What is a cost estimate?
A cost estimate is your best prediction of what a job will cost to deliver. You prepare it before the work starts, using the information you have at the time, and you use it to decide on a price, to agree a budget or to decide whether the job is worth doing at all.
It is an estimate, so it is not a promise. As the project becomes clearer, the estimate becomes more accurate. A rough estimate at the enquiry stage might be off by a wide margin. A detailed estimate after a site survey and a full list of items should be much closer.
Cost estimate is not the same as the price you quote. The estimate is what it costs you. The quote is what you charge, which includes your profit.
A simple example to understand it
Meet Anil, who runs a small electrical contracting firm in Mumbai. A shop owner asks for new lighting and wiring in a 600 square foot store. Anil prepares an estimate:
| Cost item | Example amount |
|---|---|
| Materials (cables, fittings, panel, switches) | Sum of priced items |
| Labour (electricians and helper, days needed) | Days multiplied by daily rate |
| Equipment and transport | Tools, vehicle, any hire |
| Overheads (office, insurance, supervision) | A share of running costs |
| Contingency | A percentage for surprises |
| Total cost | What the job costs Anil |
After the total, Anil adds his profit margin to reach the price he will quote. If he skipped the estimate and guessed a price, he might discover halfway through that the job loses money.
Types of cost estimates
- Rough order of magnitude. A quick, early figure with a wide margin, used to decide whether a project is feasible.
- Preliminary or budget estimate. More detail, based on a design and standard rates.
- Detailed or definitive estimate. Built line by line from a bill of quantities and current prices. This is the one you price from.
What goes into a cost estimate
- Direct materials. Everything physically used on the job, with waste allowed.
- Direct labour. Time of the people doing the work, at their full cost.
- Equipment and transport. Tools, machinery, vehicles and hire charges.
- Subcontractors. Specialist work you pay someone else to do.
- Overheads. The cost of running your business that is not tied to one job.
- Contingency. A cushion for the unknown.
- Taxes. Where they apply, such as GST, shown separately.
Cost estimate vs quotation vs budget vs BOQ
| Document | What it is | Who sees it |
|---|---|---|
| Cost estimate | Your calculation of what the job costs you | Mainly you |
| Quotation | The price you offer the client, with your margin | The client |
| Budget | The amount set aside for the job and tracked against actual spend | Your team and management |
| Bill of quantities | The itemised list of work and quantities the estimate is built from | You, and often the client |
Common mistakes with cost estimates
- Forgetting overheads. A job that covers materials and labour but not running costs is a loss.
- No contingency. Something always changes. A cushion avoids a surprise.
- Using old prices. Material rates move, so check current supplier prices.
- Estimating without a site visit. Hidden conditions turn a good estimate into a bad one.
- Never comparing to actual. If you do not review the final cost against the estimate, your next estimate will have the same errors. See job costing.
How ZEP360 handles cost estimates
ZEP360 connects the estimate to what happens next. The site survey is captured on a mobile form, quotations in ZEP Sales are built from the survey data and keep their version history, and a BOQ can be generated from a saved template in ZEP Projects. When the project runs, ZEP Projects tracks actual spend against the baseline budget by category, and ZEP Finance shows project profitability. You can compare estimate with actual on every job, not just the ones you remember.
Related terms
Quotation · Bill of Quantities · Job Costing · Scope of Work · Site Survey · Purchase Order
Frequently Asked Questions
What is the difference between a cost estimate and a quote?
A cost estimate is your calculation of what the job will cost you to deliver. A quote is the price you offer the client, which includes your profit and terms. You prepare the estimate first, then add margin to reach the quote.
How accurate should a cost estimate be?
It depends on the stage. An early estimate may be rough, a detailed one prepared after a site survey should be close. As more information becomes available, the estimate should be updated so that the final price rests on the best figures.
What is contingency in an estimate?
Contingency is an allowance added to cover unknowns, such as price changes, missed items or small changes in scope. It is usually a percentage of the base cost. The right level depends on how well the job is understood.
Who prepares a cost estimate?
An estimator, a project manager or the owner, depending on the size of the business. On large projects, a quantity surveyor may prepare it. The person should understand the work well enough to avoid missing items.
Can a cost estimate change after it is made?
Yes. If the scope, the design or the prices change, the estimate should be revised. Keep each version, so you can see what changed and why.
What is the difference between a cost estimate and a budget?
An estimate is a prediction made before the work. A budget is the amount you commit to spend, which you then track against actual costs during the work. Many budgets start from an approved estimate.
Related Terms
