A price quote is a way of pre-informing a customer or client what they should expect to pay for your goods or services.
If a customer wants to buy several products from your business or engage your services, you can quote them on what it will cost beforehand, so they can make an informed decision.
Simply called a ‘quote’ or sometimes a ‘sales quotation’, this price quote can be verbal, but it’s more commonly a professional document that outlines all relevant detail pertinent to the sale.
What is the purpose of a price quote?
For a customer, the purpose of asking for a price quote is to ensure that the price they’ll pay for goods or services is fair and acceptable. When invoicing a customer, without having been privy to a prior quote, they may be surprised by a large bill. This could cause financial distress or disagreements with the business owner.
For a business, the purpose of providing a quote is to be competitive in the market and to help communicate the cost of your goods and services. A quote can also help protect your interests by laying out the terms and conditions of the sale.
Why quotes are good for business
If a customer asks you for a quote, it means they are already interested in purchasing your business’ offering. That’s a great start. And if the quote you provide is a competitive one, you stand a good chance of closing the deal and winning the sale. Your quote can also help you to understand your profit margin and assist in proper financial management.
When you’re asked to provide a quote, there is also a high likelihood that a competitor’s quote may rival yours to win the work, by either coming in at a lower price or offering to provide a better quality product or service.
By the same token, being fair and competitive with your quoting price, while providing top-tier products and services, is key to winning a potential customer.
What are the different types of professional quotes?
There are three primary types of pricing quotations. Owners, especially when starting a business for the first time, will need to distinguish between each one. The type of quote you choose to provide will depend on your business type, customer needs, and the type of work involved.
1. Fixed price quote
A fixed price quote is a formal business document that details exactly what the customer will pay if they accept it. It will show an itemised breakdown of products or services. If you provide a service without variables or products with fixed prices, you can provide a fixed-price quote. N.B. Depending on the terms and conditions of the contract, a fixed-price quote can even be legally binding.
2. Estimate
An estimate provides solid guidance as to the cost of a job. If labour, time or perhaps your own supply costs can vary, you may want to provide an estimate, as opposed to a fixed price quote. While an estimate does not bind you to a particular figure, as a business owner drawing it up, you should always faithfully attempt the best estimate you can. The final invoice (which can easily be generated in professional cloud accounting software) should not differ too much from the estimate. When estimating your fees or the costs of a product suite, you may need to provide detail as to the specific variables of the job, and which factors could influence the price. An estimate may even include both fixed and variable costs.
3. RFQ (request for quotation) response
When a company seeks quotes from a variety of vendors for a specific job, they may send out RFQs to candidates. The RFQ outlines the specifics of the work and may be accompanied by a template (for you to fill in) like a tender. Essentially, the RFQ callout is intended to deliver comparable quotes to the company needing the work done.
If you reply to an RFQ you’ve received, your quote called an ‘RFQ response’!
Price quotes set clear terms for a business agreement
A price quote should provide a very clear and thorough explanation of what a job entails and the associated costs. It should also include your terms and conditions. To give your quotes the best chances being accepted, ensure they are clear, complete and price competitive.
A typical business quote will include:
- Letterhead and logo.
- Business details and information including client details and contacts.
- Detailed and itemised pricing table with associated costs and applicable taxes for each line. (This will include hourly rates for any labour and a final price or total cost.)
- Time associated with the delivery of the work and expiry date of the quote.
- Terms and conditions, such as acceptance of the quote and dates associated with its validity.
- Space to accept and sign the quote.
- Payment terms and methods.
