How to write a professional estimate
- What’s a professional estimate?
How to write a professional estimate
- Professional estimate example
- What to include in a professional estimate
- Steps to writing a professional estimate
- The importance of accurate professional estimates
Whether you’re a plumber, freelancer, graphic designer, accounting firm, or any other kind of independent contractor or service provider, chances are you need to write estimates.
Professional estimates are an important part of running your business as they control your revenue, profitability, and potential growth. Estimates give your customers the ability to evaluate how much a project or your service will cost them. And more than likely, they’ll compare your estimate with a number of other businesses before deciding who to work with.
This guide will cover all you need to know about estimates, as well as what steps you need to take to create the perfect one.
What’s a professional estimate?
A professional estimate is a document you provide prospective clients. It’s an educated guess of the timeframe, costs, and resources needed to complete a project. They can be found in every service-based industry from construction and manufacturing to IT and accounting firms.
Estimate components may vary depending on what industry your business is in, but they generally include:
- Type of service you’ll perform
- Project deadlines
- Major milestones
- Material and supply costs
- Estimated total cost
Each component that is important to the success of the project should be included in the estimate. Keep in mind that there will be subcategories with a more in-depth analysis of the costs, deliverables, and timeframe. For example, if you’re a contractor you may include roof completion under “major milestones”, or paint, concrete, and bricks under “material and supply costs”.
Estimates are not legally binding but are a good starting point to negotiate the price, timeline, terms and conditions, and other details with your potential customer. After you both agree on the estimate, you can write a formal quote. When the quote is signed by both parties, it becomes a legal contract.
Types of estimates
There are three types of estimates:
A preliminary estimate is a rough estimate that is given at the beginning of a project when only limited information is available. These types of estimates mostly rely on the information you have from previous experience and past projects. Their goal is to try and understand the total scope and budget of a project, and if it’s worth taking on.
For example, imagine a branding agency is asked to create a website, logo, and other marketing materials for an organic kombucha company. The branding agency will look at similar projects it has done in the past and will be able to give a rough estimate for the current project.
Preliminary estimates are not legally binding, and it’s common to negotiate and change terms within them.
The more you know about the project or service you need to provide, the easier it is to create a detailed estimate. In most cases, you first write a preliminary estimate, and then build off of it to create an elaborated version. The estimate helps the customer understand whether they can afford the project, look at other quotes, or whether they need additional financing.
A detailed estimate contains the following information:
- Information about rates used to calculate the cost
- Project specifications
- Costs of materials used (if applicable)
- Project timeline
- Labor costs (if applicable)
This type of estimate is created with the intention of being compared to other company estimates, with the hope to ultimately win a project. Bids are common for larger commercial and government projects where the project scope is clear. The client will detail what they need and make these requirements publicly available. Businesses will then bid for these projects by specifying how much it will cost to complete them. The bidding process is over when the client chooses a winner. Bid estimates are calculated based on standard industry costs or past projects, and are more detailed than other types of estimates and quotes.
Estimates, quotes, and invoices what’s the difference?
Although they have undeniable similarities, there are quite a few key differences between estimates, quotes, and invoices.
- Job estimate: This is another term for a preliminary or rough estimate. It’s an approximate cost for a project. Let’s say you go out to assess a project. While you can see the scope and estimate rough costs, you haven’t done any due diligence. Before giving a detailed estimate you need to research market prices, timelines, and other costs involved. So you use all the information and experience you have to give a rough price estimate. The client can’t hold you accountable for that price since it’s not a formal quote.
- Quote: A step above a job estimate, quotes provide 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. It’s critical to accurately price your products and services since it can be used as a legal document after you sign the quote and a deposit is provided by the customer.
- Invoice: An invoice is a bill for services provided. This could be a deposit to hire your services, progress payments on a project, or any other item that you provided in exchange for a fee. An invoice is given to the customer after you’ve been formally hired, It includes itemized costs and payment terms.
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.
How to write a professional estimate
Professional estimate example
Before we dive into how to create a professional estimate, here’s an example of how an estimate from the food and beverage industry may look like.
In this example, restaurant and event space Food Fight has created an estimate for potential customer Books and Records who wants to book the restaurant for their annual Summer party.
What to include in a professional estimate
When creating a professional estimate, you want to be as meticulous as possible in order to ensure you are catching key details and accurately projecting costs.
While an estimate is only the starting point of the project, you shouldn’t treat it 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. Having transparency and clear communication throughout the entire process minimizes surprises both on your end and the client’s side.
Whether this is your first time writing an estimate or you’ve already written a bunch, it’s best to make sure that these components are included:
- Your business contact information
- Project description
- Overview of the services provided
- Cost of materials and services
- Your potential customer’s contact information
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 the estimate as a high-level overview. That gives you flexibility if prices increase, the timeframe will take longer than initially expected, or unexpected costs occur.
Steps to writing a professional estimate
Now that you understand what’s included in an estimate, it’s time to put it all together. Here’s how exactly to write an estimate.
Step 1: Evaluate the project scope
One of the first things you’ll need to do is review the scope of the project. You can’t start writing your estimate without knowing and fully understanding what needs to be done and your potential client’s expectations.
During this stage, it’s important to determine:
- Rough project costs
- The type of services your client requires
- Do you need to outsource or subcontract some of the work?
- Does the prospective client want a complete breakdown of costs or just the total?
- The projected completion date
- Clients’ expectations for the outcome of the project
To understand the scope of the project and determine some of these points, you’ll need to get as much information from the client as possible. Depending on the service you’re offering, it might be a good idea to meet them face-to-face or online and start building a good working relationship.
Step 2: Provide a rough timeline
The estimate must include a rough timeline for the project. The timeline will give the potential client an idea of how long it might take and help them plan accordingly. Say, for example, you’re quoting a revamp of someone’s backyard and they want you to build them a pool, hot tub, and deck. It’s important for the client to know if the project will be done in time for their annual summer pool party.
Including a timeline in your estimate shows that you have extensive experience, are organized, and have a plan for how you’ll complete the project. This can reassure clients that you know what you’re talking about and give them confidence in choosing you for the job.
Step 3: Determine what needs to be outsourced
In some industries it’s very common to subcontract some of the work to save time and ultimately money. You’ll need to include which work will be subcontracted or outsourced and the estimated cost in your estimate.
For example, if you have a branding agency, you might need a graphic designer to help design a website. Therefore, you’ll need a freelancer to take on these specific tasks.
Step 4: Estimate the resources needed
One of the major steps to writing an estimate is piecing together all the resources and materials needed. This is where the bulk of your estimate work will be found because you need to consider material costs, understand labor costs, and price out any subcontractors.
Try and be realistic about the capabilities of your business. Don’t be afraid to outsource work to freelancers and subcontractors–it may save you time and money in the long run.
Keep in mind that costs can fluctuate, especially with supply chain shortages and harder-to-get materials that are simply more expensive. It’s important to shop around to get a good idea of the cost and the quantities of materials you’ll need to execute the project successfully.
It’s always a good idea to include buffers in the estimate process for unexpected costs or client demands. Let’s say you run a construction company and your client calls you up at the last minute and says they need the whole house repainted in one week. While the project was supposed to take you two weeks on your own, now it will take at least three. In order to get the job done on time you’ll need to hire subcontractors or additional staff to help. If you left some room for unexpected expenses, then you’ll be able to cover the subcontractor’s costs.
If your estimate was clear, it will be much easier to go over the quote with your client in a case like this. You can easily show them that the extra work was not initially in the estimate, and therefore you require extra money for the additional work.
Step 5: Check out the competition
It’s good to know what your competitors are offering. This research will keep you in check and help you get realistic figures in your estimate. It will also help you ensure you’re in the ballpark with your pricing and give you a better idea of how to market your services.
Step 6: Terms and conditions
A proper estimate should include your business’s terms and conditions, as they are critical for setting potential clients’ expectations. The terms and conditions should include potential scenarios that can cause friction and misunderstandings between you and your client and ways to resolve them.
For example, you might want to include a clause that outlines how many add-ons or changes to the project are permitted and how they will be priced. This step can help you avoid misunderstandings and lawsuits further down the line.
Step 7: Make your estimate detailed
When creating your estimate, be as thorough and detailed as possible. Include things like all the costs involved and your contact details, company name, logo, and website.
Step 8: Submit your estimate quickly
Once you’ve gone through all the previous steps, you’re ready to submit the estimate. You should aim to send your potential client the estimate as quickly as possible.
If you’re slow at submitting the estimate, the customer may contact competing companies and search around for a lower quote.
Be as communicative as possible, and make sure you let your potential client know if you need another few days to finalize the estimate. Once ready, send an estimate email to the prospective client with a document outlining all project costs.
In the email, you’ll need to introduce yourself and your business. Then, give a brief summary of the attached estimate. Conclude with some benefits of working with your business and the next steps. Writing an estimate email can be confusing to some business owners, so the important part is to keep it professional, short, and to the point.
If you don’t hear back from the customer for a few days or weeks, try and schedule a follow-up call to discuss their thoughts. You may discover that they changed their mind about the scope of the project or the time frame doesn’t line up. Understanding the reason for the delay or lack of response is helpful when improving future estimates and your success in landing the job.
The importance of accurate professional estimates
Mastering writing professional estimates is an important part of running your business. While closing the deal and being hired by your customers is essential, it’s also crucial to provide them with an accurate estimate. If your estimate is too high it might scare them away, and if it’s too low you may end up losing money. The right estimate will take all the costs into consideration, enable your business to make profit, and make your customers happy.
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