What Are the Differences between a Quote vs. Estimate?

By Indeed Editorial Team

Published September 5, 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Before selling a product or providing services, it's usually important to agree on the price with your clients. Quotations and estimates are two standard methods you can use to determine prices for your customers. Knowing the difference between a quote and an estimate and when to use them can help you get value for your products and services and enhance customer satisfaction. In this article, we define a quote vs. estimate, explore their fundamental differences, give tips for choosing one to use, and answer some frequently asked questions about them.

What's a quote vs. estimate?

An explanation of a quote vs. estimate is an exact or fixed price agreed with your customer for a job you wish to do for them vs. an informed guess on the approximate amount a service or product might cost. When giving a quote, there are several factors to consider, including market demand and supply, industry standards, service costs, and expected profit.

Although estimates aren't the exact costs, businesses and clients can use them to compare prices from several providers or to change the scope of a project. Unlike quotations, estimated prices aren't legally binding and can change when the work begins. Extra details and constraints can arise, or the extent of the work increases, leading to changes in the estimated cost. After considering all these factors, service providers can adjust the estimated amount to determine the final cost of completing the job.

Related: What Is Sales Quoting? (With Steps to Create a Sales Quote)

What are the differences between a quote vs. an estimate?

Here are fundamental differences between a quote and an estimate:

Price precision

Businesses and professionals use quotes to give the exact price for a product or service they wish to provide. Once the client agrees on that price, they deliver the product or complete the job and charge the exact amount. For instance, if a company quotes $10,000 to renovate an office building, the client can expect to pay $10,000 once the renovation is complete.

Businesses use an estimate to provide an approximate cost for a product or service before they know the full details. After analyzing the job and considering all factors, the company may change the estimated cost. Therefore, unlike quotes, estimates are less accurate.

Type of job or product

Companies use quotes when they know the details of the service or products the customer has requested. For instance, businesses may quote the prices of machinery, electronics, mortgage loans, and construction costs for residential homes for their clients. In contrast, companies might prefer estimates when the job's requirements are uncertain. For example, if a real estate client wants to build several rental units, you can provide them with an approximate cost by relating the job to smaller units you've completed in the past.

Monetary range

Quotations state an exact monetary value, while estimates might include price ranges. For instance, when you inquire about car insurance from an insurance company, it might give you an estimate of $200 to $300 per year. Once you meet with the insurance agent and provide all the details, including the type of insurance you're interested in, they might quote you a fixed price of $300.

Estimates also apply when service providers charge a constant rate during regular hours and a higher rate for each extra hour. A contractor typically predicts the number of hours a project might take to complete, including both the regular and the overtime hours. They then approximate the project's total cost, which might be higher or lower once it is complete.

Method of delivery

Quotes are agreements between a business and a customer. Consumers may get quotations from companies when buying goods or services, applying for mortgage loans, inquiring about insurance costs, and negotiating lower prices. Companies give estimates more often for consumer goods and services than business transactions. They notify clients about the cost without providing a guarantee of charging that exact amount.

Time frame

Quotes generally include a time frame for delivering a product or service. For example, a client may receive quotations from several construction companies on the exact cost of building a five-room house over a specific time. In contrast, estimates don't give a precise time frame. For instance, a company might estimate the cost of completing a five-roomed house over six months. The client might then use this estimated cost to decide if they can buy the house within that period.

Related: How to Write an Estimate (With Template and Examples)

Important tips when choosing between a quote and an estimate

Here are tips you can consider when deciding whether to use a quote or an estimate when pricing products or services:

  • Fluctuation in prices. Know the likelihood of prices changing because of factors like demand, supply, or service costs. If the costs are unlikely to change, you could use a quote; otherwise, using an estimate is preferable.

  • Benefits of using a quotation. Quotations notify consumers of the exact price of a product or a service. Since clients might want to arrange their finances in advance, quoting a price for them might increase their chances of choosing your service.

  • Benefits of using an estimate. When you have unreliable information on the details of the work or the time frame for its completion, consider estimating the price. With an informed approximation, you can offer your goods or services to clients before determining the final sum you expect from them.

Related: Cost Estimating in Project Management (Steps and Techniques)

Frequently asked questions (FAQs) about quotes vs. estimates

Here are some FAQs regarding quotes and estimates:

When is it correct to write quotes and estimates?

It's advisable to present quotes and estimates in writing. When mitigating a problem or disagreement, it's helpful to have a written document to refer to. As quotes are legally binding, it's necessary to document them, with both parties agreeing with their signatures. Also, providing written documents to clients shows commitment and professionalism, which can enhance customer loyalty.

Are handwritten quotes and estimates acceptable?

While it's recommendable to type these documents, it's also acceptable to handwrite them, providing they're legible and appear professional. Consider writing on paper with a header bearing the company name, logo, and complete contact information. This enhances the professionalism and validity of the business, increasing the client's confidence in its services.

What information do I include in quotes and estimates?

Once you've decided on the pricing method, remember to show whether the document is a quote or an estimate. Since estimates are approximations of the costs, they contain fewer details than quotes and include only a brief description of the job and its estimated cost. Also, ensure they have a disclaimer that the cost is subject to change once you receive full details of the job. A quote is typically the final and fixed price and contains more information, including:

  • The client's personal information, such as contacts and the physical location of the project

  • The date you draft the quotation

  • Itemization of all the elements, including materials, labour, and incidental costs

  • An exact description of what the quote covers

  • The total price

  • The expected due date and mode of payment

  • Tax rate details, whether it be GST, PST, a combination of both, or HST, depending on the province or territory

Related: What Is Job Order Costing? Definition and Examples

Can you include terms and conditions in quotations and estimates?

If you have an official draft of a company's terms and conditions, attaching a copy to the quotations and estimates you give to clients is beneficial. This not only improves the brand but also shows your honesty and professionalism. It also provides customers with important information, such as the standard payment terms, initial deposit, and penalties for late payment.

Are dates included in quotes and estimates?

Including dates in your quotes and estimates shows the exact date you prepared them. It's also essential to include the validity period in both documents. Depending on the business, this can range between 30 to 90 days from the day you draft these documents. Prices of goods and services typically increase with time, so set a time limit for payment and any extra costs or penalties for late payment. This protects you from old prices that might not be realistic.

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