Project Estimates: Why You Need Them & What It’s All About

No client, or anyone (really), wants to be blindsided with a payment that they didn’t expect. That’s what estimates are for—they’re documents that show approximate costs for a project or service. Estimates are a fantastic tool for small business owners to use to gain trust, build rapport, and increase communication around payments with potential clients.

💡 What is an estimate? It’s a rough calculation/judgment of the value, number, quantity or extent of something.

Creating an accurate estimate comes from experience on the job, knowing resources and timing that goes into the efforts, and the right templates and tools. For example, as a business owner if you’ve delivered similar projects like a web design project in the past, you could use that as an analogous starting point to build your estimate for a prospect.

Why do we need to send estimates?

Project estimates help small business owners create a business plan for completing their projects. Estimates are an effective tool to: create budgets, evaluate existing cash flow, and most importantly, manage client expectations. One of the most important thing that estimates are responsible for is nailing down the overall scope of a project. Think: what services are included and excluded within a project.

When you think of time, scope, and budget—the 3 keys to successful project management—you’ll see why these things are critical to make projects run smoothly. From there, it also creates the foundation for your business to continue acquiring new clients and business!

1. Make Sure All Parties Are On the Same Page

Creating and sending an estimate will help your client understand what they’re paying for. It’s also a way for you to see if your work equals the estimate that they expect to pay. It’s a win-win scenario!

According to Medium, writing up an estimate means taking a long, hard look at what resources you’ll need, what steps are involved, and what you may need to contract out to complete the work.

Essentially, it’s a project plan that shows a potential client that you thought long and hard about this project, its scope, deliverables and timeline. Those aspects together make up your budget—aka your estimate. From there, your clients can even use it as a base plan to measure your results to!

2. Use it to Decide If You Want to Take on the Project

No matter how good a project or client sounds, without an estimate, you won’t know if you’ll actually be making money. Taking the time to develop an estimate requires you to break down all work elements into smaller, bite-sized chunks. From there, you can break down all your costs so that you can decide what to charge your client (note: you’ll want to mark it up to make sure you’re profiting from your work).

As you’re estimating, you might even run into a scenario where the upfront costs are so expensive that you won’t actually make a profit. Or, you may realize it is profitable, but there are other upcoming projects that are more profitable and more worth your time.

Use estimates wisely. At the end of the day, estimates give you the knowledge (and power) to say “no” to a project before you’ve invested time or money in it.

3. Find Out If You Have Enough Cash

Developing a total project budget is the first step of building an estimate. Then you can find out exactly how much cash each stage of the project will require. From there, figure out if you have enough cash to cover these stages.

If you end up coming short, it’s a telltale sign that you’ll need extra cash beyond your means—or even a loan—to cover the expenses. Though a loan is possible, you’ll have to manage high interest rates which are less than ideal.

The Anatomy of an Estimate

Estimates are a lot like invoices. The only difference is estimates occur prior to beginning any project work, whereas invoices are created and sent out after.

Every estimate—no matter which industry you operate in—should include these items in its anatomy:

1. Your business name and logo: Your business name is a foundational element of a professional invoice. It identifies your business and establishes your brand. Adding a business logo will provide a professional and personalized touch.
2. Business contact information: Including a seller contact helps your prospect know how to contact you with questions about the estimate. It also puts you as the point of contact for all future work and clarifications.
3. Estimate number: A unique numbering system for estimates that helps you stay organized, in case a client refers back to it in conversations with you. Need a specific estimate? Simply search it up by the estimate number and you’re good to go.
4. Created & expired date: Here’s where you include the date the estimate was created and the date the estimate expires (e.g. 15 days). Adding an expiry date should give your prospect a sense of urgency to accept or decline your rates. Invoicing tools like TrulySmall Invoices automates the date creation so that you don’t have to input it yourself.
5. Recipient or bill to (who’s going to pay: Provides the name and contact information of the person the estimate is intended for (aka your client).
6. Product or service detail: Similar to your Statement of Work (SOW), here where you detail line-by-line items related to your product or service. This includes items like Description, Quantity, Rate, Amount, and Subtotal. The more detailed and accurate this section is, the better clarity you provide to your client on how much they would have to pay for your service.
7. Sales tax: This depends on the jurisdiction and business type. Check the local tax bureau to include the appropriate tax amount on your estimate.

8. Notes:

   A simple, personalized note is an additional place for you to leave a long-lasting, positive impression with the client. This should increase the chance of them accepting your estimate (as long as it’s within their means, of course!). Other details can include payment instructions (i.e. Venmo, e-Transfer, or bank cheque), discount details, warranty information, or anything else relevant to the project or business opportunity.

Sending Estimates with TrulySmall Invoices!

We recently introduced our new Estimates feature in TrulySmall Invoices. Sending estimates to clients prior to starting work is a great way to reduce risks on both sides. It can be used to give your clients an idea of both project scope and costs before you actually begin your project or services.

Try it out for free using an easy 3-step process!