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Proposal vs. Contract: What's The Difference?

Not exactly sure what's the difference between a proposal and a contract? You're in the right spot! We explain what these documents mean for your business — in plain language, no fluff.


Looking to understand the differences between proposals and contracts?

You're in the right spot!

Let's break down what these vital documents mean for your business—in plain language, no fluff.

Key Takeaways

  • Proposals show your clients why they should pick you and set clear expectations for what they'll get. They are like a promise of what's to come.
  • Using project details in both a proposal helps everyone understand the full scope of what you're offering.
  • Contracts make everything official and keep everyone safe. They're like a handshake that turns into a written promise, a real legal document that everyone agrees to follow.
  • Knowing how proposals prevent financial disputes is super important. They help you spell out everything upfront so there are no surprises later.
  • When you write these documents, make sure they're easy to understand.
  • Include all the must-have parts like when and how payments will be made, what happens if things don't go as planned, and all the important legal documents stuff to protect everyone involved.

What is a proposal?

Think of a proposal as your business's first handshake with a potential client; it's a formal introduction and a pitch all rolled into one.

A proposal outlines what your business can do for the client, detailing the services or products you offer, and how they benefit the prospect.

It's not just a price tag; it's your chance to shine and show why you're the best fit for the job.

  • Purpose: To persuade a potential client or partner
  • Content: Services or products offered, benefits, and pricing
  • Outcome: Aiming for a business agreement

Remember, a proposal is not a legally binding document; it's a starting point for negotiations. It's where you lay out the potential of a partnership, and if all goes well, it's the precursor to a contract.

Your proposal is your business's promise, a snapshot of what you can deliver. It's not just an outline; it's your first handshake with a prospective client, showing them what you're all about.

This really important stage is where you start building a mutual agreement, the road to a successful partnership you both aim for.

And creating a proposal without an appropriate tool isn't an easy task. Below you can find a handpicked list of the best proposal tools for freelancers and micro/small companies.

Needless to say, the easiest option is to create a free Propoze account and start creating those winning proposals in less than a few minutes!

How to Choose The Best Proposal Software As a Freelancer
You’re for the best proposal software for your freelance business? Here is our list of the 7 best proposal software on the market!

Why do you need a proposal?

Think of a proposal as your business's first impression; it's your chance to show potential clients not just what you can do, but how you plan to achieve it.

Proposals are your pitch, laying out the services or products you offer in a way that's meant to persuade and inform.

They're not just about selling; they're about setting expectations and starting a relationship on the right foot.

  • Sales proposals are essential for businesses to pitch products/services.
  • Freelancers benefit from clear, concise proposals to close deals effectively and stand out professionally.

A well-crafted proposal can be the difference between landing a new client or watching them go to a competitor.

It's your opportunity to demonstrate your understanding of their needs and how you intend to meet them.

Plus, a proposal can serve as a preliminary agreement, outlining the scope and terms before a formal contract is drawn up.

Remember, your proposal is more than a document; it's a strategic tool. Use it to clarify your value proposition and set the stage for successful negotiations.
9 keys to a perfect sales proposal
Image source: Salesforce

What is a contract?

At its core, a contract is a promise that the law will enforce.

It's a binding agreement between two or more parties, each with obligations that are legally enforceable.

Think of contracts as a powerful asset for your business, especially when you're kicking off a new project.

They make sure that everyone involved in the project is clear about what they need to do and helps in contracting value from the deal.

Contracts come in various forms, and understanding the different types is crucial. For instance, a Valid Contract meets all legal essentials, including offer, acceptance, and consideration.

It's the gold standard of contracts, ensuring all parties are on the same page and the law backs the agreement.

But remember, a contract is a serious promise; breaking it can lead to legal issues.

Here's a quick rundown of the types of contracts you might encounter:

  • Valid Contract: The whole package, legally binding and enforceable.
  • Void Contract: Lacks legal effect from the start, like an agreement based on an illegal act.
  • Voidable Contract: Valid until one party decides to cancel due to certain legal defenses.
Most important contract-related mistake statistics
Image source: Adobe

What goes into a contract?

When it comes to contracts, the devil is in the details.

Every contract should clearly outline the expectations and obligations of all parties involved.

This includes the offer, acceptance, and consideration, which are the bedrock of contract law.

But there's more to it than just the basics. Here's a quick rundown of what you should include:

  • Offer: The proposal one party makes to another.
  • Acceptance: The agreement of the other party to the offer presented.
  • Consideration: What each party will give or do in exchange.
  • Capacity: The legal ability of each party to enter into the contract.
  • Legality: The requirement that the contract's terms and purposes are legal.

A legal contract isn't just for show; it's a serious promise you're making. Make sure you double-check all the info and that everyone involved really understands what they're agreeing to.

Don't rush—make sure you're happy with everything before you sign that signed contract.

Whether you're dealing with a standard form or a custom agreement, never underestimate the power of negotiation. Create the contract to fit the project's needs and protect your interests.

A solid contract means smooth sailing for your project, and it's a way both contracting parties can trust and respect each other's promises.

6 key components of a business contract
Image source: Revv

Proposals vs. contracts — what's the difference

Here's how proposals and contracts differ in purpose, function, and content.

What is their difference in purpose?

When it comes to proposal vs contract, it's crucial to understand that each serves a distinct role in the business process.

A proposal is your initial pitch.

It's where you outline what you can offer, the project scope, deliverables, timelines, and budget. Think of it as your opening move in a strategic game, setting the stage for what's to come.

On the flip side, a contract is the formal agreement that seals the deal.

It's the document that says, "We're in this together, and here's how it's going to work."

Contracts lay out the obligations, terms, and conditions that both parties have agreed to. It's your safety net, ensuring everyone's on the same page and legally bound to their promises.

To put it simply, a proposal is a suggestion, while a contract is a commitment.

Understanding the distinction between the two is not just about semantics; it's about recognizing the progression from a potential opportunity to a concrete partnership. Here's a quick rundown:

  • Proposal: A document that asks another company to do business with you.
  • Contract: A legal agreement that outlines the specifics of the business relationship.

How they work together?

When it comes to the nitty-gritty of business dealings, proposals and contracts are your financial armor.

They're more than just forms; they're your plan to prevent confusion and avoid expensive disagreements.

Here's how they work in tandem:

  • Proposals lay out the initial terms and expectations. They're the blueprint of what's to come, detailing the scope, timeline, and cost. Think of them as a handshake agreement that sets the stage for formal negotiations.
  • Contracts solidify those terms into a legally binding agreement. They're the nuts and bolts that hold the project together, ensuring everyone's on the same page. A well-drafted contract includes clear deliverables, payment schedules, and provisions for changes and extras.
By clearly defining the roles and responsibilities from the outset, proposals and contracts minimize the risk of financial disagreements. They ensure that both parties understand what's expected, reducing the likelihood of surprise costs or scope creep.

Remember, it's not just about having these documents; it's about making sure they're comprehensive and reflect the true intent of the business relationship.

So, when drafting your next proposal or contract, keep in mind the wise words from the Program on Negotiation at Harvard Law School: In contract negotiations, agree on how you'll disagree.

And after you've sent your proposal, there's a good chance you'll have to follow up with the client to get a positive response. Here's how to do it. 👇

How to Follow Up After a Proposal (Guide + Templates)
Find out how to write and send a follow-up email after sending a sales proposal.

Transforming a proposal into a contract

You've written a proposals, the client is satisfied, and now is looking for you to send over a contract? The best thing to do here is – simply transform your proposal into a contract!

How to turn a proposal into a contract?

Turning a proposal is where you solidify your initial pitch into a binding agreement.

Start by ensuring all parties are crystal clear on the terms.

This means double-checking the details of the proposal and making sure they align with your client's expectations and your own capabilities.

  • Review the proposal thoroughly, noting any areas that need clarification or adjustment.
  • Negotiate terms that are fair and beneficial for both sides. Remember, this is a collaborative effort.
  • Finalize the details and draft the contract, incorporating all agreed-upon terms.
  • Obtain signatures from all parties involved to make it legally binding.
It's essential to include accurate owner information and a detailed payment schedule in the contract. These elements are the backbone of a legally binding document.

Always be prepared to negotiate the final contract terms. Don't rush into signing something that doesn't sit right with you.

The goal is to create a contract that reflects the true spirit of the proposal, ensuring a clear path forward for the project's delivery.

Here's a quick guide for creating contracts. Remember, this comes right after your sales proposal has been accepted.

To transform your proposal into a legally binding contract, it's crucial to dot the i's and cross the t's.

Start by clearly identifying the parties involved. Full legal names and contact information are a must to reduce any ambiguity. This isn't just a formality; it's the foundation of enforceability.

Remember, a contract is only as strong as its weakest link. Here's a quick checklist to keep you on track:

  • Include all owner information, spelled correctly.
  • Detail the obligations and liabilities of each party.
  • Outline the resources and information required from each party.
  • Establish a clear payment schedule.
By managing permissions, you control who can see and edit your documents. This isn't just about privacy; it's about maintaining the integrity of the contract throughout its lifecycle.

Finally, don't forget to have all parties sign the document. A signature is the seal that binds the agreement, making it official and enforceable. Without it, you're holding a proposal, not a contract.

And before you go and start creating your proposals and contracts, here's a great guide to follow! Check all the most common proposal mistakes and ensure your proposals are ironclad. 👇

Avoid These 8 Sales Proposal Mistakes in 2023 (+ Easy Fixes)
Want to win more clients? Learn the top sales proposal mistakes to avoid and how to quickly correct them for better results.

The synergy of proposals and contracts

We've learned that knowing how to create proposals and contracts is like learning how to seize and commit to business opportunities.

Proposals are your first step, presenting an exciting plan, while legal contracts make that plan a real agreement.

A strong proposal, such a proposal, can win you important projects, and a thorough contract ensures everything goes smoothly and without issues.

When writing proposals or contracts, paying attention to every little thing is your basic strategy for success.

They're not just documents; they're the start of mutual agreement and lasting partnerships in business.

Ready to take your proposal and contract game to the next level?

Take a Propoze for a spin and forget about writing another proposal again!

Frequently Asked Questions

How do proposals and contracts work together?

Business proposal lay out the initial terms and expectations, acting as a blueprint, while contracts solidify these terms into binding agreements, ensuring clear communication and mutual understanding.

How can a proposal help me win more contracts?

A well-crafted proposal can demonstrate your understanding of the client's needs, showcase your professionalism, and convey the value you can provide, thereby increasing your chances of winning contracts.

What are the key elements of an effective proposal?

The key elements include clarity, conciseness, and compelling content that together make your proposal persuasive and informative, steering potential clients in your favor.

What are the 3 Cs of effective proposal management?

The 3 Cs of effective proposal management are clarity, conciseness, and compelling content. Ensuring these elements can help turn a potential client's decision in your favor.