Follow the three steps in this note to arrange a contract to provide Professional Services Work-Plan for a client. Buyers of professional services work provided by outside contractors should also pay attention to these points.
To calculate a price for a body of work, a contractor first prepares a work-plan including tasks, assigned personnel, and the number of hours required to complete the work. The number of hours for each person is multiplied by their billing rate and summed to compute the price. When the contractor presents the work-plan and the price to the prospect, haggling ensues. The result is usually frustrating for both parties with the contractor getting a lower price for the same work-effort and the prospect feeling gouged.
The prospect wants the work at a price they can afford and the contractor wants a fair price given what it is going to take to get the work done. The problem is that they are in a tense situation, dealing from their own frame of reference, and trying to do too much to close the deal all in one step. Fortunately, there is a straightforward process to slow things down and, if followed to-a-tee, markedly increase the odds of a smooth progression to a signed contract.
Start with the list of the tasks required to accomplish a prospective client’s specific objective. Then follow the these three steps precisely to maximize the chance of landing a project to perform the work at target rates:
- Agree on the tasks to be completed: Arrange a time to sit down with your prospective client to review their objective, the value of achieving it, and each task required to secure it. Discuss each task thoroughly and without regard to who will perform the task and without any mention of price The focus at this point is entirely on what must be done to achieve the desired result and the enormous value of so doing. Get your prospect to add/change/delete tasks so that they develop a legitimate sense of ownership of the work-plan.
- Agree on who will perform each task: Once the work-plan is agreed to, review the resources required to perform each task to completion with excellence and how long it will take a qualified person to perform them. Point out that less qualified people will take longer and not do as good a job but will be less expensive per hour but do not dwell on price any more than that at this point in the process. Once you agree on the allocation of resources and durations proceed to step three.
- Compute price: Show the hourly billing rates for the selected resources, multiply by the hours required for each to perform tasks assigned to them and sum the result to calculate the total price of performing the complete set of tasks. If the client balks at the total price, remind them of the value they are getting by completing this work and point out that the cost is but a small fraction of that value. If there is still pushback on the price, go back to steps 1 and 2 and work with the client to decide which tasks do not really need to be performed at all or which can safely be performed by less qualified (and therefore also less expensive) staff. Your objective is to deal with price concerns by tinkering with tasks and resources and thereby adjusting total price by changing the scope and not just by getting paid less for the same work. You can sweeten the deal with a one-time credit if you like but it is best to NOT reduce hourly rates because once lowered it is near impossible to return to full hourly rate pricing whereas a one-time credit amount can more easily be granted or not on a case by case basis.
Prepare a separate exhibit for each of the three steps and go through them one at a time incorporating the edits from the preceding steps right then and there in the meeting as you proceed. If the edits are too extensive, stop the process and go back to the office, make changes to what has been covered, and arrange another time to meet again to complete the three steps.
Keep in mind that there is some specific value to the output of the effort. Review this early in the process so that, later, you can point out that the cost of doing the work is but a fraction of the value generated.