pricing on websites
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I can make a business decision on the first one because the costs are known.
How can you make a business case for a project if you don't know the cost? For the client at a certain cost the project makes sense. If it goes over that, they can't make a business case for the project.
Let's say I want a FreePBX system. If Jared tells me he'll stand up a PBX for a fixed price, and you tell me you'll build one and you don't really know how many hours it will take, why would I pick you? Because I trust you? Because I might save money? I don't really care that Jared has scripted it out and it only takes him a few minutes. You could be building a one off by hand. You are honest with your hours, but at the end of the day it cost me way more. It has nothing to do with trust or saving money.
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@mike-davis said in pricing on websites:
I can make a business decision on the first one because the costs are known.
But it's higher cost. Which is better... making a decision but overspending? Or just spending less?
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@mike-davis said in pricing on websites:
How can you make a business case for a project if you don't know the cost? For the client at a certain cost the project makes sense. If it goes over that, they can't make a business case for the project.
If you need a barn, do you care about how much it is? Or that it is as little as possible?
For me, I want maximum profits.
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@mike-davis said in pricing on websites:
.... It has nothing to do with trust or saving money.
So you don't care about trust OR money but only... predictability?
That's not wrong, but.... what makes predictability more important than profits? What's the value in predictability?
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If I want a barn, I can't afford to run out of money. If the second guy will do it at an hourly rate, with a not to exceed the first guys rate, then great, I know I'll save money. If he won't agree to a not to exceed, he has no incentive to be efficient.
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@mike-davis said in pricing on websites:
If I want a barn, I can't afford to run out of money. If the second guy will do it at an hourly rate, with a not to exceed the first guys rate, then great, I know I'll save money. If he won't agree to a not to exceed, he has no incentive to be efficient.
Ah, so it IS about trust. Which is fine, but you have to be open about the logic. It's only trust that matters. If you trusted him, obviously the lower cost makes more sense.
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@mike-davis said in pricing on websites:
If I want a barn, I can't afford to run out of money.
If you need a barn and are going to build it, do you want it as cheap as possible, or predictable? That's the bottom line. When are you most likely to run out of money... when it is cheaper, or more expensive?
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Go back to the PBX, If Jared quoted me a fixed price, would you do the job for an hourly rate, with a not to exceed his price?
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@mike-davis said in pricing on websites:
Go back to the PBX, If Jared quoted me a fixed price, would you do the job for an hourly rate, with a not to exceed his price?
No, because I wouldn't trust you in that scenario, right? I don't know if he'd actually deliver at the quoted price. You are playing pricing games. You can't know that he was going to deliver for real, only that he quoted you a price. Once you are dealing without trust, you have to apply it evenly.
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And it would be completely dishonest to Jared, to get him to do the work of quoting, and use that to get a lower cost from someone else. That system doesn't work.
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On a related note, don’t bother to call me if you want the cheapest. I don’t do cheap.
I do quality.
I will quote a person an estimate of a number of hours to do a job. I also tell them our hourly rate is set and flat.
Your barn analogy was stupid. No one quotes an hourly rate and just says it will be done when it is done.
Your hourly guy should say “I charge hours @ $90/hour and it should take about 30 hours.”
That is not a flat quote like the first guy.
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And people who quote flat rates rarely stick to them when disaster hits. I've had flat rate construction work done that more than doubled in total cost (because they found huge electrical issues.) Things happen. Flat rates are subject to change should any surprises happen.
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I'll ask some of my clients if they would rather have me quote the job as a flat fee or as an estimate.
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@mike-davis said in pricing on websites:
I'll ask some of my clients if they would rather have me quote the job as a flat fee or as an estimate.
This only works if you honestly treat the estimate as an estimate and don't put in ANY of the quoting costs or the buffer necessary to do a flat fee. Maybe give them both and ask what they want... but you have to honestly not include the quoting time in the estimate price.
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And only works if your customers are financially savvy. You can't just ask SMBs and assume that they know what is best for themselves. The average SMB does exactly the opposite - they will ask sales people for advice and often see predictable pricing as more valuable than low pricing. This is often what makes them SMBs instead of growing to be larger.
If you REALLY have the discussion and show how much more they have to pay for the flat rate, doesn't it sound crazy for them to say that they just want to throw money away?
Only reason I can imagine for them to take the flat rate is that they don't trust you, right?
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The discussion shoudl be something like this....
Hourly: Quick estimate is ~12 hours at X rate.
Flat: We need 2 hours for the estimate, plus 2 hours to cover any mistakes in scoping or unknowns, so the price is 16 hours at X rate.Which do you think that they will take? They'll ask where the extra hours come from. You'll explain that two hours are for the cost of you making the quote. And the other two hours are to buffer against any mistakes on your part or things you could not anticipate.
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@scottalanmiller said in pricing on websites:
The discussion shoudl be something like this....
Hourly: Quick estimate is ~12 hours at X rate.
Flat: We need 2 hours for the estimate, plus 2 hours to cover any mistakes in scoping or unknowns, so the price is 16 hours at X rate.
Which do you think that they will take? They'll ask where the extra hours come from. You'll explain that two hours are for the cost of you making the quote. And the other two hours are to buffer against any mistakes on your part or things you could not anticipate.For the client where they can afford the flat fee, but can't afford the project to cost twice as much, they go with the flat fee.
I do all you can eat MSP pricing. Customers would rather have that than hourly pricing. It's because of predictability. You could also add arguments about the incentives for me to be proactive, but at the end of the day, most of the businesses/agencies I work for have a budget and they can't afford to go over it. With a yearly contract in place they can meet their business goals.
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@mike-davis said in pricing on websites:
@scottalanmiller said in pricing on websites:
The discussion shoudl be something like this....
Hourly: Quick estimate is ~12 hours at X rate.
Flat: We need 2 hours for the estimate, plus 2 hours to cover any mistakes in scoping or unknowns, so the price is 16 hours at X rate.
Which do you think that they will take? They'll ask where the extra hours come from. You'll explain that two hours are for the cost of you making the quote. And the other two hours are to buffer against any mistakes on your part or things you could not anticipate.For the client where they can afford the flat fee, but can't afford the project to cost twice as much, they go with the flat fee.
I do all you can eat MSP pricing. Customers would rather have that than hourly pricing. It's because of predictability. You could also add arguments about the incentives for me to be proactive, but at the end of the day, most of the businesses/agencies I work for have a budget and they can't afford to go over it. With a yearly contract in place they can meet their business goals.
So here's an experiment for ya Mike - track hours of your workers, and a normal billing rate for their time. Don't forget to include the amount of time for making these flat rate quotes are part of those projects. Now, when it's all said and done, take the flat rate you quoted, divided by the number of actual spent hours, is it higher or lower than the normal rate asked about above (in my post)?
According to Scott - it will more often than not be higher, but not just higher, significantly higher. This shows that your customers overpaid, and you made money at the expense of your customer. Now - of course, this is good for you, but it's not good for your customer.
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@mike-davis said in pricing on websites:
@scottalanmiller said in pricing on websites:
The discussion shoudl be something like this....
Hourly: Quick estimate is ~12 hours at X rate.
Flat: We need 2 hours for the estimate, plus 2 hours to cover any mistakes in scoping or unknowns, so the price is 16 hours at X rate.
Which do you think that they will take? They'll ask where the extra hours come from. You'll explain that two hours are for the cost of you making the quote. And the other two hours are to buffer against any mistakes on your part or things you could not anticipate.For the client where they can afford the flat fee, but can't afford the project to cost twice as much, they go with the flat fee.
Flat fee is the HIGHER price. That's how it works in the real world. If they can't afford the risk, they can't do it for flat, either. Because things still go wrong.
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@mike-davis said in pricing on websites:
I do all you can eat MSP pricing. Customers would rather have that than hourly pricing. It's because of predictability. You could also add arguments about the incentives for me to be proactive, but at the end of the day, most of the businesses/agencies I work for have a budget and they can't afford to go over it. With a yearly contract in place they can meet their business goals.
As long as their business goals aren't maximizing profits. That's the problem with that approach. You trade profits for predictability. It's the Wall St. syndrome... better to predict well than to actually make money.
