I was recently working with a client, putting together a quote for some web development work. This work had two major components:
- Website Design
- Website Development / Deployment on a CMS
The customer required, as so many customers do, a quote for the project before starting. Not unreasonable, because it’s possible they could go into the project with a 100k budget and without a firm quote, the same project could turn out to be a $250k budget disaster.
The services team I was working with wanted to really iron out the scope of the project before committing to any pricing. Many services teams have faced the problem of quoting too early and having “client assumed” scope creep into their project. Bringing more scope into the project without an effective way to say “that wasn’t in the scope” is often responsible for driving down the gross margin and eroding all the profit out of many services projects. It’s hard to tell a cleint “we didn’t agree that was in scope” if the scope is a few vague lines made up by the sales exec.
This scenario often ends up putting a lot of stress between the sales arm of an organization and the delivery arm of an organization. Sales will twist any nearby arm to get a quote from services and services will spend gobs of “unallocated” money in the sales cycle trying to nail down the client so they know what they are going to deliver. This struggle can often be seen by reviewing Statements of Work (SOW) or Project quote documents. The version put together by sales will be high level and vague, the version put together by the services department will be detailed and outline all the specific deliverables.
I’ve lived on both sides of the equation, and both are correct, but they have different goals. Sales wants to close the deal (and get their commission), Services knows they need to deliver a profitable project (and get their performance bonus). The incentives set up for the organization to succeed really do pit these two teams somewhat against one another in this particular scenario.
So, how does a services company give a quote to a customer that doesn’t leave either the customer, or the company assuming too much risk? It’s tricky, particularly if it’s a competitive situation and companies are squaring off on talent and price.
Here are my thoughts and some options:
- Get in early and get a strategy project without coupling it to the rest of the delivery. These deals often close faster, and puts your organization into the ‘trusted advisor’ role with your customer. You can get paid for all that information gathering and then provide a really good estimate for the rest of the project.
- Break up the project into phases and only quote on the next phase – give wide estimates (+/-) for the rest of the phases
- Time & Materials – does anyone truly get a time & materials project anymore? Beware of the “time & materials” project that has a cap – also known as a fixed bid project without the 20% contingency!
- Version the estimates. Detail out as much as you can, give an estimate and version that estimate. Have the customer sign off on that estimate and it’s related scope. Place a clause in the quote that you will notify the customer if anything comes up that increases scope and therfore the cost, essentially putting in a change control mechanism.
- Find out the clients overall budget and work a top-down quote using “budget buckets” like this:
- Strategy – 20%
- Design – 30%
- Development & Deployment – 50%
The nice thing about the last two methods is that you can work closely with the client to manage scope… if they want to stay in budget, they’ll work with you to cut features and functionality, or quite often, they find extra money to get that widget they all want on the site.
How did I solve my last quoting troubles? Well, I chose to version the project quote, we closed the deal and kicked off the project. I’ll know in a few months how it will turn out.
