Accounting terms

Dictionary of all accounting terms

What is an Estimate?

An estimate is an educated guess, based on certain factors the business is knowledgeable of, in providing a potential customer a price for goods and services.

For certain businesses, it is impossible to give standard prices for their goods and services. The reason could be that the skills, materials, time, and labor could be very different for each job based on the customers' needs and other factors.

For this reason, many businesses provide estimates that are, at best, educated guesses at what a job may cost. This is quite different from a quote/quotation, however. Officially, a quote is a fixed price that neither the customer nor the supplier can change once the customer has accepted the quote.

An estimate, on the other hand, isn't binding. For that reason, it is usually best to give a range of prices when providing an estimate, or to provide several estimates for the same job based on different factors.

In order to give a more accurate estimate, it is best to know your business' fixed and variable costs. These include:

  • cost manual labor per hour
  • cost of materials
  • cost of transportation or delivery
  • rent, utilities, insurance, etc.

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