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You Can Quote Me On That

Wednesday, July 28, 2010   By Mike Reddy

 

Many types of small businesses routinely offer customers some idea (either a quote – which is legally binding, or an estimate, which is not) of the cost for doing a job. Often customers require such an estimate for a sense of safety or to compare quotes from different businesses before they will commit to a purchase. There’s always the pressure to supply the lowest quote to win the job so an inaccurate quote can wipe out any profit margin on a job. Better understanding how to price and more efficient ways of developing quotes can reduce the risk of getting it wrong.

Know what you are quoting on

It is imperative that you scope out the extent of the work in detail before providing a quote.

Protect your profit - predict the cost of the job accurately

If you aren’t able to tell whether you are making money on your jobs you are going to end up with financial difficulties. Running a business that produces a predictable profit means accepting the nuisances associated with collecting and analysing job cost data. Developing a job costing system will be more or less difficult to get right depending on the type and size of jobs you perform. However, developing one that provides you with accurate costs to put into your quotes is essential to survival. It may be as simple as quoting the standard market rate for your labour or for someone with your level of expertise and the type of service you offer. Frequently it will be more complicated and include estimates for the cost of labour, of materials, of transportation, for hiring special equipment and so on. The first step is to identify all the direct inputs and have accurate information on their cost ready at hand.

Other input costs are harder to identify and estimate – what about the cost of the advertisements you placed in the Yellow Pages? Or vehicle maintenance costs? Or the office photocopier you use to prepare documents? You can’t recover those as items on the quote but you do need to have an accurate idea of your overheads so you can factor a percentage into your quote to cover them. For difficult-to-quote-for jobs, for example repair work where the cause of a problem can’t even be identified before some preliminary work, a 'time and materials' quote (the time and materials it takes to finish the job) might be better than a fixed price approach.

It can be enlightening to look at how others in the trade prepare their quotes for similar jobs. Some industries and industry bodies have created pro-forma documents such as the standard domestic building contract. Accounting programs such as Intuit's QuickBooks include easy-to-use features that track all your costs and allow you to do job costing and quoting based on time, materials and overheads so you don't have to worry about having to track it all manually.

Cover all costs and conditions attached to the quote/estimate

Omitting costs and conditions from a quote can create legal problems, not to mention whittle back your margin on the job. Specify the products and services you are selling/providing to the customer; what those items will cost; the delivery date of the proposed transaction; any discount offered; shipping information and payment terms etc. Provide an expiration date to define the time period for which the terms of the quote are valid since costs are likely to increase over time, some materials may become unavailable or other contingencies preclude meeting the quote conditions as specified.

Work smart – save time and money preparing quotes

Avoid working out quotes on scraps of paper. There are a number of good industry specific quote development products on the market while standard business software packages such as Microsoft’s Office Accounting Express 2008 include quote creation modules. These include all the necessary items and options you need to prepare a quote and get the maths correct. If you have the customer’s email address you can then send it out at the touch of a button.


Mike Reddy is a Chartered Accountant, business coach and advisor helping businesses in Sydney, Melbourne, Brisbane and Gold Coast to easily increase their profits and cash flow. He is currently President of the North Sydney Chamber of Commerce, a Regional Councillor for Sydney North East and a member of the Institute of Chartered Accountants Sydney leadership team. As well as advising businesses, Mike presents business development seminars and webinars and is regularly contacted by the media to comment on small business matters. You can connect with him on Facebook, Twitter and Google+.