Quotation Price

A quotation can win a customer or lose a sale. But there’s another risk: setting a price so low that you win the work and still lose money.

For small business owners, quotation pricing can be tricky. You need to cover material, labour, delivery, overheads and taxes while keeping the final price fair for the customer.

The right quotation price should cover your costs, leave room for profit and make the offer easy to understand. This guide explains how to work it out in simple steps.

What Is a Quotation Price?

A quotation price is the amount a business proposes to charge a customer for specific goods or services. It normally shows what the customer will receive, the price, taxes, payment terms and other conditions.

A good quotation does more than show one number. It gives the customer a clear idea of what they are paying for.

For example, a service quotation may include:

• Service or product description

• Quantity

• Unit price

• Labour charges

• Delivery or shipping costs

• Discount, if any

• GST, where applicable

• Total amount

• Payment terms

• Quotation validity period

This also helps both sides avoid confusion later.

How to Calculate Quotation Price

You don't need a complex system to work out a quotation price. Start with your real costs.

1. Add Your Direct Costs

First, list costs that relate directly to the order.

These may include:

• Raw materials

• Product purchase cost

• Labour

• Packaging

• Delivery

• Outsourced work

• Installation charges

For example, suppose a small business has a total direct cost of 500 for a customer order.

2. Add Overheads

Next, consider costs that keep your business running. These may not relate to one order but still affect your pricing.

Examples include:

• Rent

• Staff salaries

• Software

• Electricity

• Internet

• Accounting costs

• Marketing expenses

Ignoring these costs can make a quotation look profitable when it isn't.

3. Add Your Profit Margin

Now decide how much profit you need from the job.

A simple margin formula is:

Profit Margin = (Selling Price − Cost) ÷ Selling Price × 100

For example, if your total cost is 500 and you quote 625, your profit is 125. Your profit margin is 20%.

Don't confuse margin with markup. Markup is calculated from your cost, while margin is calculated from the final selling price.

Should GST Be Added to the Quotation Price?

For businesses operating in India, GST may need to be shown separately where applicable.

So, don't simply add a tax amount without checking the business's GST position and the nature of the supply. The tax treatment can depend on the transaction and applicable GST rules.

For businesses covered by e-invoicing requirements, remember that an e-invoice is different from a quotation. E-invoicing applies to specified GST documents such as tax invoices, credit notes and debit notes.

Your quotation should make it clear if the quoted amount is inclusive or exclusive of GST.

What Should a Small Business Include in a Quotation?

A clear quotation should answer the customer's basic questions before they need to ask.

Include:

1. Business details – Name, address and contact details.

2. Customer details – Customer or company name and contact information.

3. Quotation number – Helps you track the quote.

4. Date – Shows when the quotation was issued.

5. Product or service details – Explain what you're offering.

6. Quantity and rate – Show the calculation clearly.

7. Discounts – State any discount separately.

8. Taxes – Show applicable GST or other charges.

9. Final quotation price – Make the amount easy to find.

10. Terms – Include payment, delivery and validity conditions.

This format makes your quotation easier to read and easier to compare.

Common Quotation Pricing Mistakes

Small businesses often make pricing mistakes without realising it.

Quoting Too Low

A low price may attract the customer, but it can hurt your cash flow if the quotation doesn't cover your costs.

Copying Competitors

Your competitor's price may be based on a different cost structure. Instead, calculate your own costs first and then compare market prices.

Forgetting Small Costs

Packaging, delivery, payment fees and last-minute work can reduce your profit. Include costs that seem small but occur often.

Not Setting an Expiry Date

Supplier prices and operating costs can change. A quotation validity period protects you from having to honour an old price for an indefinite period.

How to Make Your Quotation Price More Competitive

Competitive doesn't always mean cheapest.

Start by knowing your costs. Then check what similar businesses charge and what customers receive at that price.

You can also offer different packages. For example:

• Basic: Core service only

• Standard: Core service plus useful extras

• Premium: Full service with additional support

This gives customers a choice without forcing you to reduce your price.

Also, review your quotations after each project. Compare the quoted cost with the actual cost. This can show where your estimates are too low.

Final Checklist Before Sending a Quotation

Before sending your quotation price to a customer, check:

• Have all direct costs been included?

• Have you allowed for overheads?

• Is your profit margin reasonable?

• Is GST treated correctly?

• Are discounts clearly shown?

• Are payment terms clear?

• Is the quotation valid for a set period?

• Does the final amount match your calculations?

A few minutes of checking can prevent an expensive mistake.

Conclusion

A good quotation price is not simply the lowest amount you think a customer will accept. It should reflect your costs, profit target, taxes and the value of what you provide.

For a small business, the best next step is simple: review your last few quotations, compare the quoted price with your actual costs and adjust your pricing where needed.

If your business needs help with accounting, financial reporting or quotation pricing, speak with a qualified accounting professional before making major pricing decisions.

Frequently Asked Questions

What is a quotation price?

A quotation price is the amount a business proposes to charge a customer for specified products or services. It can include costs, discounts, taxes and other agreed terms.

How do I calculate a quotation price?

Start by adding direct costs, overheads and the profit you want to earn. Then account for applicable taxes and clearly state the final amount.

Should GST be included in a quotation?

It depends on the transaction and the business's GST position. A quotation should clearly state whether the quoted amount includes or excludes applicable GST.

What is the difference between quotation price and invoice price?

A quotation is a proposed price given before the sale or service is completed. An invoice is a bill issued for payment after a supply has taken place, subject to applicable rules.

How long should a quotation be valid?

There is no single period that suits every business. Set a validity period based on how quickly your costs, supplier prices or service rates can change.