they have more information.

The purpose of an estimate is to give clients a rough idea of whether your services are within their budget before proceeding further. It’s important to remember that an estimate is not legally binding, meaning a contractor is not required to carry out work for the figure they outlined in an estimate.

Man with calculator

Quote

Similar to an estimate, a quote provides a rough approximation of how much a contractor will charge for a job and isn’t legally binding. It’s usually far more detailed than an estimate, and specifically includes the cost of all materials and goods needed to complete a job.

As the price of these materials may fluctuate, quotes are usually only valid for a short period of time. For example, a quote provided in April may not be relevant in October. To ensure you and your client are on the same page regarding what is included, it’s a good idea to confirm the details of the quote before you begin working on the project.

Proposal

A proposal is an extremely detailed workup of how much a project will cost a client. It includes an in-depth explanation of the work being done and the prices associated with factors such as goods, materials, tax, labour, mark-ups, and subcontractor fees.

Proposals are usually competitive in nature, so a client may consider offers from several different businesses. While a proposal is not binding, usually once it’s accepted by the client it is considered as an ‘agreed upon contract’. From here, the project will usually begin on the terms set out in the proposal.

Bid

A bid is similar to a proposal in that it clearly states the price someone is willing to do a certain project for. Unlike a proposal, a bid is a firm price that, if approved, means you have to carry out the work as described in the bid. Construction firms or contractors typically submit a bid to complete a project for a set amount and within a certain timeframe, based on a bill of quantities.

A bill of quantities is when materials, parts, and labour costs are itemised. Because a bid is considered binding, a contingency sum is usually included to allow for any unforeseeable costs that could be incurred throughout the project.

For more advice on how to run your small business, check out these resources.


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