How to offer competitive prices while using honest estimates for the development of learning materials.

Q. How can I win any business when I can't adjust my prices by fudging my estimates, it's a very competitive market out there?

A. You should be honest with yourself when you estimate of the number of hours or days required to do a job. You may or may not tell the client what this estimate of work effort is. I think you should tell the client because this makes the client aware of the true effort required to produce the product, but many people feel that they don't want the client knowing that much about the project.

I have found that it is easier if you are open about the work effort up front, because the client can then feel that they know what they are paying for. Lying about the work effort or proceeding without any true understanding of the work effort only results in tears and bankruptcy.

Often honest estimating may lose you the first tender, but you may win the second as the client has experienced the pain of having a low-bidding vendor produce a poor quality product to reduce costs or abandon the project before completion.

Anyway, I recommend that you honestly estimate the work effort and then decide what price will be competitive.

Here are five ways to price competitively while maintaining honest estimates.

1. Decompress the timeline. Compressed project timelines always lead to larger teams of workers, and that leads to your having to add to your estimates the extra coordination time required by large teams. Stretch the timeline out and you can reduce the team size and eliminate some of the estimated coordination time.

2. Simplify the product. You might be able to simplify the product features while still maintaining the product effectiveness. If you can do this, your estimated work effort will be reduced, and thus your quoted price can be reduced. You will need to discuss this with your prospective client and you should carefully describe the proposed changes in your tender documents.

3. Simplify the process. You can investigate ways to do the work steps that are required to produce the product more efficiently while producing the required product. This will reduce the work effort.

Automation of software production can often give you a competitive edge through this type of reduction of work effort, but beware that you are not proposing something so new that you are put on the bleeding edge, rather than the leading edge (see previous pages).

4. Leverage skills. If a large project team is required, you can sometimes leverage the skills of experienced staff with a percentage of inexperienced staff who will work at a cheaper rate. With some of the work effort priced at a lower rate, your overall price might be lower.

Be careful with a leveraging strategy, because learning curves can be expensive, and this approach implies that your estimated work effort is already raised by time added for coordination of a large team. Training requirements will further increase the estimated work effort. Still, a lower cost for part of the team can often offset the extra training time required.

5. Take a percentage write-off. Every project has a built-in profit, or you won't be in business for long. If the project is offering other benefits to you such as an introduction to a client who has many future projects to award, or the opportunity to develop a credential in a new market niche, you may want to take less profit, thus offering a reduced price.

Your initial efforts in honestly estimating the work effort will enable you to use this strategy with less risk, as you are confident that you are less likely to have unexpected cost overruns that would eat up the remaining profit. You have estimated for all of that in your initial contingency estimates (see previous pages).

<< Index ||-D4I-|| Next >>