What it means
A client asks an accounting firm to prepare a due diligence report, and before work begins the firm expects 120 hours across two grades and gives an estimated fee. The estimate should say what work is included, such as whether the firm reviews one entity or five and whether meetings, revisions and a final report are covered.
Explain the charging basis too: a time-based estimate forecasts hours at agreed rates, a fixed fee commits to a price for a stated scope, a capped fee sets a limit under agreed conditions, and some firms price by value or project phases. ICAEW's fee information guidance says a firm should make clear when an estimate or quote is not a fixed fee.
It also advises written fee arrangements and advance notice when a quote or estimate looks likely to be exceeded, though local rules and contracts can differ. Complex regulated services can carry specific fee-disclosure duties, so confirm the applicable professional obligations and the actual agreement.
A basic time estimate multiplies hours by rate for each role and adds expected expenses. If a partner works 20 hours at $600 and staff work 100 hours at $200, labour is $32,000, and adding $2,000 of expenses gives an illustrative estimate of $34,000.
List the assumptions that materially affect effort, such as complete client records and timely feedback, and identify exclusions like travel, filing charges, specialist opinions, taxes and unexpected litigation. Use a range when uncertainty is genuine; a document review might reasonably take 80 to 110 hours if the volume is unknown.
State what determines the final amount and whether approval is needed before passing a threshold. Connect the estimate to the engagement letter or statement of work, specifying deliverables, time period, payment schedule, expenses, taxes, change process and who can authorise more work, and confirm which version governs if drafts change.
Track actual effort and committed expenses against the forecast while work proceeds, because a weekly review can reveal incomplete records before extra hours become a surprise invoice. If scope changes, such as a client request for an extra subsidiary review, describe the new work and its cost before doing it where practical, with approval from someone authorised to commit the client.
If the original work simply takes longer, the firm still needs a candid conversation with a refreshed forecast, since an overrun may reflect the firm's own inefficiency, not a charge the client must automatically accept. A client should compare estimates on like-for-like scope, because a cheap quote excluding meetings, data cleanup and taxes may cost more overall, and should ask about qualifications, deliverables and conditions as well as the headline number.
For the provider, estimates support planning and margin control, and comparing actual with estimated hours after the project improves future forecasts. Keep the language simple by saying whether the amount is fixed, indicative or capped, what currency and tax treatment apply and when the client will hear about a change, because the key question is not 'What number did I get?' but 'What does that number buy, and what could change it?'
In practice
Real-world examples.
Example
An accountant estimates $34,000 for a defined review using hours by role plus expenses. The estimate states that it covers one entity, one draft and one revision. A second round of changes would be quoted separately.
Example
A legal team's initial range for a property dispute excludes court filing charges and states that exclusion in writing. The client sees the likely total cost before approving the work. Filing charges are billed at cost when they arise.
Example
A manufacturing client adds another subsidiary to an audit-related review, and the provider gets approval for a revised estimate before starting the extra work. The change is recorded as an addition to the engagement letter. Both sides keep the same record of what was agreed.
Formula
Calculation
Illustrative time-based estimate = sum of (expected hours by role x agreed role rate) + estimated expenses, before any stated taxes.
Worked example: partner 20 hours x $600 = $12,000; staff 100 hours x $200 = $20,000; labour = $12,000 + $20,000 = $32,000. Adding $2,000 of expenses gives $32,000 + $2,000 = $34,000.
Range example: if the review might take 80 to 110 hours at a blended rate of $250 an hour, labour is 80 x $250 = $20,000 at the low end and 110 x $250 = $27,500 at the high end. With $2,000 of expenses, the estimated range is $22,000 to $29,500.
Overrun check: if actual effort reaches 135 hours against the 120 hours estimated, the variance is 135 - 120 = 15 hours, or 15 / 120 x 100 = 12.5% over, and the firm should explain the cause and a refreshed forecast before billing.Case study
Seen in the real world.
This entirely fictional example follows Coral Legal, an invented advisory firm. Its original estimates gave only a total, and clients were surprised by extra review rounds that pushed some invoices above the first figure. The firm began specifying one draft and one revision, tracking time weekly and flagging new requests before proceeding.
When a client asked for a third round of changes, the partner sent a short note giving the extra hours and the revised range, and the client approved it before the work began. The example does not claim every overrun is billable or that an estimate creates a fixed-price contract. The final charge remains subject to agreed terms and applicable rules.
Watch out
Common mistakes.
- Giving a number without stating scope, exclusions or assumptions.
- Waiting for the invoice to tell the client that the forecast was exceeded.
- Treating every estimate as either a guaranteed price or unlimited permission to bill.
Questions
People also ask.
What is a fee estimate?
A forecast of likely professional charges for a stated piece of work.
Is it a fixed price?
No. It is fixed only if the agreed terms make it a fixed fee for the specified scope.
What should it include?
Scope, charging basis, likely amount or range, expenses, exclusions and change process.
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