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Best Practices for Sending Estimates (and Why They’re Not Obsolete)

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An estimate is an essential tool for freelancers and contractors looking for work. When a project doesn’t have established expenses, a well-developed estimate can anticipate the project’s overall costs. Clients like to receive estimates because they can compare the costs of competing contractors and predict the budget they’ll need to secure services.

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A high-quality estimate explains the offered services, the schedule in which the contractor can perform the services, and how much the client can expect to spend on the services.

What is an Estimate?

To “estimate” means “to judge tentatively or approximately the value, worth, or significance” of a good or service. In other words, an estimate is the anticipated total amount of money a project, job, or assignment will take to complete. It isn’t intended to be exact or final because it’s usually based on experience and historical context.

What to Include

The more information an estimate includes, the more trustworthy it will be. The data needs to be laid out in a way that is easy to read and highlights facts that will help seal the deal. The following comprehensive list outlines all the information needed in an estimate, depending on the project type and the parties involved.

  • Project Information (details about the job/project, goods/services, and parties involved):
    • Client/customer information;
    • Company/contractor information;
    • Contingencies;
    • Date sent;
    • Deadline to accept;
    • Goods/services description;
    • Job/role description;
    • Payment terms and schedule;
    • Project description;
    • Project timeline;
    • Tax information; and
    • Work schedule.
  • Cost Breakdown (estimated sum of the costs of the following):
    • Equipment;
    • Facilities;
    • Hardware;
    • Insurance;
    • Labor;
    • Materials;
    • Risk;
    • Software;
    • Sub-contractors;
    • Typical activities (edits, meetings, phone calls, etc.);
    • Utilities; and
    • Vendors.
  • Disclaimer that the costs listed are approximate and subject to change.

Why Provide Estimates?

Estimates are necessary when the exact costs of goods or services aren’t immediately available at the time of agreeing to the exchange of the goods or services. They’re beneficial because they allow goods and service contractors to organize projects before deciding to take them on. This creates a better understanding of what projects require to complete, leading to more accurate planning and budgeting as well as more honest and open negotiations. Using an established estimating system can even improve profit margins and public reputation.

Alternatives to Estimating

 

Estimates provide loose expectations for clients, but they are just that: loose. An estimate may not be the best option for every client or project. Service contractors need to communicate clearly with clients about their expectations. Does the client need an itemized breakdown of costs and services? Is the contractor competing with others for the job? Here are a few other options that provide varying security and flexibility for both parties involved.

Bid

Contractors submit bids to compete for a job or a project with a clear scope of work. A bid is more exact than an estimate and more detailed than a quote. It outlines the actual costs of a project and exactly how long that project will take to complete.

Quote

An estimate differs from a quote in its obligations. Quotes establish a fixed price for a job or project, but once the client accepts a quote, the contractor can’t adjust it without the client’s approval. A quote also details the project scope, services, and timeline.

Proposal

Similar to bids, proposals are submitted in competitive applications to work on a project for a business. They contain all the information included in bids, estimates, and quotes and then some. Proposals display the contractor’s overall value as an expert and a colleague by including client testimonials, portfolios, and CVs.

#NoEstimates Movement

The #NoEstimates movement started in the software engineering industry in 2012. Proponents argue that estimates put undue stress on service providers by establishing unrealistic expectations. Instead of spending valuable time creating an estimate, just get to work on the project. In theory, this will save time and money.

It also argues that complexity is, in fact, the perfect argument against using estimates. Complexity makes it almost impossible to accurately predict a project’s cost, scope, and timeline because too many factors are unknown.

Critics of #NoEstimates argue there isn’t enough evidence that the concept is scalable to large, long-term projects and ignores that large organizations need estimates for reasons outside of direct budgeting and scheduling.

Citing the lack of accuracy as a reason not to create estimates reflects the contractor’s understanding of the value of their own services. It’s up to contractors to establish data tracking systems that improve their estimates over time.

Estimate Best Practices

There are many ways to estimate the cost of providing goods or services for a project. This section will discuss the elements of an estimate, what to consider when estimating, and what techniques are helpful when calculating the potential costs of goods and services.

A quality estimate caters to the client’s needs, establishes a realistic timeline, highlights which costs are objective versus subjective, and attempts to offer the best price for the customer that still produces a valuable profit for the contractor.

Calculate

Six primary factors determine the cost of a project. If any of them is greater or less than expected, they can affect one or more of the other factors:

  1. Budget: How much will it cost?
  2. Quality: How well do the deliverables meet client expectations?
  3. Resources: Who is doing the work, and how are they doing it?
  4. Risk: Who or what could negatively impact the outcome, and how much control do project participants have over this?
  5. Scope: How much work has to be done?
  6. Schedule: How long will the job take, and when will it be done?

Six techniques answer these questions and calculate fair estimates for clients and customers.

  • Analogous/Comparative Estimation: Refers to the estimation data of a previous similar project to inform a new estimate.
  • Bottom-Up Estimate: First, answer the above six (6) questions for each individual task that will complete the project. Then consolidate this information to produce a complete estimate.
  • Expert Judgment: Secures the knowledge and assistance of experts in relevant topics to build an appropriate estimate.
  • Parametric Modeling: Good for predictably scalable projects. This technique uses an analogous estimation to calculate the cost of a small portion of the project. The estimator can then scale up that portion variably to meet the complete project needs.
  • Three-Point Estimating: First, calculate three separate optimistic, pessimistic, and likely estimates. Then average the three totals.
  • Top-Down Estimate: First, break the project into its most fundamental goals and find broad estimates for them. Then break those goals down into minor phases and tasks necessary to meet all objectives. This process produces a more detailed itemized estimate.

It’s wise to utilize multiple estimating methods on a single estimate to reach the closest accuracy possible.

Send

When sending an estimate, make sure to do it promptly, especially if the client has a deadline. Also, estimates always need to look as professional as possible. They should be detailed, easy to read, and free of errors and misspellings. Finally, it’s essential to address estimates to the specific individual or department that will consider them.

Improve

Keep complete and accurate records of all estimates created, whether or not clients accepted them. These records can help develop an estimate history that breaks down what estimates successfully landed jobs and what estimates failed to do so.

More Tips

  • Charge hourly, or use a unit-based rate such as charging per project, per word, per minute, or whatever unit of measurement applies to the work being done;
  • Get clients involved with the estimation right away, adjusting the scope and budget to fit their needs and abilities;
  • It’s okay to consider a margin of error;
  • Provide transparency at all times;
  • Understand the context of the project (whose idea it was, who’s managing it, who’s paying for it, who’s working on it); and
  • Understand the short and long-term goals of the project or what larger goals the project aims to address for the client.

Estimating Software