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Contractor glossary

Estimate

Updated

Definition

An estimate is a contractor's expected price for a job, based on the scope as it's understood before work starts. It tells the customer the price could change if the work turns out different, but whether it binds you depends on its wording, the customer's acceptance and your state's law.

Also called: Job estimate, Written estimate

Estimate, quote or bid

People use these words loosely, so say on the page which one you mean. Typical usage:

Term What it usually means How firm
Estimate Your expected price, based on the scope you can see Can change if the scope or conditions turn out different
Quote A fixed price for a defined scope Firm for that scope until it expires
Bid A price submitted to win a job, often against other contractors and to someone else's spec Firm on the terms of the bid

The wording matters more than the label: an "estimate" that shows one number with no conditions will read like a fixed price to the customer.

When an estimate binds you

Treat any estimate a customer signs as a contract, because that's how they'll read it. Whether the number legally holds you depends on what the document says, what you both agreed and your state's contract and home improvement laws, so have a lawyer review your estimate and contract templates once. Three habits keep an estimate from promising more than you mean:

  • Say what the price assumes. "Assumes the existing shutoff valve can be reused" tells the customer exactly what could change the number.
  • Say how changes are handled. Promise to stop and get written approval before extra work, then keep that promise with a change order.
  • Give it an end date. Material prices move, and an estimate with no expiration can be accepted months later at the old price.

When the real scope can't be known until you open things up, price the unknown part as time and materials with a cap, or charge for the diagnosis first.

Example: A plumber writes a $2,000 estimate to replace a water heater. It says the price assumes the cold-water shutoff above the tank can be reused, and that if it can't, they'll stop and get written approval before replacing it. On the day, the valve is seized. The plumber shows the customer, writes a $150 change order, gets a signature and finishes. The final invoice is $2,150, exactly what the customer approved. Without that line, the same $150 looks like a bait and switch. The numbers are made up for illustration.

What customers look for

The FTC tells homeowners that a written estimate should describe the work, the materials, the completion date and the price 1, and its advice on home repair scams tells them to get three written estimates 2. Assume yours will sit next to two others, and make it easy to compare:

  • The scope in plain words, and what's excluded (see scope of work)
  • Materials by brand, model or spec, not "standard materials"
  • When you can start and how long the job should take
  • The price, what it assumes and when the estimate expires
  • Payment terms and any deposit. The FTC tells homeowners not to pay the full amount up front and notes that some states limit down payments 1, so check your state's rules first.

Common mistakes

  • The phone ballpark. A number given over the phone becomes the number the customer remembers. If you give a range, say what it depends on, then send a written estimate once you've seen the job.
  • Pricing from memory. Build every number from materials, labor hours and markup; markup vs margin shows the math.
  • Silent exclusions. Writing "drywall patching not included" heads off an argument; leaving it out starts one.
  • Send and forget. An unanswered estimate isn't a no. Follow up on a schedule and track your close rate.

How it connects

Good-better-best pricing turns one estimate into a choice of options. For what belongs on an estimate in your trade, see the guides for HVAC, roofing, plumbing, electrical and pressure washing estimates, solar proposals and ceramic coating quotes.

Go deeper

GuideHow to Follow Up on Quotes Without Being PushyA quote follow-up plan for contractors: a cadence by job size, text and call scripts for each touch, honest options, when to stop and how to track close rate.GuideHow to Handle Change OrdersA contractor's process for change orders: the contract clause, what to say on site, what the form must include, how to price changes and how to bill them.GuideHow Much Deposit Should a Contractor Ask For?How to size a contractor deposit from what you'd lose if the customer cancels, check state limits and cancellation rights, and write terms customers sign.GuideMarkup vs Margin: The Difference That Costs Contractors MoneyMarkup divides profit by cost; margin divides it by price. The formulas, an exact conversion table, the costly mix-up and how to price to a target margin.
BidA bid is a firm price a contractor submits to win a job, usually in competition with other contractors and priced to plans, specs or a scope someone else wrote. If it's accepted, you're expected to do the work for that price on the terms of the bid.Scope of workA scope of work is the written description of exactly what a job includes and what it excludes: the tasks, materials, quantities, locations and standards of finish. It's the part of an estimate or contract that defines what the price buys, so anything outside it needs a change order.Change orderA change order is a written amendment to your contract that changes the scope of work, the price or the schedule, approved by the customer before the changed work starts. It records what changed, the added cost or credit, the new contract total and any new completion date.Time and materialsTime and materials (T&M) is a way of pricing work where the customer pays for the actual labor hours at an agreed hourly rate plus the materials used, at an agreed price. It fits work whose size you can't know until you start.Good-better-best pricingGood-better-best pricing means presenting a customer with three options for the same job, each a complete solution at a different price, instead of a single take-it-or-leave-it number. The tiers differ in materials, features or warranty, never in whether the job is done right.Close rateClose rate is the share of quotes or leads that turn into booked jobs over a set period. It's jobs won divided by quotes given (or leads received), times 100, and it's most useful split by lead source, job type and who quoted.

See every term in the glossary

Sources

  1. How To Avoid a Home Improvement Scam Federal Trade Commission
  2. Home Repair Scams Federal Trade Commission

Rules and figures change, and many requirements vary by state and city. Check the current version of each source and your local authority before acting, and talk to a licensed professional about your specific situation.