Quotes. Estimates. Proposals.

Customers might use them interchangeably, but we have to really understand the differences among all these tools so we can use them effectively.

So, briefly, let’s define them to start from the same page:

• Quote — an estimate of the fees (rental prices, labor, etc.) for your services. It’s a simple addition project, doing little more than conveying a price for a baseline understanding of a given set of services. The traditional response to a Request for Proposal (RFP) is to deliver a quote. Estimate is a synonym for quote.
• Proposal — an offer to deliver an outcome and other perceived value for a fee. It mirrors the wants and needs of the buyer and goes deeper than just selling the project at hand. It also sells your approach to the job, your value proposition, the ease of doing business with you, and your company overall.

In other words, a quote is a response to an RFP in which the customer sets the scope of work. A proposal is your recommendation to the customer based on criteria uncovered in discovery.

Why is this important? Far too often, businesses send a quote when they should send a proposal. And, far too often when they send a proposal, they’re not taking into account the customer’s budget.

The problem? If you use the wrong tool, you’re going to get the wrong result.

Where Budget Comes In

Underlying both a quote and a proposal is a preconceived notion of what the budget is. But there’s more than one kind of budget, which is what often causes some confusion.

First, there’s your budget. This is an estimate of your costs (not your price). You’ll add margin to create the price that will go into your proposal or quote.

Then there’s the customer’s budget. This is the number they’re comfortable spending based on their current understanding of what they need.

All customers have a budget of some sort — whether it’s rational or not — based on what they think they need. If they think their budget is sound, they’ll probably develop an RFP for you because they believe they understand the correct scope of work and want to find a quote that fits their budget (or, better yet, that comes in under budget).

More often than not, though, they know they don’t understand what they need, which is why they’re talking to you in the first place. In this case, your proposal is a recommendation to them regarding what they need to get the outcome they want.

The first thing to figure out is where the customer’s budget is coming from. Is it coming from their certainty that they know what they need and what it’s worth? Or is it coming from their uncertainty about what they need and what it’s worth?

When the client is certain, the budget is the not-to-exceed number. If they’re uncertain, the budget is the starting point on value.

When to Write a Quote vs. a Proposal

Once you have the customer’s budget, your next step is to determine whether you’re going to send them a quote or a proposal.

Be careful here. If an uncertain customer needs a proposal but you deliver a quote, they’re going to accept that quote as your recommendation for how best to meet their needs. And this is important: Their needs include all their UNDERLYING EXPECTATIONS for a project, all the UNSPOKEN hopes they have in their head.

By delivering uncertain customers a proposal, you capture many of those underlying expectations AND give them new ideas they might also want to spend money on.

Conversely, if a confident customer needs a quote and writes you an RFP, and you respond with a proposal, you again have a problem. You’re either going to list lots of elements that fall outside the scope of their request, or they’re going to insist all the extra value you’re offering can fit within their original not-to-exceed budget.

When the customer has a set budget, everything you propose is going to fit into that budget regardless of the price you quote. When the customer has an uncertain budget, it will morph to reconcile your recommendations with their needs and available funds.

If you try negotiating a quote, you’re going to lose. If you’re negotiating a proposal, everybody wins.

Conclusion

Remember, a quote is an estimate of the fees for parts and pieces. A proposal is an offer for an outcome.

If a customer is looking for an outcome and you deliver a quote, they believe the outcome is hiding somewhere in that quote, even though it’s not spelled out. If the customer is looking for a certain price but you deliver recommendations, they’re going to ask for those things within their original budget.

The result? You set yourself up for either scope creep on one hand and customer disappointment on the other, depending on your way of handling the situations.

To avoid misunderstandings of this nature, use the right tool for the job. Meet the customer where they are in terms of their needs. Apply the appropriate response, and enjoy greater success.