A new business or small business can win or lose due to price quotes. Hence, it’s crucial to get the pricing right.
Apart from the product or service quality, pricing is the most influential purchasing decision driver for customers. Customer asking a business for pricing means the ball is in your court. Only a right and solid response can successfully close the deal. This all concludes that better your price quote, better your chances to convert it into sales.
All that said, let us know in detail that
What is a price quote?
A price quote is a fixed price of a product or service conveyed by a seller to a buyer (either written or verbal). Quotes are usually valid only for a limited time that’s predetermined. Once the customer agrees with the quote, the price cannot be changed. Even the supplier has to perform all the tasks as mentioned in the quote.
A price quote that is accurate, reasonable and handed over to the customer in a timely manner is likely to reach an agreement.
What is the purpose of a price quote?
The moment when a customer asks what a quote means the customer, is seriously interested in the deal. So without further ado, prepare a quote that states the clear cost of the works, offered to the customer.
Price quote is very useful for running service businesses.
The purpose of a price quote is:
- To prevent the business from fluctuating prices.
- Provide a customized price to the customer for the job that will be offered.
- To help the business and customer to understand each other.
- To know if the customer is willing to pay the quoted amount.
- To understand customer expectations.
- To add transparency with no hidden costs and enhance customer relationships.
- To ease the customer’s decision-making process.
By stating the cost quote, terms and conditions clearly you are also putting across to your customer that your business is legal. This will encourage them more to do business with you.
Note – Labour cost might be fixed but the cost of materials may vary. So it is necessary to analyze all the costs that may change and costs that are fixed before deciding the price quote.
To update your knowledge base on price quotes, let’s take a look at some related terms as well.
What is a quote in a business?
The moment you make a mistake in pricing, you’re eating into your reputation or your profits.Katharine Paine
As per Havard studies, even a 1% improvement in your pricing strategies could help you earn 11% profit. Quotes are a crucial part of the business which goes either verbally or in written form, which is basically a promise made from the supplier end to provide a product or service to the customer at the mentioned price. The supplier prepares it and provides it to the client, which when it gets accepted by the client becomes an agreement that binds both the supplier and the client.
What is a sales quote?
A sales quote is as similar as a price quote that is produced by the supplier and provided to the customer. It quotes the prices of products, services or even both. Besides quoting the price for each unit, it also highlights the quantity of products, discounts, product description, taxes, terms, and conditions.
Sales quote or sales quotations can get accepted as well as rejected. But after acceptance, the sale order is processed, which highlights the similar information as in the quote.
Difference between a quote and estimate
Quote and estimate are terms that are often used interchangeably but if you are into the business you can’t make the mistake of treating both the same. Don’t get confused.
As already discussed, a price quote is a fixed price stated by the business to the customer. Since the quote is derived after discussing the requirements, studying the work meticulously, analyzing each and every cost involved, it’s made detailed and accurate. This means, once the customer accepts the quote, no further changes will be made and that would be the final price. It also holds a legal value in many countries.
The estimate, on the other hand, is similar to the price quote but not the detailed one. It gives the customer a rough idea about the cost. However, it cannot be treated as the final price as the price may fluctuate, the additional cost can be added when the work is in progress. An estimate states the potential fixed cost which likely can be modified depending upon the work. It has less legal value.
If your customer is not aware of the difference, better let them know.
What to include in a quotation?
Price quote is a detailed document that also is legally binding. It should be accurate, comprehensive and contain all the necessary information that a customer needs to know.
Here are the significant details, you need to include in your price quotation:
- Standard business information like business/company name, address, email address, contact details.
- Customer/Client information like client name, customer ID number, contact details.
- The date of Issue is the date when the price quote was generated.
- Itemized entries and detailed breakdown of all costs for transparency and more clarity.
- Any applicable taxes such as sales tax etc.
- The total cost includes all the breakdown costs and applied taxes.
- Due date when the product or service will be delivered.
- Payment terms that states the payment due date. For eg: Net 30, Net 60, EOM (end of the month).
- Payment method whether in cash, credit card, debit card or using any trusted payment gateway.
- Your terms and conditions but in a plain language. Don’t confuse the customer with legal jargon.
- Your signature along with date and space for customer’s signature as a sign of acceptance.
Expert tip: Follow all these interactions and update those in the company’s CRM. You never know when you need them!
Additional tips to get your price quote accepted faster
What all matters is winning a business as that would be the source of revenue. For that you need to create effective pricing quotes. You have added all that is required, but a few additional tips will help you stand out from others. Check out what you can do to get your price quote accepted faster!
- Create a well-organized and impressive price quote. Keep your quote clear and comprehensive to make it impressive. Including a call-to-action with an acceptance process at the end will prove your professionalism. Create a well-constructed quote to make your sale happen at the very first time.
- Try sending your price quote within 24 hours. Consider your cloud accounting software to create your quote and reinforce the client’s decision.
- Do follow up the status of your quote within two or three days. There is no perfect time to follow up. After sending the quote through mail, follow up with a phone call to check if your clients have received the quote. This improves your chances of winning the project.
- Implement a quote engine on your website. This works great for simple or fixed-cost quotes and sends a quick response to your potential clients even when you are not available.
- Automate your pricing technique wherever you can. Implement CPQ software to simplify complicated parts and use contract management to update in real-time once the customer accepts your quote.
- Implement the feedback for rejected quotes to make improvements. Suppose a customer rejects your quote, ask to know why! This will help you to implement the changes and make improvements for the future quotes.
Accurately pricing can help deal with complex business finances seamlessly. So, take a look at the pricing strategies!
Business pricing strategies often work out following particular pricing models. Here are some:
- Competitive pricing: This is mostly followed by businesses, as owners set their prices based on what their competitors do.
- Value-based pricing: Determining prices primarily depending upon what customers perceive the value of goods or services.
- Price skimming: Setting higher prices then lowering it as per market trends.
- Penetration Pricing: This is just the opposite of price skimming. Starting with low prices and then gradually increasing it depending upon competitive market trends.
- Cost plus pricing: Simply calculating cost and adding the markup to determine the profit range.
Points to consider for effective pricing strategy
Think carefully, create meticulously. Since your price quote is your final stated price, make sure you follow a great deal of strategy. Your motto is to make a profit as well as fulfil customer needs. You can only make a profit if the price looks convincing to the customer.
Here are a few questions, you need to ask yourself before quoting a price to the customer:
Be honest and answer yourself whether you fully understand customer requirements or not. In case of doubts, feel free to contact your client again and get your queries resolved. Also, let your customer know honestly if you can meet those requirements.
Never over-commit, it may backfire. Determine that if you can meet the customer needs within the decided time frame. Do you have enough resources, is the timeline favourable, think of all the factors that can affect the deadline.
The market keeps on evolving and so will be the prices. Some materials cost may vary from season to season. Before creating the quote, analyze the fixed costs, variable costs properly, check if they are up to date and also consider currency exchange rates, if needed. Everything that can affect the final price should be scrutinized before sending the price quote.
End of the day, we all work to earn and make those profits, isn’t it? Keep this ultimate motto in mind. You have to manage the customer relationship by offering the best price but also don’t forget to keep a sensible profit margin.
Is quoting for a product or service the same? Take a look!
|Quoting for products||Quoting for services|
|Quantities– Confirm whether you would be able to provide the requested quantity before you quote.||Accurate record– Track the time you invest in specific tasks, as you would need those while budgeting and quoting.|
|Logistics– Check your logistics first to ensure that you won’t incur prohibited cost while carrying out the order.||Compare the job– Improvise your quote by referring to the previous contacts and experiences of your peers and seniors.|
|Delivery– Make arrangements after you confirm whether your customer wants the product to be delivered or not.||Be realistic– Fair quote your prices considering the amount of time you invest in a particular set of tasks and provide a clear description of scope of work to avoid misconception.|
|Overhead cost– Check thoroughly to figure whether the entire process is shrinking your profit margin by adding extra cost.||Additional cost– Do not compromise on additional costs incurred by certain reasons and provide proper description of each to avoid misunderstanding.|
With all this guidance, you will undoubtedly learn the price quote process and improve by putting it into action.
Prices in the quote do not change usually. But in case of an immediate upgrade or a sudden change could bring out slight change in the values.
For example, while upgrading a client’s office computers the client might demand for more memory space after the quote has already been prepared. In that case new changes can be implemented.
Generally quotes are valid upto 15 days unless the prices are dependent on exchange rate and for that it might be valid for just 7 days. Moreover, in some cases the validity of the offer also depends upon the content and delivery period and it might cause a fluctuation in the rates.
A quote is legally binding if it is a part of contract and hence, in such a case neither of the parties can withdraw it without the consent of the other.