Estimate vs Proposal: Key Differences and When to Use Each

What is an Estimate?

An estimate is a short document containing an abridged projection of the costs and timelines associated with a project. It gives customers an idea of the amount they’ll have to pay, when each milestone will be concluded, and the payment structure.

Estimates are not legally binding since the listed prices are mere approximations and could change based on material costs and project scope changes.

What are the main components of an estimate?

Accurate estimates contain three main components:

• Identities of stakeholders involved: This includes the name of the company creating the estimate and the customer it’s meant for.

• Project description: This briefly sets out the services to be rendered and specific time frames.

• Direct costs: Contain material, contingency, overhead, and equipment costs. It is vital to ensure that the budgeted expenses are within range of the actual costs.

When should an estimate be used?

Estimates can be used for simple projects with few expense items. They can also be used when a client has indicated an interest in your services or requests adjustments to the project scope.

Learn how to use estimate templates to create accurate estimates.

What is a Proposal?

A proposal is a document that encourages the potential client to accept your proposed solution to their issues. It contains everything they should know about the project, including timelines, milestones, goals, scope, and deliverables.

Delivering a proposal to a client demonstrates professionalism and credibility. It shows you thoroughly understand the customer’s issue and have the exact solution they need.

Unlike estimates that provide an idea of the project costs, proposals are designed to show you’re the best person for the project and to secure the client’s commitment. 

As such, proposals briefly describe the customer’s challenge and provide a detailed breakdown of the steps you’ll take to solve it.

What are the main components of a proposal?

Proposals contain the following elements:

• A brief description of the company writing the proposal and their solution to the client.

• A detailed description of the scope of work and steps to be taken.

• The amount of time the project will take, alongside specific milestones.

• The cost of materials and labor, and payment terms.

Proposals may also contain testimonials from satisfied customers.

When should a proposal be used?

Customers typically need convincing before they pay for high-budget construction projects. This is where a proposal comes in.

A proposal can help you convince clients to accept your solution to their challenges. It is especially useful for complex projects, such as large-scale installations or renovations, which have detailed plans and multiple expense items.

What Are the Key Differences Between Estimates and Proposals?

As we said earlier, estimates and proposals differ in the details they contain and the purposes they serve.

Here’s a breakdown of the differences between the two documents.

Let’s take a closer look at them.

1. Level of detail

Estimates are generally very short, focusing more on project cost estimates. This is because they are typically reserved for small-time projects with small budgets.

Conversely, proposal documents are typically long and exceed one page. They are also ideal for high-ticket projects, which customers must be convinced about before paying a dime.

2. Binding terms

Estimates are considered cost predictions that merely provide a ballpark figure for customers to consider. The final cost may vary due to unexpected occurrences during the project. For example, the price of a chemical may suddenly increase, inclement weather may cause workers to stop working and extend the deadline, etc.

Therefore, estimates are not considered legally binding documents.

Conversely, proposals become legally binding documents immediately after the parties agree on the details and sign on the dotted line.

3. Client expectations

Estimates only provide an overview of the project’s costs while leaving out other details. In contrast, proposals give a ballpark estimate alongside a detailed description of the project’s goal, execution plan, and stakeholders.

4. Precision of costs and timelines

Estimates don’t have to be accurate since the figures they contain are typically rough estimates. By comparison, proposals deliver a specific agreed-upon cost and timeline.

How Do You Decide When to Use an Estimate or a Proposal?

As a business owner, knowing the best scenarios to use an estimate or proposal can be the difference between a lost sales opportunity and a closed contract. It can also prevent underpricing, allow you to make concessions without damaging your bottom line, and give you leverage to negotiate better contracts.

Here’s a checklist to use when deciding between sending an estimate or a proposal:

1. Project size and complexity

Small projects like leak fixes, patio installations, and light fixture installations typically have tight deadlines and few expense items. Hence, they are the perfect use case for estimates, containing the parties involved, a brief service description, and a breakdown of all direct costs.

If it’s a large or complex project, customers will want you to justify your action plan, provide a detailed walkthrough of all steps involved in fixing the issue, and give an exhaustive cost breakdown. All of which can be captured in a proposal.

Overall, estimates for small projects and proposals for large and complex ones are the way to go.

2. Client relationship stage

Prospective clients who have never used your company before will need more convincing to book an appointment than returning customers. This is because there’s still a trust barrier between you and them.

Proposals are ideal for business transactions involving a new or major customer because they are large, giving you ample space to explain your value proposition and convince the customer to book an appointment. 

Conversely, you can send an estimate to a regular client who needs little to no convincing to book an appointment. Estimates are also perfect for customers who contact you during the early stages of their buying process. 

3. Stage of project

During the preliminary stage of a project's planning process, customers typically want a cost breakdown to determine whether they’ll proceed. An estimate is perfect at this stage.

However, as discussions progress, they’ll want to see your action plan and reasons for choosing you over other companies. This is the best time to send a detailed proposal.

4. Legal and financial implications

Before you send a proposal or estimate, determine whether you’ll need a legally binding agreement to protect you from financial liabilities. If the answer is yes, send a proposal. But if it’s not, an estimate will do.

What Are the Best Practices for Creating Estimates and Proposals?

Before customers hire a service company, they try to decide if the company is credible and competent enough to fix their problem without making it worse. Their decision hinges significantly on how you interact with them and the appearance of the documents you share.

Sharing a shoddy estimate or proposal immediately sets off alarm bells in the customer’s head, causing them to doubt your expertise. To avoid such a scenario, follow these guidelines to create professional-level estimates and proposals:

1. Clarity and transparency

A key tenet of creating estimates and proposals is ensuring transparency. Someone reading the document should be able to tie each specific price to a specific item by scanning through.

Additionally, all prices should be close to or equal to what’s available on the market. Overinflated prices can damage customers' trust.

2. Professional formatting

Your formatting and organization should reflect globally accepted standards, so anyone reading the document understands and knows where to find specific details. To appear organized, use larger font sizes for titles, differentiate sections with subheaders, and logically arrange cost items.

Use ServiceTitan’s fully customizable estimate templates and proposal application to save time and avoid mistakes.

3. Consistent follow-up

You shouldn’t go to sleep delivering an estimate or proposal and hope for a positive response from the customer. Instead, send follow-up messages at two-day intervals to ensure they’ve had time to review the documents and nudge them to commit to the deal.

One follow-up message can tip the scale in your favor and encourage the customer to pick you over another company.

4. Using digital tools

Creating estimates and proposals manually poses multiple issues; the chief of them is the increased potential for error. Field techs or office staff may omit a single digit, use inconsistent format styles and organization, or overlook specific items or services. This can damage customer trust and cause service businesses to undercharge and lose money.

The easiest way to prevent these issues is to use construction estimate and proposal creation applications like ServiceTitan.

ServiceTitan helps tradespeople create accurate estimates and proposals with features such as automatic pricing, pre-built templates, and follow-up automation. Its integration with our CRM eliminates the need to manually enter data or switch between platforms.

After we explore key mistakes to avoid, we’ll provide a more detailed explanation of how ServiceTitan can help you easily create accurate estimates and proposals.

What Are the Most Common Mistakes to Avoid?

Throughout our interactions with tradespeople, we’ve identified three recurring mistakes they make when creating estimates and proposals. These include the following:

1. Overestimating or underestimating costs

Accuracy is a crucial factor to consider when creating estimates and proposals. Overestimating costs chases customers away while underestimating prices causes you to operate at a loss.

To ensure accuracy, keep an organized price book that can be easily updated whenever prices change and integrates with the system you use to create estimates and proposals.

Additionally, always include a slight markup to accommodate contingencies and deliver a healthy profit margin.

2. Omitting key details in proposals

Leaving vital details out of your proposals may cause the project to exceed the original agreement, leading to disagreements about its scope and costs. It also makes you appear unprofessional and unable to meet customers’ expectations and damages your reputation.

To ensure your estimate or proposal captures all details, speak with field techs and enumerate every service or item needed for the project. 

Then, double-check the details and consult with the project's execution partner before sending the document to the client.

3. Not following up

Following up on unsold estimates and open proposals is the easiest way to close more deals.

When you follow up, you remind customers of the value of your offer and show them you value their business. You can even use follow-ups to answer questions and resolve objections that are keeping customers from booking an appointment.

For example, Stephen Dale, trainer and coach at Power Selling Pros, used his experience with a garage door technician to explain the losses service business owners incur when they don’t follow up.

According to him, a garage door technician offered him an awesome upsell package after fixing an issue that Dale had reported to the company. However, after learning the price, Dale told the technician to give him some time to think about it and discuss it with his spouse.

Fortunately, his spouse gave him the go-ahead. However, he got busy and forgot to call the technician, who never followed up. 

“Was this a lost opportunity? I wanted the product, but no one followed up. No one called back. No one said, ‘Hey, how was your experience?’ No one checked in with me,” Dale says. “A few months later, we thought about it again, and I went back outside to see if I could figure out who had installed it. I thought maybe they'd put a sticker on there. There was no sticker, nothing.”

“A huge lost opportunity. I still don't have that product,” Dale says.

Don’t be like the garage door technician. Always follow up on unsold estimates and proposals. You never know—the potential customer may have simply gotten busy and forgotten to call back.

How Can ServiceTitan Streamline Estimates and Proposals?

Creating accurate estimates and proposals involves many steps and moving parts. First, you’ll need to review the project scope, fetch customers’ information, determine the required materials, and make multiple calls to confirm prices.

For a process as complex as this, static templates and estimate- or proposal-only applications would be insufficient and cause your employees to waste time. Time that could better be used for attending to customers’ needs. We know this because we’ve worked in the service industry and interacted with tradespeople.

Given our knowledge of these challenges, we built ServiceTitan to be a permanent solution to all issues service business owners face when creating estimates and proposals.

The platform has pre-built templates and integrates with our advanced price-book platform, which fetches real-time pricing data from reputable manufacturers’ and suppliers’ catalogs. This reduces the time lag between suppliers changing prices and you updating each item’s cost, ensuring you always quote the right price.

Here’s a rundown of our estimate and proposal tool’s other features:

• Customizable Templates: ServiceTitan has pre-built estimate and proposal templates tailored to various trades. Using these templates helps business owners save time and offer customers multiple options in a professional manner.

• Dynamic Pricing Automation: With dynamic pricing automation, you can set up rules to auto-update pricing according to customized parameters, such as when particular overhead costs change (e.g., labor rates, materials, etc.).

• Mobile Access for Field Technicians: Technicians can use the mobile app to create attractive estimates and proposals and present them to customers using a display interface resembling shopping apps. This saves time that would have been spent on back-and-forth calls to confirm prices.

• Automated Follow-Up Reminders: ServiceTitan displays all unsold estimates, allowing you to follow up on them and take advantage of every sales opportunity.

• Integration with Accounting Software: ServiceTitan integrates with external accounting platforms such as Sage Intacct and QuickBooks, allowing you to sync all data and avoid entering data manually.

With ServiceTitan, you’ll increase your profits and be able to create accurate estimates promptly. Want to see ServiceTitan in action? Schedule a call for a free product tour.

It’s Your Turn Now

Now, you know the difference between estimates and proposals and when to use each. While estimates are ideal for small projects, proposals are ideal for large, complex projects with huge budgets and fixed prices.

To learn more strategies for creating estimates and proposals, read these guides:

• Strategies for accurately estimating electrical work and HVAC projects

• A detailed walkthrough of how ServiceTitan’s HVAC proposal app works

• Top electrical estimating applications and how to pick the best one

• The best plumbing estimating digital solutions

You can also use ServiceTitan’s estimate and proposal tools to streamline project documentation and meet customer expectations.

ServiceTitan is an all-in-one platform for field service contractors. It’s the perfect tool for streamlining marketing, field operations, inventory management, and customer interactions. Join the many companies nationwide who use it to grow their revenue.