Follow the three steps in this post to prepare a professional services work-plan for a client. Those who hire contractors and consultants should be familiar with these points to understand how the best providers think through proposals.
To calculate a price for a body of work, a contractor first prepares a work-plan that spells out:
- Tasks: what exactly will be done.
- Personnel: who will do what.
- Time: how long it will take assigned persons to complete their tasks.
- Cost: the number of hours for each assigned 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 prospective buyer, 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 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 the 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 billing rates or 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 genuine sense of ownership of the task-plan.
- Agree on who will perform each task: Once the task-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 rates or price at this point in the process. Only once the allocation of resources and durations are agreed to is it safe to proceed to step three.
- Compute the price: Share a schedule of hourly billing rates for the selected resources. (Note billing rates for each person should be supported by evidence that other customers have paid the rates quoted.) Multiply the hours required for each person to perform tasks assigned by their billing rate and sum the result to compute the total price of performing the complete set of tasks.
If the prospect balks at the total price, remind them of the value they said they would get 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 prospect to decide which tasks do not really need to be performed and/or which can safely be performed by less qualified (and therefore also less expensive) personnel.
The 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. To sweeten the deal offer a one-time credit of a specific amount 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. 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.
Throughout the process make sure it is clear to the prospect that there is great value to the output of the planned work effort. Express the value in the form of a specific dollar figure. Get the prospect to share their perception of value before discussing the work plan so it will be easy to point out in step three that the cost of doing the work is but a fraction of the value.