What’s the Difference Between an Estimate, Quote, Bid and Proposal?
October 20, 2017
The definitions of what an estimate, quote, bid and proposal are, differ among people and industries. Let’s put the confusion to bed.
People use the terms, bid, quote, proposal and estimate interchangeably. Indeed, a forum discussion on SitePoint highlights this challenge when using these terms.
But as one person on the forum put it: “Doesn’t matter what you think the difference is, it’s what the person asking for it thinks it is.”
What this means is that as a small business owner you must clarify what it is that client wants when they ask for one of these documents. Why? Because they may specify they want a proposal when in fact all they want is a simple estimate.
So, before you send anything, discuss the details of what they want:
- Does your client they expect cost estimates to be included?
- Do they want to see a full and complete breakdown of costs?
- Are they looking for an itemized breakdown of services?
- Do they expect a comprehensive proposal that “sells” your services, reputation and expertise so they can get buy-in from others?
If you fail to get crisp on what your client expects, you run the risk of giving them the wrong information and stalling the process in back-and-forth,
While open to interpretation, an estimate, bid, quote, and proposal are meaningfully different. There are widely accepted definitions that hold true across industries. It’s these definitions we explore in this post to put some of the confusion to bed.
Let’s jump in.
What’s an Estimate and When to Use One
As the name suggests, an estimate is an approximation of what things will cost. For example, a building contractor will work with the client to understand their needs. They’ll then detail the services and materials needed to fulfill the project scope. Finally, they’ll assign costs, usually, by getting quotes from other suppliers.
Estimates help you determine costs and assist clients with budgeting. They’re usually drafted without an in-depth understanding of the client’s requirements and are subject to change as new information surfaces (that contractor estimate can get blown when they discover asbestos or old wiring, for example).
But estimates don’t only detail costs. They provide a high-level overview of:
- The services you’ll provide so clients understand the work you will complete
- Project scope, so clients understand broadly what each service entails
- Timelines and completion dates to manage client expectations
- Exclusions to avoid disputes later on
- Other specific terms that the client should know if they want to do business with you
The idea is simple: With an estimate, you want to manage client expectations. You don’t want to overwhelm them with too much detail, but you also don’t want to shoot yourself in the foot by excluding information that is crucial for project success and a sound working relationship.
It’s for these reasons that you should create an estimate for every new project – even if it’s with an existing client.
What’s a Quote and When to Use One
Unlike an estimate, a quote provides a fixed price for a project subject to a specific time frame. Ever seen a quote that reads “Valid for 30 days?” Sure you have.
In many industries, companies will have these terms to protect themselves. For example, if you have your own cake business you know that the price of the ingredients can fluctuate from one day to the next.
Regardless, once the customer accepts the quote you have to complete the work as detailed in the quote and at that price. For this reason, you’ll want to compile a quote with a thorough understanding of what the client wants. In this way, you’ll be able to go into detail about the services, exclusions, timelines and the project scope.
What’s a Bid and When to Use One
Bids are common where the scope of work is clear. For example, think of a government agency looking for suitable contractors to complete a project. They will detail what they need and make these requirements available.
Companies will then bid for these projects by specifying how much it will cost to complete the project. The agency will then choose a winner among the many bids.
Bids are common in the construction industry and sub-contractors will often submit bids to a general contractor to complete a specific part of the project.
A bid will have more detail than estimates and quotes. While Bids and proposals are similar, proposals usually have more detail.
What’s a Proposal and When to Use One
You’re probably familiar with the following scenarios:
- Your client asks you to send a pitch after a client meeting
- They tell you you’re shortlisted with other contractors for a project and wants you to “compete” for the business
- A client wants an estimate, but you decide to go the extra mile and provide more detail and showcase the value your business can provide
In each of these scenarios, you’ll, invariably, create a proposal. Proposals include all the information contained in estimates, quotes and bids. But they take things further by showcasing the value that you can offer a prospective client and including testimonials and examples of past work to establish trust.
More specifically they detail scope, timelines, deliverables, and costs (or investment). They’re specific and not an approximation.
They’re usually put together to win a client’s business at the start of a new relationship. When you submit a proposal, you’ll often do so in competition with several other companies. As a result, it’s essential that you take time to construct an excellent proposal and showcase value.
Value can take a variety of forms. You could save the company money, help them make more money, or even save them time.
Clients will often provide you with details of what they expect in the proposal. They may also tell you to use your discretion to suggest solutions that will help them.
You will often need to submit supporting information. This may include previous client testimonials to establish credibility or even health and safety documents.
Regardless your ability to win clients depends on a superb proposal.
Estimates, quotes, bids, and proposals are different, despite the overlap between these documents.
Estimates are an approximation and give clients an idea of what to expect. Quotes are more concrete and specify a fixed dollar value for a specific time frame.
Bids offer more detail than estimates and quotes, and they’re common in the construction industry. Companies will bid for projects by specifying how much it will cost to complete it. Proposals usually provide the most detail and focus on showcasing value.
Each has their place. And there’s no doubt that people worldwide will continue to use them interchangeably.
Nevertheless, it’s essential that when you submit either of these to a client, you take the time to understand what they’re expecting to receive. Why? So that when you’re asked to deliver a quote, you’re not delivering it based on what you think, but on what the clients want.
This will prevent any confusion.
What’s your definition of an estimate, quote, bid and proposal?