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How to write a professional estimate: a guide for small businesses

Smiling young craftsman standing at a workbench discussing a professional estimate with a client.

Estimates are a key area of running your own business because they control your profitability and growth potential. Customers use estimates to gauge how much a project will cost them, often drawing in estimates from multiple businesses before settling.

Whether you are a new or experienced business owner, understanding how to write an estimate is crucial to avoid undercutting your services and generate a high success rate. In this post, we’ll cover some job estimate basics, as well as what steps you can take to create the perfect professional estimate.
Let’s get started!

What is a professional estimate?

A professional estimate is a document you provide prospective clients. It’s an educated guess on the timeframe, costs, and resources needed to complete a project. Professional estimates can be found in every service-based industry from construction and manufacturing to IT and accounting firms. Each business will offer slightly different components in their professional estimate, but the basics generally include:

  • Services you’ll perform
  • Project deadlines
  • Major milestones
  • Material and supply costs
  • Estimated total cost

Each segment that is vital to the success of the project should be included here. Keep in mind that those categories will have subcategories with a more in-depth analysis of the timeframe and costs.

The difference between estimates, quotes, and invoices

Although they all seem similar, there are quite a few key differences between estimates, quotes, and invoices including:

  • Job estimate: This is an approximate cost for a project, but isn’t legally binding. Let’s say you go out to a job and the manager asks you for a rough cost. You haven’t done any due diligence on market prices or timelines, so you give them a rough estimate of the price. The manager can’t hold you accountable for that price since it’s not a formal quote.
  • Quote: A quote is a step above a job estimate, providing extensive detail on the costs of each component. Once the customer accepts the quote, it serves as a legally binding contract for the cost and timeframe. This is why it’s important to accurately price your products and services.
  • Invoice: An invoice is a bill for services rendered. This could be a down payment for a quote, progress payments on a project, or any other item that you provided a service in exchange for a fee. This document is provided to the customer after you’ve been formally hired and includes itemized costs and payment terms.

Each of these three components work together to complete a project. A job estimate is the preliminary discussion amount that leads to a formal quote. After the quote is accepted, the customer will receive an invoice. Properly keeping track of each document in a project is vital to complete the project on time and on budget.

What to include in a job estimate

Whether this is your first estimate or you have sent dozens before, there are a few components that should be present in each estimate including:

  • Company contact information
  • Project description
  • Overview of the services provided
  • Cost of materials and services

Remember that an estimate is not a quote, meaning you don’t want to include:

  • Project timelines
  • Total cost
  • Payment terms
  • Additional terms and conditions

You want to use a job estimate as a high-level overview, giving you flexibility if prices increase or you uncover that the timeframe will take longer than initially expected.

How to write the perfect professional estimate

When creating a professional estimate, you want to take your time throughout the process to ensure you are catching key details and accurately projecting costs. Don’t treat this step as another item on your to-do list. It’s really meant to be a sales tool. Building an in-depth and accurate estimate will set you apart from competitors through transparency and clear communication throughout the entire process, minimizing any surprises on both your end and the client’s side. Here are some of our favorite ways to write an effective professional estimate:

1. Analyze the project scope

An estimate needs to have a timeline with an estimated completion date. Milestones should also be present throughout the timeline to ensure your team is staying on track. This also gives you the ability to charge progress payments. Many business owners take a conservative approach to the project timeline, giving plenty of time for delays or unexpected events. With worldwide shipping delays and material shortages, overestimating the time it takes to complete a project is wise.

What is the lead time on material purchases? Do you need to hire additional employees? Both of these questions impact the timeline. For large projects, it may take weeks or months to get a single shipment or find employees to hire. These considerations must be factored into the estimate. Keep in mind that you want to manage client expectations, which involves creating a reasonable timeline that the client agrees on.

2. Estimate resources

One of the major steps in understanding how to write an estimate is to piece together needed resources. This is where the bulk of your estimate work will be found because you need to price out any subcontractors, consider material costs, and understand labor costs. Be realistic about the capabilities of your business and don’t be afraid to outsource work to subcontractors. Realizing your capabilities in the estimation process allows you to plan costs properly for areas you won’t be able to handle. Include safeguards in the estimate process for unexpected client demands. For example, maybe the client calls you up at the last minute and says they need the flooring for the entire house done in one week. This project might take you two weeks on your own, meaning you will need to find subcontractors or additional employees to help with the work. Have a line item for each resource with an associated cost. This breaks down the costs and gives you the ability to adjust items to find the right price.

3. Utilize the right tools

Online tools can take a significant amount of the burden off your plate. Instead of manually calculating line-item totals or sorting through piles of past estimates, you can use technology. The first piece of software you should have is an estimating tool that stores past estimates, provides guidance on building a current estimate, and gives you access to an estimate template. These features will save you hours, allowing you to estimate more jobs and grow your business.

Equally as important in how to write an estimate is a B2B payment software that helps you manage cash flow, send and track invoices, and generate customer reports. A payment software, like Melio, gives your business the ability to stay on top of progress payments and track invoices sent to customers. Let’s say a business agrees to the first phase of the construction of a building. Your business will need to collect a down payment and have future billings laid out. Using payment software allows you to invoice customers on time.

4. Present your estimate quickly

The presentation of the professional estimate shouldn’t be weeks after you talked with the customer. This gives the customer the ability to talk to other companies and search around for a lower quote. An estimate email is an email that you send to the prospective client with a document outlining all project costs. First, you will need to introduce yourself and the business. Then, you should give a brief summary of the attached estimate. Finally, you will conclude with some benefits of working with your business and the next steps. How to write an estimate email is confusing for many business owners, but keep the email short and to the point.

If the customer doesn’t respond for a few days or weeks, schedule a follow-up call to discuss their thoughts on the estimate. You might find that the customer changed their mind about the scope of the services or the time frame doesn’t line up. Understanding the reason for the delayed response is critical to improve your conversion and success rates.

Get ready to get paid

Understanding how to write an estimate and how to write an estimate email are important parts of being a business owner. You control the estimates you are sending, meaning you want them to be as accurate as possible.

After you receive an accepted estimate, it’s vital that you have the right invoice tool to handle progress payments and invoice creation. Melio’s top priority is to make life easier for your business. From tackling cash flow to tracking invoices, our program is an indispensable tool for business owners. Reach out today to learn more.

*This blog post is intended for informational purposes only and is not intended as financial advice.
**Melio does not provide legal, tax or accounting advice, and you should consult with a professional advisor before making any financial decisions.