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Fixed price bids are better when you've already established a working relationship with your buyer. A good way to establish a working relationship is by startin

by otoburb 13y ago

Fixed price bids are better when you've already established a working relationship with your buyer. A good way to establish a working relationship is by starting off fixed-price if the scope is narrow enough and explaining that T&M is more likely to be more expensive for the buyer based on the scope. Usually this results in the buyer either: (i) asking for a lower price; (ii) disagreeing with the FP bid and going T&M; (iii) walking away. The basic assumption is that scope is narrowly enough defined. If it isn't, then try hard to narrow the scope and give the deal 1 to 3 hrs for this exercise (depending on your available hours classified for business development aka "biz dev"). At this point, hopefully you've got the requirements narrow enough that you can then engage in the exercise above after coming up with an estimate or quote. If (i), then roughly itemize and remove items to bring the price down to change the value proposition. Avoid keeping scope the same and bringing price down, or else this is a plain discount pure and simple and hurts you down the road. If (ii), then the follow-up move for future deals with the same buyer is to clearly show why their final T&M billables could have been cheaper if they'd gone with FP. If (iii), count yourself lucky. Nothing harder than letting business go until you get yourself into a deal where your costs are higher than revenue (aka. negative margin deal). >>Fixed-price jobs generally take double the time (losing me half) ... that sentence implies a pattern of failed FP deals and lack of scope. However, I am empathetic because other clients have stated that they are uncomfortable with code sprints on a professional services basis solely because of the lack of concrete deliverables that can be used as payment milestones or triggers. Code sprints are better off billed on a T&M basis unless, as you say, the client really understands what they're doing. In most cases, buyers don't know what they want, which is why some time must be spent on building on biz dev building the pipeline.

porker 13y ago
Thanks. I appreciate this. Could you define T&M in this context? How does it differ from code sprints? > If (ii), then the follow-up move for future deals with the same buyer is to clearly show why their final T&M billables could have been cheaper if they'd gone with FP. I understand (i) and (iii), but why is showing them FP is better than T&M a good idea? Isn't T&M more profitable for me? > ... that sentence implies a pattern of failed FP deals and lack of scope. That's accurate unfortunately. There's always scope, but for sub-£2k jobs (and worse for sub-£1k) there's a trade-off between time spent tying down the scope and time doing the job. If I spend an hour on it, that's 5-10% of the overall budget gone.
- otoburb 13y ago
  T&M is "Time & Materials", which is the same as billing by the hour or week. The advantage of T&M for code sprints is because of the typically ambiguous and uncertain nature of the sprints. Even though there's supposed to be a well defined and constantly prioritized queue of features to be completed during each sprint, the fact that they can be changed and moved around means it's incredibly difficult to nail down an actual deliverable beyond a vague "payment of milestone X due upon completion of code sprint", which is really no different than a duration-based payment schedule which basically boils down to T&M :D FP is generally (not always) better for both the buyer and provider because: 1. Buyer benefit: For a given scope there is a corresponding, known budget. Typically, fixed/forecasted budgets are preferred by buyers so they can forecast and set internal expectations. 2. Seller benefits: (i) If it's a task that you feel can be done quickly or with less effort than normal (e.g. done repeatedly for others in the past), you can still charge based on the VALUE of the work vs. the # LABOUR UNITS, ultimately resulting in a higher margin for the seller with a tightly scoped budget for the buyer, even though it takes you less time to complete. The only time you need to consider lowering list prices for work done several times in a row is when a perception of commoditization creeps in, either by the general industry or (more likely) by the customer(s). (ii) T&M is more profitable for you in the short term, but often causes more overhead and problems for the buyer on larger deals as scope uncertainty and ambiguity increases. Typically, the easier you make your buyer's life in terms of reducing overhead and paperwork, the more likely they are to want to work with you in the future. >>There's always scope, but for sub-£2k jobs (and worse for sub-£1k) there's a trade-off between time spent tying down the scope and time doing the job. Sounds like you're an independent freelancer. In this instance, you're in a tough spot. I suggest putting in 1.5hrs that you swallow from a cost basis with a firm goal to minimize potential risks during the engagement. The worst part of being an independent is that your overhead is typically higher if you try to go the FP route for higher-valued deals as you are solely responsible for writing the SOWs, thinking about the timelines, managing the customer AND delivering. I can absolutely understand why, in that situation, you're comparative advantage is defaulting with T&M in most situations and hopefully raising your prices a bit to compensate for the inevitable pre-sales discussions you need to have with potential customers. Sorry I can't give more advice there. I've found patio111's posts to be very informative for independents looking to grow.

by otoburb 13y ago

porker 13y ago

Thanks. I appreciate this. Could you define T&M in this context? How does it differ from code sprints? > If (ii), then the follow-up move for future deals with the same buyer is to clearly show why their final T&M billables could have been cheaper if they'd gone with FP. I understand (i) and (iii), but why is showing them FP is better than T&M a good idea? Isn't T&M more profitable for me? > ... that sentence implies a pattern of failed FP deals and lack of scope. That's accurate unfortunately. There's always scope, but for sub-£2k jobs (and worse for sub-£1k) there's a trade-off between time spent tying down the scope and time doing the job. If I spend an hour on it, that's 5-10% of the overall budget gone.

otoburb 13y ago
T&M is "Time & Materials", which is the same as billing by the hour or week. The advantage of T&M for code sprints is because of the typically ambiguous and uncertain nature of the sprints. Even though there's supposed to be a well defined and constantly prioritized queue of features to be completed during each sprint, the fact that they can be changed and moved around means it's incredibly difficult to nail down an actual deliverable beyond a vague "payment of milestone X due upon completion of code sprint", which is really no different than a duration-based payment schedule which basically boils down to T&M :D FP is generally (not always) better for both the buyer and provider because: 1. Buyer benefit: For a given scope there is a corresponding, known budget. Typically, fixed/forecasted budgets are preferred by buyers so they can forecast and set internal expectations. 2. Seller benefits: (i) If it's a task that you feel can be done quickly or with less effort than normal (e.g. done repeatedly for others in the past), you can still charge based on the VALUE of the work vs. the # LABOUR UNITS, ultimately resulting in a higher margin for the seller with a tightly scoped budget for the buyer, even though it takes you less time to complete. The only time you need to consider lowering list prices for work done several times in a row is when a perception of commoditization creeps in, either by the general industry or (more likely) by the customer(s). (ii) T&M is more profitable for you in the short term, but often causes more overhead and problems for the buyer on larger deals as scope uncertainty and ambiguity increases. Typically, the easier you make your buyer's life in terms of reducing overhead and paperwork, the more likely they are to want to work with you in the future. >>There's always scope, but for sub-£2k jobs (and worse for sub-£1k) there's a trade-off between time spent tying down the scope and time doing the job. Sounds like you're an independent freelancer. In this instance, you're in a tough spot. I suggest putting in 1.5hrs that you swallow from a cost basis with a firm goal to minimize potential risks during the engagement. The worst part of being an independent is that your overhead is typically higher if you try to go the FP route for higher-valued deals as you are solely responsible for writing the SOWs, thinking about the timelines, managing the customer AND delivering. I can absolutely understand why, in that situation, you're comparative advantage is defaulting with T&M in most situations and hopefully raising your prices a bit to compensate for the inevitable pre-sales discussions you need to have with potential customers. Sorry I can't give more advice there. I've found patio111's posts to be very informative for independents looking to grow.