January 2nd, 2008
Price Your Service Like a Product
Up until a few months ago, I always started from square one when I needed to create a quote for a client. I’d go through the requirements for the project and estimate how long each item would take. I’d estimate how much time I expected to spend communicating with the client based on what I had learned about them up to that point. In short I spent an awful lot of time trying to come up with a 100% accurate quote of what each project was going to cost me to create.
After I had been doing that for a while, it dawned on me that many of my projects were very similar. In fact I realized that a business designing web sites could be run a little like how I imagine a trophy making business is run. Customers select what shape of trophy they want from a menu of possible options. Then the trophy is engraved with custom text. The biggest part of your cost is for the trophy itself, and I’m guessing in most cases you don’t pay by the letter for the engraving. (I could of course be totally wrong about how the price is structured, but for the purposes of this analogy let’s pretend that I’m 100% right. UPDATE: Yes, it does appear that I am wrong, and engraving pricing is based on the number of letters used.)
I can offer customers a menu of general web site configurations. Option A is a vanilla site. Option B includes content management. Option C is a help desk portal for customers to submit support requests. While there is going to be minor variations in the specific requirements for of each individual help desk portal I create, the base amount of work involved is going to be the same.
So what does this mean in practical application? Far and away, the most common project I have is redesigning an existing site and adding a content management system. Since most of these sites take about the same amount of time to create, I can always estimate the same price. Let’s call it $100.
I may come across a client who wants to have an events calendar that isn’t covered by the basic CMS package. Let’s say I know that adding a calendar is worth about $25. I can quickly quote that project at $125. As I develop an idea of what various special features are worth, I build a list of prices.
Now you don’t need to show your customers this list (although that is one approach you could take). The purpose is just to allow you to quickly provide estimates. This saves you time that you could be spending on billable work.
I believe there is another benefit that may not be immediately obvious. Providing timely, consistent estimates projects the image to your potential customers that you have a very good understanding of the value of your work. Most of your clients won’t do a lot of price shopping for web development services, but it is still important that they feel good about the amount of money they are paying you. When it takes you a long time to come up with a price for a project, it can convey that you either a.) don’t really know what the price should be or b.) are trying to figure out how much you can get away with charging.
Jan 2nd, 2008
11:04 pm
Well, actually you DO pay per letter for engraving, at least around where I live. But otherwise, your post is right on.
Designers are used to thinking in terms of working hourly and getting paid for time. But professionals should be selling their expertise, not their time. Flat fees are nearly always better than hourly in my experience.
Over the years, I’ve developed a two-page fee schedule with all the various project types I’ve worked on. I have a fee range, from high to low, for each project. The low fee is what I have charged or what I’m willing to live with. The high fee is what I’d like to earn.
This system gives me the ability to quote consistent fees but also the flexibility to charge a little more or less depending on the complexity of the project or, frankly, the difficulty of the client.
Jan 3rd, 2008
9:46 am
@Dean: Ha, I really wanted that analogy to work. Maybe I need to open a trophy shop and revolutionize the industry with my new pricing model. I really like your idea of a price range for all of your services. Do you find that there is any pattern in the numbers (such as the lower price is always 75% of the higher price, or something like that)?