PRICE LISTS, ESTIMATES, QUOTATIONS AND TENDERS–Every business has to give its customers prices for its products or services. There are several ways you can do this.
Many businesses, such as hairdressers, use a standardised price list that remains the same for every customer. Other businesses, such as painters and decorators, have to provide tailored prices for the specific products or services a customer wants to buy. This is usually done with an estimate or a quotation. Larger, more complicated projects are often priced on the basis of a detailed tender document drawn up by the customer.
This guide outlines how to present your prices to your customers. It tells you how to create a price list, describes the difference between a quotation and an estimate, details how to prepare quotations and estimates and describes how to price a tender for a contract.
- Prepare a price list
- The difference between a quotation and an estimate
- Prepare a written estimate
- Prepare a written quotation
- Prepare a price for a tender
- Win contracts at the right price
Most businesses will need to draw up a price list at some stage. If you sell a fixed range of products, this may be the only form of pricing you need. This type of standard price list can also be used as the basis for pricing your non-standard orders.
It’s a good idea to date your price lists – particularly if your customer is likely to keep it for a long time. You should make it clear when any special offers expire. It can also be useful to include a clause at the end of the price list stating that prices are subject to change.
You should make clear whether any delivery, packing or postage costs are included in your prices. Additionally, although you don’t have to indicate discounts for bulk purchases on your price list, it might attract more business.
You may be able to use software packages such as Sage Simply Accounting to help you draw up complex price lists.
It’s impossible for some businesses to give standard prices for goods and services. This may be because the skills, time and materials required for each job vary depending on different customers’ needs.
This situation is more common in some trades than others – decorators or builders, for example, rarely do exactly the same job twice. When it’s not possible to work from a standard price list, you have to give a quotation or an estimate instead.
A quotation is a fixed price offer that can’t be changed once accepted by the customer. This holds true even if you have to carry out much more work than you expected.
If you think this is likely to happen, it makes more sense to give an estimate. You can also specify in the quotation precisely what it covers, and that variations outside of this will be subject to additional charges.
An estimate is an educated guess at what a job may cost – but it isn’t binding. To take account of possible unforeseen developments, you should provide several estimates based on various circumstances, including the worst-case scenario. This will prevent your customer from being surprised by the costs.
To work out a quote or estimate you need to know your fixed and variable costs. These include the cost-per-hour of manual labour and the cost of the materials you’ll require. Your quote or estimate is then calculated according to what you think the job will involve.
You should provide all your quotes and estimates in writing and include a detailed breakdown. This will help to avoid any disputes about what work is included in your overall price.
You may also wish to set an expiry date. Your quote or estimate will no longer be valid after this time.
When you prepare an estimate it’s good practice to give the customer a written copy, including a full breakdown of costs.
Your estimate should include the:
- overall price
- breakdown, listing the components of the price
- schedule, detailing when work will be done or products delivered
- terms and conditions
- time period the estimate is valid for
- payment terms or schedule
You must include your full business contact details in your estimates. If you have letterhead, it’s a good idea to put your estimates on this.
Where applicable the GST/QST component of your price should also be provided.
It is advisable to get signed acceptance of your estimate and to make sure your customer is clear about what has been agreed.
Include a disclaimer stating clearly that the estimate’s price is subject to change. Agree in advance how any variations will be costed. These can arise if the client changes their requirements or if a job turns out to be more complicated than expected.
If you think price complications are likely to arise, it’s a good idea to supply a number of estimates based on different scenarios. This will help to avoid any disputes with your client as the work progresses.
When you start to work or supply, you should keep good records of any cost over-runs, along with how and why they occur.
Software packages can help you identify the costs involved in work for which you’re providing an estimate. Many accounting and spreadsheet packages can be used for this purpose.
Quotations commit you to the price you specify, so they are usually used when:
- the work you’re quoting for has clear requirements – in terms of time, labour, materials, etc.
- your costs are stable
- you’re confident the work won’t turn out to be more complicated than expected
It’s good practice to give your customers a written quotation. This should include the:
- overall price
- breakdown of the components of the price, indicating what is covered and what is not
- period the quotation is valid for
- schedule for when the work will be done or products delivered
- full contact details of your business
- payment terms or schedule
It’s also advisable to get your customer’s written confirmation that they’re happy with the price you have quoted and the work that this includes. This should be done before you carry out the work, or provide the goods or services.
Computer software can be used to help you determine the costs involved in any work for which you’re drawing up a quotation. Many accounting and spreadsheet packages can be used for this.
If you provide goods or services to other businesses or the public sector, you may have to compete for contracts by submitting a tender. Although value for money can be an important component of many tenders, the way you price your bid can also make the difference between winning or losing business.
As with quotations, you’re committed to the price you submit in a tender if it is accepted.
Before you price a tender, check the instructions in your client’s bid specification. These will usually detail how the costs should be displayed so that bids are easier to compare.
You may be asked to provide:
- a breakdown of component costs at each stage of the project (e.g. weekly or monthly)
- staff time and costs
- management time and costs
- administration time and costs
- estimates of reimbursable expenses
Even if a detailed breakdown isn’t asked for, it’s in your interest to provide one. It can help you to win contracts by showing your client you’re offering good value.
For more advice on how to price contracts, read the page in this guide on how to win contracts at the right price.
In your tender document, your overall price should be set out in both words and figures. It should be clear which currency you are dealing in and whether your price includes GST/QST.
You should also state how long your prices will be valid for. It can sometimes take a long time for tender decisions to be made – by which time your costs may have increased.
It is a good idea to add a contingency for any unexpected costs or additional work that may arise. Explain where and why you have included this in your bid.
Pricing a tender for the first time can be difficult as you will have no benchmark or idea of what competitors might bid.
Price is important when submitting a tender, but don’t lose sight of the quality you will provide when deciding on it.
Clients often consider the lifetime cost of the products and services they buy. This includes their initial purchase cost, along with other factors such as maintenance costs, downtime costs (if there’s a breakdown) and the cost of consumables and disposal.
Make sure you don’t bid too low just to get your foot in the door. Clients will be suspicious of abnormally low bids – they may doubt the level of quality you can deliver for such a price. Remember that once you’ve committed to a very low price, you may find it difficult to increase your prices with this client in the future.
It is therefore better to price your tender realistically, and ensure that you focus on the benefits that you can provide to a customer. Get this right and many customers will be willing to pay the price required, even if it is more than your competitors will charge.
It can be helpful to think in terms of the value of your goods or services from the customer’s point of view, not your own. If you are the only quality provider of something a client really needs, it may be more valuable than you think. Your price should reflect this.