3 ms·

Just thinking out loud here (haven't tried this) but maybe a better approach would be to not mention time. Simply ask for project specs and break it down into p

by afro88 10y ago

Just thinking out loud here (haven't tried this) but maybe a better approach would be to not mention time. Simply ask for project specs and break it down into priced components if need be. $1500 at $100 an hour sounds expensive if you're comparing to the CEO's salary. But $1500 for a piece of sales lead infrastructure that has to be built but can't be off the shelf bought. That sounds reasonable.

tptacek 10y ago
Heading off the objections you'll get to this: the downside to fixed-price billing is that it maximally exposes the worker both to errors in their own estimation and also to errors in specifications provided by client, and to scope changes. Fixed-price bidding forces the consultant to shoulder a lot of risk. That's fine, if you're sophisticated. Certainly I think fixed-price bids are smarter than hourly billing. In a fixed-price bid, you get to describe the business impact of what you're doing, which can be huge even if the task is relatively simple, and then put a dollar figure next to that impact. Almost any number you come up with is going to at least sound sane in that context. It's the more favorable setting in which to present the comparison of value and price. What I like better though is the hybrid approach. I still remember someone on HN saying that this was the first original approach they had heard to pricing consulting work --- which blew my mind, since it was simply the way I was taught by my partners to bid projects, and presumably the way they were taught as well. The approach is this: Come up with a fixed price for the work you want to do, and simultaneously an estimate of the number of days you believe that work will take. You can divide the former by the latter to arrive at a daily rate. In your bid, focus on the total price of the engagement, but "show your work" in terms of the number of billable days and your day rate. Include a clause stating that overages will be billed at that daily rate as well. To most clients, this is the moral equivalent of a fixed-price bid, and they'll treat it like one. But it de-risks the project for you. As you do more projects, you'll get a better sense of what your real daily rate is (it's higher than you think it is now). You can tune your bids so that you keep a fixed daily rate but still value-price your engagements. By the time you're routinely employing this kind of finesse, you'll have enough traction to easily figure these kinds of things out for yourself.
- jameslk 10y ago
  Thank you for this tip. I've always steered clear of fixed bids because it seemed simply unrealistic with software engineering. The suggestion of adding a daily rate after the fixed bid makes sense and seems to solve the aforementioned concern. I'll try that out next time.
- josephjrobison 10y ago
  This is definitely a way better approach than hourly billing, for sure. On the flipside, stating daily billing is not much different than hourly since the client will just divide by 8 (usually). I stated my daily rate after hearing it from you and Patrick and Brennan Dunn, and one client just said - ok so your rate is "$xxx" per hour?" My point is that daily billing is an improvement over hourly, and with your approach of an overall fixed price and also daily that's a great approach, but the client still knows a daily rate is essentially hourly. A better approach is retainer pricing if not a fixed one-time project!
  - tptacek 10y ago
    Even if your client does the division --- and many won't, because, remember, it's usually not their money they're spending, so what really matters is whether the number you presented fits into the abstraction of their budget --- if you're going to negotiate, you're better off negotiating in a frame where a $100 difference is insignificant to your outcome than one in which a $100 difference is devastating.
- atleta 10y ago
  I'm not sure I get the point (besides using days for the estimation, which is a good practice). So in the end you are doing it on a fixed-price term, but you're stating a daily rate as well, for scope changes. (Which you'll still have to argue about, and you're still left with the estimation errors and the arguments about the specification errors.) Or did I miss something? (Or maybe there are a lot of people, who will not state a rate for the out-of-scope work and then they'll get into trouble when trying to ask money for that?)
- atleta 10y ago

by afro88 10y ago

tptacek 10y ago

Heading off the objections you'll get to this: the downside to fixed-price billing is that it maximally exposes the worker both to errors in their own estimation and also to errors in specifications provided by client, and to scope changes. Fixed-price bidding forces the consultant to shoulder a lot of risk. That's fine, if you're sophisticated. Certainly I think fixed-price bids are smarter than hourly billing. In a fixed-price bid, you get to describe the business impact of what you're doing, which can be huge even if the task is relatively simple, and then put a dollar figure next to that impact. Almost any number you come up with is going to at least sound sane in that context. It's the more favorable setting in which to present the comparison of value and price. What I like better though is the hybrid approach. I still remember someone on HN saying that this was the first original approach they had heard to pricing consulting work --- which blew my mind, since it was simply the way I was taught by my partners to bid projects, and presumably the way they were taught as well. The approach is this: Come up with a fixed price for the work you want to do, and simultaneously an estimate of the number of days you believe that work will take. You can divide the former by the latter to arrive at a daily rate. In your bid, focus on the total price of the engagement, but "show your work" in terms of the number of billable days and your day rate. Include a clause stating that overages will be billed at that daily rate as well. To most clients, this is the moral equivalent of a fixed-price bid, and they'll treat it like one. But it de-risks the project for you. As you do more projects, you'll get a better sense of what your real daily rate is (it's higher than you think it is now). You can tune your bids so that you keep a fixed daily rate but still value-price your engagements. By the time you're routinely employing this kind of finesse, you'll have enough traction to easily figure these kinds of things out for yourself.

jameslk 10y ago
Thank you for this tip. I've always steered clear of fixed bids because it seemed simply unrealistic with software engineering. The suggestion of adding a daily rate after the fixed bid makes sense and seems to solve the aforementioned concern. I'll try that out next time.
josephjrobison 10y ago
This is definitely a way better approach than hourly billing, for sure. On the flipside, stating daily billing is not much different than hourly since the client will just divide by 8 (usually). I stated my daily rate after hearing it from you and Patrick and Brennan Dunn, and one client just said - ok so your rate is "$xxx" per hour?" My point is that daily billing is an improvement over hourly, and with your approach of an overall fixed price and also daily that's a great approach, but the client still knows a daily rate is essentially hourly. A better approach is retainer pricing if not a fixed one-time project!
- tptacek 10y ago
  Even if your client does the division --- and many won't, because, remember, it's usually not their money they're spending, so what really matters is whether the number you presented fits into the abstraction of their budget --- if you're going to negotiate, you're better off negotiating in a frame where a $100 difference is insignificant to your outcome than one in which a $100 difference is devastating.
atleta 10y ago
I'm not sure I get the point (besides using days for the estimation, which is a good practice). So in the end you are doing it on a fixed-price term, but you're stating a daily rate as well, for scope changes. (Which you'll still have to argue about, and you're still left with the estimation errors and the arguments about the specification errors.) Or did I miss something? (Or maybe there are a lot of people, who will not state a rate for the out-of-scope work and then they'll get into trouble when trying to ask money for that?)
atleta 10y ago