How to write an estimate: A guide for small businesses and freelancers

As a small business owner, the question of how to write an estimate is no small question at all. Aside from the basics—like your contact info and an approximation of costs and timelines—there can be a lot that goes into this document.

The good news? We’ll review it all in this how-to write an estimate guide. But first, let’s get a better understanding of what an estimate is. And no, we’re not talking dictionary-definition kind of stuff. We’re answering what an estimate means for your business and making money.

You know, the good stuff. 💰

What is an estimate?

The dictionary will tell you that an estimate is an approximation, but in business, it’s so much more.

In this sense, an estimate is a document that outlines the projected scope, timelines, and costs of a project. It’s a non-binding agreement, which means that your projections aren’t official or legally enforceable, but more of an educated guess based on the project and what it entails.

However, although it’s non-binding, an estimate is a great first step to align on all of the elements of a project before a contract is signed and the work begins.

How to write an estimate in 6 easy steps

Writing an estimate shouldn’t be bigger than the job itself. When done properly and with the right tools, it’s simple, quick and an accurate projection of the job you’re about to do. Here are the six steps to get you there. 

Step 1: Assess the project scope

Understanding what your potential client wants and expects is key to writing an accurate estimate. 

To assess the project scope, be open and communicative with your client. Ask them questions about the services they need and don’t need, when they want the project done, their expectations of timelines, costs, workers, and breakdown of the costs and services.

A simple way to break this down is by going back to elementary school rules and asking the five Ws (and that sneaky H):

• How: How does your client want to be communicated with along the way? For example, a client may want weekly check-ins or to be notified at the 75% mark of reaching their estimated costs. You’ll also want to outline how often payments will be made to cover costs as the project continues.

• What: What’s the ask and the services that are required to get it done?
  

• When: When should the project wrap up?
  

• Why: Why is this project being completed? This gives you more insight into your clients’ objectives and helps you deliver to their satisfaction.
  

• Where and Who: Where is the work taking place and by whom? Remote, onsite, contract workers, yourself? Know all of the expectations so you can account for things, like travel fees and outsourcing, if required.

Step 2: Provide a timeline estimate

A timeline is important for your client to understand when the project will wrap up, and also the steps of the project along the way.

Keep your timelines conservative so you can set the right expectations. Remember, it’s always better to surprise a client with good news, like an early completion date, than scheduling a meeting to discuss not-so-good news (like a missed a milestone). 

Step 3: Estimate resource costs

When you’re writing an estimate, you’ll need to make sure that you have everything covered in your projection. You’ll also want to add in some buffer room for unexpected costs.

For example, if you get to the point where you have to hire a part-time contractor to get the project done on time, having clearly communicated that possibility in the estimate helps your client understand where and why they might see extra costs. 

Step 4: Consider outsourcing

Not a Jack or Jill of all trades? We won’t tell—but you should.

When preparing your estimate, make sure to clearly outline what work will be outsourced.

For example, if you’re designing a website for that (delicious) new fried chicken restaurant in your hometown and the design requires a few mouth-watering photographs, ensure that your estimate outlines a budget line for outsourcing a photographer and photo editing. Then, make sure that any outsourcing is approved by the client before the work begins.

Step 5: Do a competitive analysis

Before you set your price, explore how other contractors are doing the same. Take into consideration your experience, where you live, how much you want (and need) to make, and be realistic with what you’re suggesting. 

You don’t want to underestimate yourself in order to win a job (no pun intended). Not only could this be a poor financial decision and end up costing you money in the long run, but it can also look a little iffy to clients.

Plus, you’ve worked hard at making a name for yourself! Don’t diminish that by selling yourself short.

Step 6: Outline your terms and conditions

Although an estimate is a non-binding agreement, it’s still important to clearly outline terms and conditions. This can outline anything from cancellations, insurance requirements, overages in hours or scope of work, and any additions to the project.

Being clear from the get-go opens up the door to a more communicative relationship with your client, and at the same time, closes the door to future conflicts and potential lawsuits.

What to include on an estimate

Your estimate is an overview of the project you’ll be completing or the services you’ll provide, what that costs, and an approximation of how long the project might take. But more than that, it’s a way to sell your business and set you apart from your competition.

To do that, you’ll want to include:

• Your business information: name, address, phone number, email address

• The client’s contact information

• An outline of the project

• An overview of the services you’ll be providing

• Approximation of costs: this can include materials, outsourcing, rental equipment, and more

A detailed estimate with a clear breakdown of pricing signals that you’re taking your business (and your client’s) seriously—a good sign for potential customers. 

What are the different types of estimates?

There are three different estimates that, as a business owner, you may have to prepare. Here’s an overview of each. 

Preliminary estimate

This is an estimate that’s prepared early on in the negotiation stages when you have limited information and are relying on work you’ve done in the past.

For example, if you’re a stylist who’s been asked to provide an estimate for a commercial shoot, you’ll provide a quick overview of what you know and what you’ve worked on before. In this scenario, that may include travel to the site and to shopping areas for clothing and accessories, your day rate and overtime hours, and a breakdown of purchasing costs for outfits. 

Detailed estimate

A detailed estimate is a more thorough version of a preliminary estimate. At minimum, it takes what you’ve prepared above but with more information and accurate projections.

If you’re writing a detailed estimate, you’re at the stage where you can communicate with your potential client. You’ll ask them questions and gather feedback so what you put forward is relatively close to what they should expect. This helps your client determine what they can afford and what their next steps are. 

Bid estimate

A bid estimate is prepared in full awareness of it being judged against other bids. This is common for government projects, NGOs, and large commercial projects. Part of the bidding process is due to the fact that clients may have to be public about who they chose and why.

If you’re providing a bid estimate (and you want to win the project), be aware that there may be a large number of companies also trying to do the same. Through the process, remember that an estimate is a way to sell yourself, so don’t sell yourself short just to win a project.

Go into as much detail as possible, and be honest with yourself about your rates, timelines, and capacity. Winning a project is only good when you can afford to take on the work. 

What's the difference between an estimate and a quote?

A quote is different from an estimate in that once it’s accepted, it becomes a legally binding contract for both the cost of work and what it takes to do it. It provides a lot of detail into each component of the work, so make sure every item is priced accurately.

Another key difference? Once a quote is signed, a deposit usually follows.

What's the difference between an estimate and an invoice?

An estimate provides a high-level overview of the scope and costs of a project, but an invoice is what follows either during or after the work has been completed.

An invoice is given to your client on an agreed-upon schedule. For example, this could be at the halfway mark or at the very end of the project. It will outline the work and the cost, and a total amount due.

Be sure to keep track of your invoices (including due dates!) so you can keep your project on schedule, and you can keep getting paid. 

Get started writing estimates now

Estimates can be the make-or-break point of a business transaction. When done right, they provide a high-level overview of a project’s scope, costs and timelines, and are a starting point for more formal communication between you and your client.

Estimates can be created in six simple steps, and we do mean simple—especially when you use Wave.
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Whether you’re on-the-go and need to use the app to pump out an estimate for your dream project, or need to create a detailed estimate on your desktop, Wave can help you prepare what you need to show off your brand and your potential.

And on that note, has anyone told you lately how great you’re doing? 💪