Business Proposal vs Contract: What's the Difference?
NOV 04, 2024 | LAST UPDATED ON NOV 04, 2024 BY ANGELICA NAIDU
Proposal and contract are both very common terms, but there are people still trying to figure out the difference between the two documents. If you are that someone, you’ve come to the right place. This blog will help you understand a proposal and contract in detail and if the two things can be combined.
A proposal, also known as a statement of work, is a formal document that outlines a plan or offer for a project, service, or partnership. Proposals are either sent in response to a request for a proposal or in anticipation of a potential opportunity. So, overall, the purpose of this document is to convert a prospect into a client.
Standing out from the crowd is essential to grab the prospect’s attention and enhance your closing rates. Having these few elements, like the scope of work, executive summary, timelines, pricing, terms and conditions, etc, in your proposal can help you close deals faster. Using proposal design software like Super Proposal can help you increase your conversion rate by 40% with its advanced customization and tracking features.
What is a Contract?
A contract is a document that helps bind an agreement between the two parties that outlines the terms and conditions of a specific transaction or relationship. It’s a legally binding document outlining the parties’ transaction or relation. Having a legalized deal benefits both parties; if things go north, you can always let the court decide.
There are a few things that make a contract valid. Signatures of both parties, considerations, and mutual agreements are a few of the mandatory things. All these elements are included in our pre-designed contract templates, making contract creation easier.
You might say all contacts are the same, but there’s a huge difference between a good and a great Contract. You should add a few things to your contract to make it more transparent and clear. Before drafting the contract, ensure both parties agree, understand where things get fatal, and include it. This document should cover details like charges, what can be done in situations related to finance, and under which state the contract is valid.
Read more: How to write a contract proposal template?
Proposal vs Contract: What’s the difference?
Understanding the difference between both proposals and contracts is not that tough. A proposal is a pitch where you present your company and services. A contract is a commitment for a deal. Let’s understand in detail the difference between the two:
Proposal | Contract | |
Purpose | The purpose is to persuade or convince prospects to accept your product/services. It’s a one-sided offer. | The contract establishes a legally binding agreement between the two parties. It is a two-sided offer. |
Binding nature | It’s not a legally binding document. It’s just an offer you present to your prospect. | It is a legally binding document outlining the terms and conditions of the agreement. |
Content | Includes executive summary, timelines, problem statement, solution, roadmap, etc. | Includes scope of work, payment terms, indemnification, warranty, etc. |
Timeline | It is submitted before the work begins and has a limited time for acceptance. | It is signed after the proposal is accepted. |
How do you convert a proposal into a contract?
You can convert a proposal into a contract as well, but only if it has all the important elements to make it legally binding. Let’s start with how you can turn a proposal into a contract.
Ensure both parties know the project, timelines, payment dates/structure, and other requirements. After this is done, you can draft the terms and conditions of the contract in the proposal itself. Make sure these terms and conditions protect both parties equally. As you include this and a legally binding signature, your proposal can be converted into a contract.
However, we suggest that you keep both documents separate. Let’s now understand why.
- Consideration becomes tough. While a proposal includes compensation details, it is not covered in depth compared to a contract. Hence, it is always better to have a contract to offer a much more protected experience.
- You might miss out on the benefits of a contract if you club the two documents. If you have included a few contract details in your proposal and the document is signed, yes, it is legal, but you might still face problems.
Conclusion
We hope this blog has helped you understand the difference between the two documents. Simply put, a proposal is a starter, and a contract is an official deal closer. Are you someone who spends uncountable hours creating proposals and contracts? Super Proposal has pre-made proposals and templates that require almost every detail. Just tweak it according to your business, and you’ll be all set to close the deals. Book a demo session to understand our platform better, or get a 15-day free trial.
Read more
1. Bidsketch vs Proposify
2. How long should a business proposal be?
FAQs
When to use a proposal vs. a contract?
A proposal is a document to set the pitch for the deal, where you’ll be detailed about your scope of work, timelines, roadmap, your company, and any other vital information. A contract is a document sent when the proposal is accepted, and you are now stating the terms and conditions to help the project be completed smoothly.
Should your proposal be the same as your contract?
No, a proposal is not the same as a contract. You can include both documents in one, but it’s better to keep them separate. Both documents have different purposes, so it’s better to keep them separate.
Can a proposal be a legally binding document?
No, a proposal is not a legally binding document. It can only become a legally binding document if you have mentioned the T&C, provided an e-signature, and made a deal with the client to abide by the terms of the proposal.
Increase your close rates today!
Secure every pitch that you make with Super Proposal. Craft winning proposals, share and track them on a single, comprehensive platform.
✓ 15-Day Trial. No Credit Card Required.
Recent Post
