Meaning of Cost Estimate 2
Quotation vs. offer – the differences
Some differences have already been mentioned, now we will summarize the most important points again.
An offer is legally binding. This means that if your customer accepts an offer, you have to fulfill it. So we are already at the core – you have to implement the accepted offer at the agreed conditions, i.e. you have to adhere to the costs listed.
In addition to the cost estimate, the offer is the first step in convincing your customer of you and your work. In order to create a successful offer , you can use a checklist to help.
The cost estimate, on the other hand, is a cost estimate. Typically, unless expressly agreed, it cannot simply be accepted. Deviations of approx. 10 to 15 percent are to be accepted, but you have to inform your customer of higher deviations.
In addition, some industries only create cost estimates against payment. You have to communicate this in advance so that there are no nasty surprises. In the case of offers, however, no remuneration is provided.
The most important differences are thus:
- Commitment: Offers are (mostly) binding, cost estimates (mostly) not
- Cost certainty: Costs according to the offer must be adhered to, cost estimates are an estimate, so deviations are possible
- Creation costs: Quotations are typically free of charge, but in some cases and in certain industries, cost estimates are only possible against payment
Forms of the estimate
Nowadays there are essentially two types of estimate – binding and non-binding. The specific characteristics of the two variants have already been discussed above in the section “How binding is a cost estimate?”. But what are the advantages of the two types of documents? And what do you have to pay attention to?
The binding cost estimate
The binding cost estimate is rather an exception nowadays. Nevertheless, there are companies that consciously set themselves apart from the rest of their competitors through the said obligation and thus enjoy a competitive advantage . Because: of course, the binding cost estimate has many advantages for the consumer. Among other things, he can be sure that he will not be surprised by additional costs and plan his budget optimally.
This type of cost estimate is also known as a “fixed price agreement”. It can be used, for example, in connection with classic renovation or refurbishment work. Regardless of whether problems or delays arise, the customer can be sure that they will not have to pay more than “Sum X”.
The non-binding cost estimate
The non-binding cost estimate is widespread nowadays. Its task is to provide a customer – regardless of whether it is from the commercial or private sector – with information about how expensive it will be to carry out the relevant work.
It is a guideline and may be exceeded accordingly. However, professional craft companies naturally attach great importance to the fact that the actual invoice amount and the amount stated in the cost estimate do not differ too significantly from one another. After all, an estimate that is too low can quickly lead to annoyance for the customer and – depending on the amount – to an extraordinary termination of the contract.
However, it is of course also possible that unforeseen incidents mean that an estimated amount cannot be kept. In this case, it is important to get in touch with the customer at an early stage and to inform them about their options.
In order to be on the safe side as far as possible, some companies also decide to make a slightly higher cost estimate and then “surprise” their customers with a correspondingly lower price.
There are numerous templates and templates for creating a cost estimate on the Internet. Here you can get suggestions on what information you need to provide. A template can also be individually adapted and saves you time, as you only have to exchange the information. But caution is advised here, because you have to adjust all the data for each customer and must not forget anything.
What does an estimate cost?
It is generally recommended, if it is feasible, to offer a cost estimate free of charge. Otherwise you run the risk that other entrepreneurs, who are possibly more expensive than you, but prepare the cost estimate for free, snatch the potential customers away from you.
However, there are also industries where it is common for the cost estimates to be paid for. This is often the case, for example, with large construction projects. In the automotive industry, too, it sometimes takes a few hours of work until it is clear how much repair work really is. Here it is obvious that the cost estimate is offset.
It is important to always point out the exact costs in advance. Transparency and fairness are absolutely necessary here in order to make a good impression on potential customers.