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Make sure you know your essential business terms so you can be confident and competent when engaging with clients and land the vital contracts to grow your business.
Find out where and when to use key business terms like ‘estimate’, ‘quote’, ‘bid’, and ‘proposal’ in this article. We’ll explain what they mean, how they differ, and when it matters to use the right one so that you don’t get caught out. Discover:
- Business terms explained: what they mean and where and when they matter
- Things to be aware of as you navigate negotiations or contracts
- How to make your work estimates and quotes more accurate
Business terms explained: what they mean and when they matter
Estimates are projections or approximations of how much a job will cost, with the final price able to change according to any number of factors. Estimates can be delivered in writing or verbally to customers, with any changes (specifically any increases) to the final price needing to be considered reasonable. Depending on the nature of the job, ‘reasonable’ might be a 10% increase or double or even triple the price.
For example, you estimate a job as a maintenance worker at a customer’s home and you run into problems with the age or quality of the building’s plumbing. Here, you would have to inform the customer of the final cost going up, what it is now, explain why, and ask whether they are happy to continue.
Quotes are definite prices and cannot go up, even if you have to carry out more work than you expected. Quotes are typically written down (along with an outline of what’s being offered at the specified price) but can also be part of a verbal agreement.
Quotes are considered legally binding (even when verbal) and need to be honoured once the work has been completed. However, almost every customer would accept if your final price turns out to be cheaper.
For example, if you provide a fixed service for customers like an audit on their social media or repair to plug sockets, you can provide a quote that reflects your fixed cost of business.
Some businesses provide quotes that are valid for a short amount of time. For example, if you decide to have a sale on a particular service you perform or offer to buy something from a customer (like a car or antique), you can attach a term like ‘valid for 30 days’ along with the quote. This practice is aimed at protecting businesses having to honour very old quotes when the factors that determined the original price have since changed.
Bids are similar to quotes as they specify a set price that you are willing to pay or provide goods and services for. Similar to before, bids can be written or verbal and are considered legally binding offers for work or business relationships with customers.
Bids are more common if you work in B2B (business to business) sectors or provide work for public bodies like local councils or charities. Bids may sometimes come with an outline for the work included in the price.
Proposals are similar to bids in that they are usually provided in B2B environments, but can include rough outlines for the work and costs entailed (just like estimates).
For this reason, proposals do not necessarily have to be legally binding as long as they are appropriately worded. Otherwise, if you don’t take care to specify if and how your proposed price can increase, the proposal for work can be legally enforceable once the customer accepts.
If an organisation like a business or government department is open to proposals, they may also be looking for ideas or additional sources of value that can be included in a project. This is similar to tendering and you may be able to win contracts even if your proposal costs more for the organisation yet includes more social or economic value beyond the raw cost of delivery.
Things to be aware of as you navigate negotiations or contracts
Contracts can provide you safety and assurances as you do business, but they can also be a source of liability and risk if either party doesn’t fulfil their obligations. Similarly, even if it’s the case that something is written and signed, it may be considered unreasonable by a court (if challenged) and made null and void when it comes time to pay. Therefore, as you’re working with customers or other organisations to create business relationships, it’s essential to understand where the law stands on contracts and agreements. In general, it’s recommended that you should:
- Use clear language so everyone understands the terms and obligations
- Make sure you don’t over-promise or underdeliver in your quotes
- Always consult whether customers are happy to proceed if your prices change after an estimation
If you’d like help with how you can include cancellation clauses in your contracts, as well as how you can charge deposits and ways to keep your terms fair, read the published advice by the UK government or our guide How to write a contract for business partnership.
Don’t forget that the advice of a licenced and professional solicitor is well worth their hourly rate if it fully protects your business.
How to make your work estimates and quotes more accurate
Quoting for work or providing accurate estimations can be difficult as you start out if you don’t have a sound understanding of your business’ finances. Countingup can help you gain a deeper insight into your business performance to help you write your quotes to the penny.
Countingup is the business current account with free, built-in accounting software. You can take advantage of the real-time profit and loss reports to see how your business grows and operates best.
The app also offers instant invoicing and expense reminders, complete with a handy receipt capture tool. This way, you can make sure your finances are always up to date and accurate even while on the go and enjoy tax estimates from your trading so you’re prepared for the end of the financial year.
Gain complete confidence in your business finances. Find out more here and sign up for free today.