If you are a small business owner or freelancer, there may be no other task as anxiety provoking as creating an accurate estimate for a client. If your quote is too low, you are paying for the work, but if your quote is too high, the client may look elsewhere. How do you find the sweet spot: an estimate that protects you while ensuring the client doesn’t run away screaming?
The Problem with Estimates
Creating an accurate estimate is always difficult. There is a reason, by the way, that they are called “estimates” and not “exact-imates” 😉 Merriam Webster dictionary defines “estimate” as “to give or form a general idea about the value, size, or cost of (something)”. Nonetheless, from a customer’s perspective, estimates don’t have the wiggle room we want them to have. To the customer, an estimate or job quote, should be a close approximation of the cost—sometimes very close—depending on the customer.
While creating an estimate that is as accurate as possible is ideal, if you’ve worked as a freelancer for some time, you know from experience that the ideal is difficult to achieve. So, what’s a small biz owner or freelancer to do? Embrace your new best friend. Say it with me “contingency”. It’s a beautiful word, one that mitigates the risk you take when sending an estimate to a prospective customer. Another word to add to your estimate vocabulary is “expectation”.
Flareapps.com small business tip #037Create an Accurate Estimate
If there was an equation for creating a good estimate it might be:
Estimate = Best Guess + Built-in Contingencies + Buffer + Managed Expectations.
This equation and a few other ingredients described below will help ensure a fair estimate for both you and your client.
To create a safe estimate, follow these steps:
- Base estimates on similar past work.
Basing estimates on similar past work is good way to ensure accuracy. This is why tracking hours worked on projects is so important. When you start working on a project, track every minute spent working, either on paper, in a spreadsheet or by using a time tracking app. Read this time management tips post for more information on time tracking. The hours you track now will become very important when quoting for similar jobs in the future.
- Err on the side of overestimating
If you don’t have past similar jobs to help you create an estimate, you’ll definitely be taking a best guess. Always err on the side of overestimating. Clients mistakenly assume that overestimation is the art of making money for doing nothing. Quite the contrary. Seasoned freelancers and small business owners overestimate because experience has taught them that jobs either take longer than expected, or that they generally wind up doing work outside the confines of the estimate.
- Build in a buffer
You could literally have a disclaimer that your estimates are within + or -10% of the actual cost. At the project’s end, adjust accordingly. If you’ve overestimated, the client wins and more importantly knows that you are honest. If you underestimate, you are covered.
- Build small contingencies into your estimate.
A contingency is any unforeseen event. There is no way to know what might happen, but you can certainly take educated guesses for smaller, less consequential contingencies. Consider unforeseen admin time and busy work such as phone calls, emails, and meetings with the client. These are difficult to determine, but you can and should build some time into your estimate to cover these.
- Avoid scope creep.
Scope creep is something to be aware of. “Scope creep” refers to additional work requests made once the project has started. Make it clear from the outset that your estimate is for work described in the estimate—no more, no less. If the work changes, the quote changes.Be aware that some clients may think that a small addition here and there is “no big deal”, but, these add up. In a project that lasts months, a handful of “quick additions” could add up to hours of unpaid time. Learn to say “I’ll have to quote separately for that because it’s beyond the scope of the original quote”.
- Learn to say “No” nicely and guiltlessly.
This is a skill that will help you avoid scope creep. Learning to say “No” may not help you create an accurate estimate, but it will help you stay within the time you estimated it would take to complete a job.Some people find it hard to say “No” to client requests, but, these requests can really chip away at your time. Some requests may not fit your schedule, others may be things you simply don’t want to do, others will be beyond scope. Learning to say “No” is a time saver and stress reliever. A skill all business owners can learn and prosper from.If you have problems saying “No”, read How Super Successful People Learn to Say “No” over at Inc.
- Manage expectations
It’s easier to provide an estimate if you are open with your clients. Part of being open is breaking through the anxiety you may feel. This is particularly true for new freelancers or small business owners. When you are first in business, you may feel you can’t afford to say “No” or be open about estimates being, well…estimates.Learn to speak openly about the challenge of estimating. Discuss contingencies, scope creep, your buffer (whatever you decide it is). While working on the project, don’t be afraid to discuss tasks that are taking longer than estimated and explain why. Sometimes, requiring additional time is beyond your control. If you’ve been open with your client from the start, it’s more likely they’ll hear what you are saying and understand if you discuss billing for the additional work.
Charging Hourly or by Project
Charging hourly or by project is really a case of “6 of one or a half-dozen of the other”. Regardless of how you are billing, you will have to estimate the time it takes to complete the project. Unless you are lucky enough to have a client who values and trusts your work so much that they’ll pay you whatever it takes you to get the job done, you’ll have to estimate time. If you do happen to have that rare breed of client who will sign a blank check, you just bill until the work is complete. Even then, most clients will want to know approximately what they will pay. One way or another, you’ll be estimating.
How Flare Accounting Makes Estimates Easy
Watch the video below and see just how easy it is to create and send an estimate using Flare cloud accounting. Once the estimate is accepted, you can convert it to an professional invoice with the click of a button.
With Flare’s accounting software package for small business, you get great online invoicing and estimates as part of an all-in-one bookkeeping system. It’s all in the cloud, so you can access Flare from any browser on desktop, laptop and tablet.
Tips to Make Job Quotes Less Scary