Pricing is one of the pillars of proper marketing, but it takes work. The aim is to avoid proposing too high a price and underestimating the services provided. Both options would be detrimental to the company’s revenue and growth. The value of a complex project is rarely unique. Pricing shoes seems much easier for the customer than pricing a building structure, a new company website, or a logo design.
Are you looking for an invoice template? Let Teamleader help you: consult our templates and download them for free. Also, you need to understand the customer’s psychology when evaluating your prices. How do you find the happy medium between customer perception and the company’s financial interests? All of this must be considered when drawing up an estimate for a project. We will help you by explaining the pros and cons of the two main tariffs: fixed and variable.
Fixed-Price Project
The estimate of a “fixed price” project specifies in detail the services the company offers at a specific amount. This amount is unrelated to the time invested in the project or unexpected costs. From the customer’s perspective, a fixed price’s main advantage is its predictability. The customer knows exactly what to expect regarding prices, thus avoiding unpleasant surprises. In other words, the fixed price is something to stick with. Because, in the end, you are the expert and not the customer.
And you need all your experience to estimate the total costs of a project correctly. On the other hand, a fixed price could be excellent motivation to work as efficiently as possible. Unique projects, delivered within deadlines, are the panacea for your reputation. Ideally, this type of fee is used for projects that have been completed in the past, thus having the ability to account for all variables properly. And, of course, a good project planning tool will allow you to manage your budget better.
Variable Price Project
Managing a variable-price project often means thinking about “time and materials.” Instead of the total price, it estimates the number of hours of work and the materials that will be used for the project. This type of quote offers greater security to the company. Does the customer provide limited information at the time of the section and ultimately expect much more throughout the project?
A variable price will allow you to bill additional hours compared to the default time. A possible disadvantage could be that the customer could “do the shopping” on your quote. Contrary to a fixed-price project, the client will tend to remove some extra options to reduce the price. Furthermore, a variable price may be more difficult for a customer to accept if a genuine relationship of trust has yet to develop. The hourly rate may be up for discussion because your perception of value differs from the customer’s.
This is also a matter of psychology. In “$100 Startup,” entrepreneur and writer Chris Guillebeau describes how he was left with an irrational thought: A locksmith fixed a problem for him in the blink of an eye, and he felt cheated. As if he expected more value for his money than he did.
Some clients will scrutinize your quote with the same rigor. If you can convince them that your selection is realistic and that you fully understand their wishes, then the variable price will meet with less resistance. It is also possible that the estimate will differ only slightly, by a given percentage, from the actual price.
Demonstrate The Value Of Your Results
Author Alan Weiss turns to consultants when he proposes fixed-value compensation as a fixed-price idea: to demonstrate to the client the actual value of the result achieved together.
Excellent advice for any project or service quote, whether it be a consultancy, refurbishment project, or building a website.
Anyone who puts forward arguments in favor of his estimate over that of his competitors wins. The same applies in the case of variable price estimates. In other words, a fixed price means that the customer must not know the number of hours dedicated to the project; a variable cost implies that he must give it a manageable amount of weight.
Also Read: Selecting Project Management Software Using These Tips
