How to Provide an Estimate to Win That Sale
Quotes and estimates come about through efficient and effective communication and help keep you ahead of the competition. Learn more here.
Estimating is a risky business, but without that first step, you won’t close any deals. You need to be as accurate as possible, but you have to do it quickly as well. There are good tools to help you estimate the costs and effort of a project. But first, you must rely on your knowledge, your team's skills, service/equipment limitations, suppliers, and resource loading.
The keys to making a good estimate are not complicated: be quick about it, draw on sufficient information, and understand what goes into the work. Let’s look at it in more detail.
To provide an estimate quickly, you should aim for several key factors:
- Gain a clear understanding of the project’s scope and the client's expectations.
- Respond quickly. It’s not uncommon for a potential client to take the first well-constructed proposal because that eases their delivery worries. If you’re first, 3 times out of 10 you’ll win by default.
- Be as accurate as possible with your predictions.
- Build enough risk margin into your proposal. Simple projects carry less risk, but it’s still non-zero.
- Maintain professionalism throughout the process.
To answer a prospective client’s RFP/RFQ (Request For Proposal/Quotation), you must delineate the real materials, logistics, equipment, schedule, and labor costs that you expect the project to require. All that information must then be presented in a simple, accessible, and professional way to close the deal.
As a rule, clients will not see your inner workings. They receive a final product/service price with a schedule and explanation about quality issues. Sometimes it pays to disclose more, especially if you already have a trusting relationship with them. You’ll need to use your own judgment about when additional disclosure is valuable.
An estimate for a flat CNC-machined part can be simple and precise. An estimate for the tooling and manufacture of an injection molded part can be a much more involved process, drawing on more knowledge and wider team interoperability. An estimate for PBCa, mold tooling, parts, and box-build of a consumer electronics product can become an even larger undertaking. And some experts have to make quotes to build entire production plants. As you might expect, this can contain a minefield of potential uncertainties and complex interactions that must all be balanced.
Start by making sure you understand the client's scope and expectations, such as:
- What services do they require?
- What’s their target delivery date?
- What quantity of product is required over what time period?
- What quality and inspection compliances are required?
Some clients may not know all the details of a job and can only tell you what they want the final result to look like. In this case, you’ll need to make suggestions. For larger estimating tasks, it can be valuable to visit the client to fully understand the project so you can clarify to them the uncertainties that result from unstated requirements.
This early-stage discussion, whether remote or in person, builds the foundations for your relationship. Nobody likes surprises downstream. Most troubles can be avoided by clarifying requirements and discussing the cost/schedule risks right at the start. While you DO need to close the client, you DO NOT need to set landmines in the project that will undermine confidence when they cause problems later.
You must collate several strands of information before you can build your estimate, including:
- Direct Materials Costs: The physical objects and materials you’ll need in order to fulfill the client's requirements.
- Direct Labor Costs: The number of team hours required to complete all tasks, multiplied by your standard in-house labor rate(s).
- Manufacturing Overhead: This includes facilities, outsourcing and insourcing services, logistics, power, water, indirect labor costs, and more.
- Scheduling: You need a clear picture of the manufacturing workload before you can commit to a realistic delivery schedule.
- Margins: Your standard, optimistic, and discounted profitability as a proportion of the net costs of the job will be part of your everyday toolkit.
Note that you need to be able to process this data quickly. There’s a fine balance to be struck between getting every detail right (for secure pricing) and delivering a fast estimate (to win the job). Experience will help you balance these two competing demands. Remember, you may have a lot of information to gather and integrate, but so do your competitors.
Estimating the project gives you and your client a clear picture of what is required to get the job done. When both parties understand the whole picture, you can make a proposal that satisfies the client's needs, offers peace of mind, and makes a profit for you as the service provider. Listed below are some tips to remember:
A simple, top-level project plan will let you visualize all interrelationships involved in the work and give you a picture of the schedule and necessary resources. Sometimes this can be a simple waterfall task/timing/resource list. For more complex projects it often pays to build a Gantt chart or something similar for a detailed and flexible analysis.
Your estimate must be based on a confident understanding of the client's needs, your own capabilities, and any subcontract or materials constraints. You should:
- Understand your own team's capabilities. Focus on both the people AND the numbers.
- Extract both the obvious and hidden details from the client. Uncertainties must be cleared up at the start because your pricing will quickly get fixed in the client’s expectations and planning. Subsequent adjustments for ‘new’ facts will be uncomfortable.
- Successful estimates are built on strong working relationships. The more you know about work, processes, and existing schedules, the stronger your estimating capabilities will be.
- Include your team and your outsources in the estimation process because they have specialist knowledge that you may be unaware of.
- Understand your customers and your own company's project management process.
- Engage the stakeholders in your wider team (including outsources). Seek support from those experts rather than studying and responding independently.
- Learn about project estimation techniques and methods and keep abreast of the tools and approaches that work for others.
If the provision of client estimates is a regular or even occasional part of your role, then an ongoing learning program will help you win business. It can also be an invaluable career development tool. There are four core approaches that are commonly applied:
- Top-Down Process: This approach uses a broad view of the entire project, estimating major phases of work as whole blocks. This method is fitting when you have limited information and the client understands that there will be contingencies as the details become clearer.
- Bottom-Up Estimating: This is more precise than a top-down process because it works upward from individual tasks and then aggregates a series of sub-estimates to build a client proposal.
- Analogous Estimating: You base this estimate on the transfer of knowledge from a recent similar project, adjusted for current constraints and material/service costs.
- Three-Tier Estimates: Though technically a safer route, three-tier estimates can be hard to convince a new client with. This approach uses the best data available to produce three prices: lowest, highest, and expected. This allows for contingency planning and can be useful when the project details are lean or subject to change. In some cases, an average of the three prices can be offered as the project budget, although this blunting of contingencies can distort pricing up towards non-competitive levels. Your choice may depend on the nature of the client relationship.