Fixed vs Time-based pricing

As our Vision points out, we work to develop a fixed price solution for our clients.  We find this is preferred by most clients, since it helps them to establish a budget for their project, along with an anticipated Return on Investment (ROI).  This enables the client to more easily make the decision to work with us.  It also incentivizes us to make sure our estimates are sufficiently detailed so we can make sure the project is profitable at that price!

One question we are frequently asked is: why don’t we quote time-based (hourly rate) pricing like most other consultants?  Well, it’s simply because we are not like most other consultants!  We will not even quote if we feel we do not have the right expertise to handle the project.  But if we do, we also have the experience to develop a scope of work for a particular deliverable, whether it is documentation or a physical product.  And developing a scope allows us to quote fixed price.  This also differentiates us from most others who either can’t or won’t do the work to develop a detailed estimate.

Think about this from the client’s perspective:  Wouldn’t you prefer to know your budget?  Take an example of two consultants, one says they will work with you at a rate of $200 per hour and they estimate 200 hours to get the project completed, but they will bill upon actual hours spent.  This is essentially an flexible estimate of $40,000.  What if we came in and said we will quote a fixed price of $50,000, which of course is 25% higher than the other quote.  You’ve done some research and think both consultants might be comparably experienced.  Of course, we are willing to quote a fixed price so one might conclude that we are more confident in our price.  Do you think the 40k one is more likely to bill at 40k or some range between 40 and 50k?  How about the possibility of them billing more than 50k?  And what about the time frame for the work?  Let’s say both estimate 2 months to get the work done.  Since there are about 200 man-hours per month, this is about one half person per month.  Which consultant is incentivized to get done early?  It’s obvious the fixed price firm is more likely to benefit from getting the work done early.  And the client benefits too.  If they can then implement early, they improve their ROI.

There are times when it is not easy to develop a fixed scope of work resulting in a fixed price.  And about 15% of our projects are like this.  So we do work that way, when there is no other choice, and when we bring experience to bear that outshines the competition.  But we try to keep those projects small so that, once we get to a point where the scope can be defined, we convert to a fixed price.  This is a strength of ours that we leverage to your benefit.

Call us to see how we can help you!

Tom Smith
Managing Director
Focused Solutions Group