An accurate job quote protects your interests while still being fair to the client. This makes creating job quotes one of the biggest challenges small businesses face. If you quote too low, your business pays for its work and your profit margins will suffer. If you go too high, the client may look for the services elsewhere.
The issue with quotes is that you’re trying to charge for work you haven’t done yet. To a client, a job quote should reflect what they’ll receive on the invoice. However, you know that things can be dramatically different between the two depending on the actual job. So how do you make your quotes more accurate? Here are a few best practices when preparing job quotes.
Always do your research
To create an accurate quote, you need to have all the details of the job. Adequately research the client’s project to determine the most suitable price you should offer. Ideally, the pricing should cover all the costs involved and give you your required profit margin to make it worthwhile. Going too low on your quote will affect your profit margin. It is up to you to decide what is acceptable and what is not.
Inevitably, people don’t want to wait long for a quote. It shouldn’t take you too long to prepare one either. Quoting software can significantly help you with this process. This free estimate template developed by Jobber makes it super easy to share customizable and professional estimates and should be an essential part of your business toolkit. Ensure to research the market adequately to find out what customers pay for similar jobs. You can also go back to your previous jobs to determine what it would typically cost to complete the job. (1)
Be realistic about costs
When you’re competing with other businesses on price or you’re only looking to give your client the best deal, you may be tempted to underquote just to secure the job. However, this means you’ll either have to take up the costs yourself or try to get the client to cover the extra. The latter can be quite a nerve-wracking conversation that you don’t want to get into.
Here are some essential tips for accurate pricing:
- Don’t try to undercut competitors’ prices: You need to value your work correctly. As stated earlier, going too low negatively affects your profit margins and business.
- Know the price of suppliers and tools you need: Regularly keep tabs on the material and tools you need for the job as they fluctuate from time to time. Even if it goes up by a small margin, add it up.
Select your pricing strategy
You need to determine the pricing strategy that best suits the job in question. You need to do this before creating an estimate to ensure that it’s more accurate. There are two main types of pricing strategies to consider—cost-plus and value-based pricing. Here’s how the two differ:
- Cost-plus pricing: Here, you estimate how much the job will cost with respect to material and labor. Then you add a fixed percentage to the cost. It’s considered the most straightforward way of determining the cost of a job. You’re calculating the cost of the job and adding the desired profit margin to it.
- Value-based Pricing: This pricing model involves setting your price based on an estimated value of your services from a customer’s perspective rather than your own. Using this pricing approach, you can build a structure that helps you leverage your market position, brand, service features, or audience. (2)
Cover every item
Since a business is about making money, don’t accept to lose any of it, especially by underquoting. Ensure what gets to the client covers all your costs and leaves some amount over to cater to miscellaneous expenses. For any reason, if the customer refuses to accept your quote as it is, let them be. (3)
You can take the job with the hope that you can somehow maneuver the quote and fail miserably, incurring losses. This is all the more reason to ensure that you create quotes from a background of good research on material prices and labor costs. Carefully consider your cost estimate versus budget in your pricing strategy and how this ultimately affects your bottom line.
First, carry out a cost estimate and then a cost budget. This will help you come up with a more accurate quote for every job.
Add the variables
Many variables can affect the final cost of the project. They include things like fees, taxes, price differences due to location, project location, transport such as a van, permits, and administrative costs. The best place to get these costs for such variables is in your previous projects.
Include everything that can hurt your profits in any way and include it in the quote. When added up, these variables can change your final quotation amount significantly. If the client refuses to cater for anything outside the quote, you may incur a loss.
Remember, a quote is essentially a contract. You don’t have the privilege of shrugging things off when elements such as pricing change. In creating more accurate quotes, you’re building a better relationship with the client and mitigating legal risks in the process. No matter the type of job you’re preparing a quote for, customers expect you to be professional at all times.
- “Preparing a Quotation in 5 Easy Steps”, Source: https://www.fool.com/the-blueprint/prepare-quotation/
- “How To Price Your Service”, Source: https://www.forbes.com/sites/forbesagencycouncil/2017/11/21/how-to-price-your-service/?sh=781f8f3329a9
- “How to make price quotes work for you”, Source: https://www.xero.com/uk/resources/small-business-guides/business-management/price-quotes/