Quotes vs. Estimates: Differences Between These Pricing Methods

By Indeed Editorial Team

Published March 25, 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

When determining the price of a product or service, you may choose to provide customers and clients with a quote or an estimate. These two methods have many key differences. Learning about them may help you decide which is better for your team. In this article, we define quotes and estimates, describe their major differences and give some tips for deciding which to offer to customers and clients.

What is a quote?

A financial quote is an exact determination of a price for a product or service. For example, a home builder may give a quote to a customer for how much it may cost to build their house. Businesses determine quotes based on the status of the financial market and other economic factors, such as supply and demand. Consumers and businesses may use quotes to assist in negotiation processes because they can act as a starting point for pricing.

Related: What Is Market Pricing? Definition, Advantages and Tips

What is an estimate?

A financial estimate is an approximate determination of a price for a product or service. For example, an architect may give a client an estimate of how much they predict it may cost to design a home. Although estimates are not exact prices, businesses and consumers can use them to inform negotiations and compare costs from various suppliers. Like quotes, businesses may base estimates on supply, demand and other economic factors.

Related: Project Cost Estimate: Definition and How To Create One

Quote versus estimate

Here are some common differences between quotes and estimates:

Precision of pricing

Businesses use quotes to generate precise prices for goods or services. Once a business delivers a quote to a customer, it agrees to charge the exact amount mentioned for the specific product or service. For example, if a company delivers a quote for a new car, customers may expect to pay the exact amount of the quote when purchasing the car.

Businesses use estimates to provide an approximate price for a good or service. Once a business delivers an estimate to a customer, it can later decide to charge more or less than the estimate if the actual cost of the product or service changes. For this reason, estimates are less reliable predictors of price than quotes.

Related: Learn How to Estimate Construction Jobs in 7 Steps

Types of products and services

Businesses commonly use quotes when selling products like software or providing services like home construction or rental real estate. They also use quotes when selling new cars, traditional loans and new mortgages. Businesses commonly use estimates to sell products and services that involve a large amount of uncertainty in the production process. For example, if a company needs to produce 100 million DVDs for the upcoming Christmas season, it may offer an approximate price for the DVDs within its estimate to retailers.

Related: 7 Common Pricing Models

Monetary range

Quotes include a specific amount of money, while estimates often include price ranges. For example, if an insurance company gives you an estimate for your car insurance costs, it may not tell you exactly how much you're likely to pay for the insurance. Instead, it may simply provide an estimate that informs you that the cost is likely to be between $100 and $300 every six months.

Estimates can include a specified dollar amount as part of the price for goods and services. For example, a contractor may have a specific per-hour amount up to a certain number of hours, then a new fee for each additional hour. The contractor can give an estimate based on the number of hours they predict the project may take, but the actual cost may be lower or higher.

Delivery method

Quotes are common in transactions between a business and another business or between a consumer and a business. Consumers may receive quotes from businesses when purchasing goods or services, negotiating costs or applying for loans. Estimates are more common in consumer transactions than in business transactions. Estimates inform consumers about the cost of a good or service without promising to charge the exact amount of that cost. Businesses may use estimates to offer products and services that involve high levels of uncertainty with their production processes.

Related: Economic Pricing: Definition, How It Works and Common Benefits

Time frame

Quotes normally involve a time frame for the sale of goods or services. For example, a homeowner may receive quotes from various home builders to determine the exact cost of their new house. A company may also give an estimate for a specific expected time period for delivering a good or service to its customers.

Estimates are less specific in their time frames. For example, if an architect is designing a house with 30 rooms, they may estimate how much it may cost to build the house over three years. Consumers and businesses may use this approximate price when deciding whether they can purchase the home during that timeframe.

Tips for deciding between a quote and an estimate

Here are some tips that may help you decide whether to use a quote or an estimate for the pricing of a product or service:

  • Determine the fluctuation in price for your products or services: If the price of your product or service is likely to vary because of variables like supply and demand or manufacture costs, use an estimate.

  • Consider the advantages of using quotes: Quotes inform customers about the exact cost of goods or services before they need to pay it. Customers may prefer to know the exact pricing in advance, so having a quote can increase the likelihood that the customer makes a purchase.

  • Consider the advantages of using estimates: Estimates are more likely to help businesses sell products and services that involve a high amount of uncertainty, such as an unspecified delivery time. This may allow businesses to agree to sell a product or service to a customer before determining the actual amount to charge them.

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