Small Business Skills: How to Develop a Winning Estimate

By Index Staff
Smiling businesswoman sitting at desk with laptop computer and looking at camera.

Developing effective estimates is often a key part of landing new customers. And the process of creating estimates also helps ensure that the price you bid covers your time and expenses and, hopefully, gives your small business profit on the work.

Depending on the type of project, you will want to create either a ballpark or a detailed estimate.

Ballpark Estimates: A Place to Start

Ballpark estimates help prospective customers understand the time and cost associated with a job. These can be useful for weeding out customers who don’t have an appropriate budget before you invest the time in writing a detailed proposal. Many small businesses refuse to provide ballpark estimates because too many variables are involved, while others might offer a range for the cost. Here is an example:

“The cost for catering a wedding buffet dinner generally ranges from $20 to $45 per guest, not including the cost of the room or alcohol. We can give you a more detailed quote after learning more about your wedding plan.”

The danger with providing ballpark estimates is that the prospective customer may be comparison shopping. Your estimate may be much higher or lower than your competitors because you are making different assumptions about the project.

Detailed Estimates: Avoiding Tire Kickers

Detailed estimates give more specifics about a particular job and can be legally binding. However, preparing a detailed estimate can take time with no guarantee of getting the job. To reduce the number of requests for estimates from “tire kickers”—people who aren’t serious about engaging your business for the job—consider charging a consultation fee that covers your time creating the estimate.

Here’s an example:

“I would be happy to meet with you to discuss ideas for your garden and provide a detailed written estimate, including options for areas where you may want to save money or splurge on extras. Our landscape design consultation is $500. If you choose to go with the project, the $500 consultation will be credited toward the total cost of your project.” 

If the prospective client agrees to the consultation fee, you should collect payment ahead of time to hold the appointment.

Preparing a Detailed Estimate

Creating a detailed estimate requires understanding, planning, and communication. Following these steps sets you up for a smooth project journey.

Step 1: Work Description

Describing the project seems simple, but it’s often overlooked. Accurately describing what the project includes will reduce the chance of mismatched expectations. For longer, multi-phase projects, add this information to the description. 

Also, if you’re doing creative work such as photography or writing, this is the place to state how many edits or revisions will be included.

Step 2: Exclusions

What isn’t included in this project? Are outside expenses, such as materials, included in the cost? What about sales tax?

Step 3: Timeline

When will the work start? How long will it take? If a start date hasn’t been decided, indicate how many workdays the project will take. And for multi-step projects, indicate the expected time each phase will take.

Step 4: Pricing

What is the cost of the project? How will the customer be charged for overages?

Step 5: Contingencies

No project goes exactly as planned. Add a percentage contingency to account for unforeseen changes or obstacles that can affect the outcome, timing, or costs, such as a delay in obtaining materials.

Step 6: Payment Terms

How and when do you need to receive payment? Do you need a down payment? What forms of payment are acceptable?

Step 7: Cancellation or Modifications

For longer projects, explain how you will handle a project cancellation or change in the project scope.

Step 8: Estimate Acceptance

Add a signature line for the customer to agree to the estimate and commit to the payment terms.

Step 9: Basic Information

Make sure your estimate includes the basics:

  1. The prospect’s name, address, and preferred phone number for calling or texting.
  2. Your company’s name, logo, contact name and contact information.

Create an Estimate Template

Invest a little time in creating a reusable estimate template. Adobe and DocuSign are good places to start. Or, if you are a QuickBooks or FreshBooks customer, you can customize their estimate templates. If you prefer to avoid the “do-it-yourself” approach, you can contract with a freelancer through Upwork or Fiverr.

Update Customer and Prospect Records

Whether or not you get the business, you should put the prospect’s information into a contact management system such as Index. That way, you can easily send notices of special sales, business updates, and even holiday greetings. This is a gentle way to remind them of your work and may help you to be considered for future projects.

Final Word

Creating an estimate requires careful planning and effective communication. Following these steps, you’ll help ensure a smoother project journey for you and your customers.

To learn more tips for running and growing your small business, visit the resource page at Index by Pinger.

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