Business quotes checklist, from first line to sign-off

Before anything else, decide which word you are using. Three unrelated things in business are spelled quote.

A quotation in the literary sense is a passage reproduced word for word, with the speaker or writer named. If the wording is approximate it is a paraphrase, and the quotation marks are wrong.

A market quote is the pair of prices at which a security is currently available: the bid, what a buyer is offering to pay, and the ask, what a seller is asking. The difference between them is the spread.

A price quotation is a statement of what a seller will charge for a defined scope, on stated terms, usually for a stated period. That is the one this page is about, because it is the one that costs money when it is loose.

Below are twelve things a quotation has to settle. Each is a definition you should be able to say out loud before the document leaves your outbox.

What to take away

A quotation prices a scope that is already defined. An estimate is an approximation offered before the scope is settled, and sending one under the heading "Quotation" causes most later arguments.
Twelve elements decide what a priced document actually commits you to, and the three that go missing most often are the validity period, the pricing basis, and the payment trigger.
Fixed price, time and materials, capped, and unit rate are four different commercial deals, not four ways of describing one.

The twelve points

Scope: the specific work or goods being priced. Scope is not the same as specification. Scope says how much and which items; specification says

Twelve points of a quote

Scopehow much and which items
Quotation or estimatedefined or approximate
Validity periodwindow price is honored
Pricing basiswho carries overrun risk
Payment triggerwhen the clock starts

Quotation or estimate.An estimate is an approximation of what something will probably cost, offered before the scope is fully known, and it is expected to move. A quotation states a price for a scope that is already defined. Sending an estimate on a document headed "Quotation" is the single most common cause of a later argument.
Validity periodthe window during which the seller will still honor the stated price. Absent a stated window, the parties are relying on custom and on whatever the applicable law supplies, which is a bad place to be.
Pricing basis.Which of these you choose decides who carries the risk of the work taking longer, and the arithmetic behind it is the contribution margin on the job. Fixed price means the seller carries the risk of the work taking longer. Time and materials means the buyer carries it. A capped or not-to-exceed price is time and materials with a ceiling. A unit rate prices one unit and leaves the quantity open. These are four different commercial deals, not four ways of saying the same one.
Inclusions and exclusions.An exclusion list is the honest half of a quote. Anything a reasonable buyer might assume is included, and is not, belongs there explicitly.
Tax treatment.Whether the stated figure is exclusive or inclusive of tax changes what the buyer pays. Note the asymmetry: what tax is due, at what rate, and who must account for it are set by law and by the parties' status, not by the wording of the quote. A quote can state its assumption; it cannot change the liability.
Currency, and who absorbs conversion.A cross-border quote that names a currency but not who bears the conversion and transfer charges has left a number undefined.
Payment terms.Net 30 means the full amount falls due thirty days after a trigger event. The trigger is the part people forget to define: is it the invoice date, the delivery date, acceptance, or the end of the month in which the invoice was issued? Each produces a different due date from the same words.
Deposit, advance, retainer.A deposit is a part payment that usually counts toward the final price and may be forfeited on default. An advance payment is simply money paid before delivery. A retainer buys availability or reserves capacity, and depending on the agreement may not be credited against work at all. Three different things, routinely written as one.
Change control.A variation or change order is an agreed amendment to scope and price. If the quote does not say how a change is requested, priced, and approved, every later change becomes a negotiation from zero.
Whether it is an offer.In contract law there is a difference between an offer, which can be accepted into a binding contract, and an invitation to treat, which merely invites the other side to make an offer. Which one a quotation is depends on its wording and on the governing law, and the answer differs by jurisdiction. If it matters to you, it is a question for a lawyer in the relevant jurisdiction, and the document's own words will do the work.
Version.A quote without a version marker cannot be corrected safely. When two versions are in circulation, the parties may be agreeing to different documents.

Pairs that get mixed up

What it is

Quotation: A price for a defined scope, from seller to buyer
Bid: A priced response to a formal solicitation, under the rules that solicitation sets
Purchase order: The buyer's document instructing the seller to supply at stated terms
List price: The published price before any deal-specific adjustment
Effective price: What the buyer ends up paying across the whole arrangement, after rebates, credits and bundled items
Discount: A reduction taken off the price before payment

Not to be confused with

Quotation: A proposal, which sets out approach and scope as well as price, and is usually unsolicited or loosely solicited
Bid: A quotation, which the seller writes on its own terms
Purchase order: An invoice, which is the seller's later demand for payment
List price: The quoted price, offered to this buyer, and the net price, after discounts are applied
Effective price: The net price on a single line of a single document
Discount: A rebate, paid back after the fact and usually conditional on volume or behavior

The last row has two more neighbors, an allowance and a credit note, and all

four are separated in the operating word pairs.

Where this goes wrong

Pricing a scope you have not written down. If the scope lives in an email thread and the price lives in a document, the price is the only part anyone can enforce.

Treating a quote as a forecast. A quotation is a commitment to a price. It is not a prediction of what the job will cost you to deliver. Those two numbers are related but they are not the same number, and only one of them belongs in the document.

Letting the validity period lapse silently. An expired quote that both sides keep referring to is a quote that has stopped saying anything definite.

Assuming "net" always means the same thing. Net is a general word for "after deductions", and which deductions varies by context: net of discount, net of tax, net of returns. Say which.

A worked example, entirely hypothetical

Suppose a supplier quotes a flat figure of 1,000 for a piece of work, on terms

Where the quote failed

Quote issued
1,000 flat, net 30, two-week validity, travel excluded
Week three
Buyer accepts after validity lapsed
Later
Travel charge disputed, no pricing mechanism

of net 30 from the invoice date, with a validity period of two weeks and one exclusion: travel. The buyer accepts in week three and later disputes a travel charge.

Three of the twelve points did the damage. The validity period lapsed, so no agreed price remained to accept; the exclusion existed, but no mechanism was stated for pricing the excluded item, so travel was never quoted.

The payment trigger was the invoice date, not delivery, so the clock had started before the dispute surfaced. None of that is about the number 1,000; all of it is about definitions the document never made.

A note on the other kind of quote

Collecting attributed sayings, not prices, takes a different discipline but fails the same way. A quotation needs the wording, the speaker, and the place it first appeared, all recorded together.

A saying with no traceable first appearance is an attribution, not a quotation, and should be labeled that way. See business quotes for that side of the word.

Common questions

Is a quotation binding?

That depends on its own terms and on the law where you are, which is exactly why the validity period and the pricing basis have to be stated. Whether a particular document creates an obligation is a question for an advisor in your jurisdiction rather than for a checklist.

Can I quote a price before the scope is settled?

You can offer an estimate, and label it one. What does not work is a firm price for work nobody has described, because the argument that follows is about what was included and neither party can win it.

Why does the payment trigger matter so much?

Because it decides when the clock starts, and the clock is what determines whether anything is late. The difference between a due date, a deadline and a target date is set out among the asking and chasing words.

Where do the underlying cost figures come from?

From your own records. Nothing here supplies a figure, and general guidance on keeping records that make pricing possible, such as the Small Business Administration's pages on managing finances, is the right starting point. The five answers to what does it cost covers why the price is only one of them.