Businesses that offer customizable solutions allow customers to ideate a product that fits their needs exactly.
While it can’t be too far-fetched, there’s definitely room for buyers to use their imaginations. And once the product configuration is done, it’s time to talk about the price.
A potential customer asking you for a price puts the ball in your court. If you respond to them with a price quotation that is reasonable, accurate, and delivered in a timely fashion, you’re more likely to close the deal.
What is a price quote?
A price quote, more simply referred to as just a quote, is a fixed price for a solution that a seller gives to a buyer. Quotes can come in the form of a written document or verbal communication, and are typically only valid for a predetermined amount of time.
A potential customer asking for a quote is a really good sign as it indicates that they find your solution to be valuable enough to consider buying it.
A quote is a lot like an offer made during a contract lifecycle. The offeror, which in this case is the seller, will send a quote to the offeree, or the buyer. If the buyer is comfortable with the price included in the quote, they will accept, officially enacting the deal. If the buyer wants to send a counteroffer, they can do so, and the deal will move forward until there is an agreed upon price.
Price quotes are common for construction projects and businesses that offer customized products or services. In these situations, when no project is exactly the same, standard pricing models don’t apply, requiring sales reps to craft personalized price quotes for each configured product.
Or if you want to ensure efficiency and accuracy, you’ll let CPQ software do the heavy lifting in that area.
What's the purpose of a price quote?
Price quotes are an essential and informative part of most sales processes, especially for service businesses and companies with complex products.
First and foremost, price quotes are used to help the buyer and seller understand each other. For the seller, they gain insight into what the customer is willing to pay and what they expect out of their business. For the buyer, they see what’s possible in terms of a solution and what it’ll cost. In the industry, electrical construction estimating software or mechanical estimating software can help increase revenue. This added level of transparency can do great things for the relationship you’re working to build with your customers.
Price quotes are also a great opportunity to bring your customers even closer to buying. With everything priced and explained in the quote, this makes the customer’s decision even easier to make.
As you continue to undergo the configure, price, quote process with your customers, this experience with the lifecycle will help you structure your pricing. Businesses with complex solutions that need to be configured and customized for each customer will rarely follow a concrete pricing model. However, structure has its benefits, and going through the price quoting process will help you gain a deeper understanding of your product, business, and customer.
Price quote vs. estimate
Price quotes are often confused for price estimates, but there is a difference.
A price quote, as stated above, is a fixed price offer for a solution that a seller gives a potential buyer. A good quote will be incredibly detailed because if the customer accepts it, no more alterations can be made to it without starting the process all over again.
Before you give a quoted price to a customer, you will already have studied the work to be done, discussed the work with your client, and calculated the total cost.
An estimate is close to a price quote, but it’s not nearly as detailed. Estimates are given to potential clients in the early stages of the buying process.
Before the buyer gets too invested in the solution, they’ll want to know a range of what to expect in terms of prices. While it won’t be exact, a price estimate will give them an idea of what’s to come if they get to the price quote stage.
Unlike price quotes, estimates don’t become binding once it’s accepted by the customer. These pricing tools will also give potential buyers a heads up in regards to certain events that will include additional variable costs. While the estimate will include a potential fixed cost, it’s possible that the price will change once the work is done.
What's included in a price quote?
Price quotes are extremely detailed documents. They need to include every single piece of necessary information regarding the business transaction and will serve as a point of reference for both parties during any potential disputes.
Here are the components of a price quotation that will provide all of the information either party should need.
- Buyer and seller business information: Company name, any business identification data, and contact information for both parties.
- Date of issue: The date the price quote was generated and sent to the buyer.
- What will be provided: The solution being given to the buyer along with any additional details related, such as customer support or trial periods. You might also include a disclaimer regarding services that aren’t included.
- Breakdown of cost: A detailed breakdown of the aspects of the solution being sold, an outline of what the costs will cover, and a description of what might not be covered, if necessary.
- Total cost: The total cost of the entire solution, which must match the breakdown mentioned before.
- Applicable taxes: Any taxes that will affect the final price.
- Timelines: A date by which the quote must be accepted, when the solution will be delivered, the duration of the deal, and when the deal will expire and can potentially be renewed.
- Payment terms and conditions: Include any terms and conditions that apply. When writing this section, you might want to consult a lawyer.
- Payment methods: The method of payment, likely a credit card, and how often it will be collected.
- Signatures: Room for signatures from both the buyer and the seller.
It might look a little something like this.
Again, the most common scenario is that the seller will produce a quote for the buyer, send it to them, and they can then either accept or reject it. Certain big picture details will have already been discussed in previous conversations between the buyer and the seller, so nothing should come as a shock once they receive the price quote.
Tip: Don’t forget to keep track of these interactions in your company’s CRM. Every detail counts!
Accurately pricing your business’ solutions, especially when they can be so complex, takes a great deal of strategy. You want to offer the best price for your customers, but you also need to make a profit. Your business’ pricing strategy will often revolve around a pricing model.
Businesses will typically implement one of the following pricing models for their solutions:
- Cost plus pricing: calculating your costs and then adding a mark-up for your profit margin
- Competitive pricing: setting your prices based on what your competitors do
- Value-based pricing: gauging what customers consider to be the monetary value of your solution and pricing it accordingly
- Price skimming: starting at a high price and lowering it as the market evolves
- Penetration pricing: starting at a low price and raising it later on, usually implemented when entering a highly competitive market
Pricing a quote
Price quotes, when accepted by the buyer, become legally binding agreements, so it’s important to put a good deal of thought into quote generation. Here are some questions you should ask yourself when pricing any quote:
Do I understand what the client is requiring of my business?
If you aren’t completely certain about what the customer wants from you, go back and talk to them. Make sure you know exactly what they’re expecting so you can price it correctly. It’s better to be 100 percent sure than to send an inaccurate quote. It might make the customer lose interest.
Can I meet those requirements?
Take an honest approach to determine if you can meet the needs of the customer and within the designated time frame. If you can’t, let the customer know, and don’t sweat it. If it isn’t possible for you to provide, the relationship would’ve been damaged from the start.
Are all of my prices and costs up to date?
Markets evolve, and so do businesses. Before you send a price quote, double check that all of your costs and pricing models are up to date. If those things change, so should your prices.
Will I make a profit with the price I am offering?
You want to provide for your customer, but you still need to benefit from the relationship, too. Make sure the price you offer is setting you up for a profit.
Tips for writing a price quote
An effective price quote is a great way to start off your relationship with the customer on a positive note and win their business. If you send an inaccurate quote over to a potential customer, it’s another hurdle they need to jump over to make a purchase.
Here are some quick tips for ensuring your price quotes get accepted the first time around:
- Make sure it’s constructed well: Offer the customer a nice, clean, easy to read layout. Use clear, concise, and comprehensive language. Include a call to action at the end with an acceptance process. The better the quote, the more likely it’ll be accepted.
- Send them fast: After a customer requests a quote, get it to them quickly. You don’t want to be forgotten.
- Automate where you can: Use CPQ software to automate the complicated parts of pricing a quote, and implement a contract management system to keep everything updated in real-time if the customer accepts the offer.
- Follow up if you don’t hear back: After you’ve gotten the customer their price quote, give them some time to review and then follow up. Keep the deadline in mind.
- Analyze: If you’re getting plenty of prospects to the price quote stage, but not enough are converting into customers, analyze your processes and identify what isn’t working. Even if you’re getting a decent number of conversions, check in from time to time to see if the process can be further optimized.
Communicate your value
A price quote is a formal document that becomes a part of the legal side of your selling process. But it’s also a perfect opportunity to communicate the value of your solution to your prospect.
You want to offer a realistic price, but you also need to show them what you’re worth. The beauty of price quotes is that they can serve both of those purposes.
If you’re new to the legal side of acquiring a new customer, check out our list of free contract management software to ensure compliance.