What Is an Estimate?
An estimate is an approximation, a prediction, or a projection of a quantity based on the information available at present or through previous experiences. Unlike quotations, an estimate is mostly an educated guess that is commonly used in describing how much a job may cost to account for possible unforeseen developments during the project.
How to Create an Estimate
Estimates are very useful when you are unable to guarantee exact prices for your materials and labor or when you are unsure about the size of the job. A study from semantic scholars Karjalainen, Bescherer, Hinkka, & Koskela (2007) states that the ambiguity in the target selling price and the instability of a customer's preference is a problem in monitoring the progress of achieving a target cost. But setting a fixed estimate pricing can solve this dilemma and can save the company from losing profit.
1. Identify and Review Your Customers Needs
Before providing your customers an estimate, identify who you are dealing with and understand what they want you to do. Specify the amount of time needed to complete your project and check if you need additional assistance for the job to finish on time.
2. Identify Materials Needed
Now that you know your project plan, the next thing you do is to identify the materials you need and list them down. Determine the cost and availability, anticipate if they need to be purchased or rented. See to it that your materials are affordable and have a good quality that meets your customer's standards.
3. Write Your Estimate
In writing your estimate, place a good business letterhead. Include your business information and contact details like your company name and address, your telephone number, and job description. Insert your company logo as well as your license or accreditation to make you more trustworthy to your customers. Don't forget to write the contact information of your customers so that you can keep track of your transactions.
4. Label Your Estimates
Label your estimates clearly. It is preferable to place the word "ESTIMATE" directly under the letterhead in large, red capital letters to give it a formal business format and an appealing design. Provide agreement terms and conditions together with any necessary disclaimers to inform your customers that the actual price may differ from the estimate you gave. Include a few alternative estimates for them to review in case they are unsatisfied with your proposed estimates.
5. Give a Breakdown of Your Estimate
Properly describe your services or products to be provided. Go into extensive details and give a step-by-step breakdown of your job to avoid conflicts and misunderstandings in the future. Separate the estimated amount for your materials and the amount of labor needed to finish the project and project reports. You may include additional charges or incentives for special cases.
6. Determine Your Total Cost
Determine your profit margin by getting the total cost of your materials and labor. Once you have carefully proofread your estimate, date it and add your signature. Deliver it to your customer and have it signed by them to complete your transaction. Don't forget to leave a copy for yourself.