10 Secrets To Making Money on Fixed Fee ERP Consulting Projects

Fixed fee consulting is the hottest new trend in the ERP world.

You’ll see it used with new deals – and you can see it in the post-sale consulting world where upgrade, projects and other services are increasingly offered for one fixed price.

Consulting based upon a pre-set (fixed) fee has advantages for both the customer and the consultant. The biggest customer advantage is the lack of any surprise costs and the removal of any motivation for the consultant to drag out an engagement for the purpose of billing hourly.

For the consulting firm there’s an opportunity to make more money – but to do so you must enter the fixed fee world with a plan.

After having worked for a while on several fixed fee engagements with my clients – here are what I found to be the top 10 secrets of making money on a fixed fee ERP project.

10 Things You Must Do To Make Money On Fixed Fee Projects

  1. Always generate (and receive approval for) a quote prior to arriving on-site. To call the item a quote is under-estimating greatly the work that goes into the process. Ideally you must fully understand the customers needs and draw up a detailed document to outline exactly what is going to be done, by who and by when. Anything that’s not on the document is an optional extra.
  2. Budget time for quote generation and followup. This is the biggest change from hourly billing where engagements were accepted by clients quickly because the fee structure was “pay as you go”. Fixed fee requires advance planning and analysis (understanding) of the problem(s) to be solved. You should allow for this time and your quote should include whatever time you spent preparing and understanding the client systems.
  3. Use Google Docs to create templates for quotes – these can quickly be edited from any computer and sent as a PDF attachment. (Note: John Shaver has a session on this Monday 2:30 to 3:30pm  at Insights 2010).
  4. Always specify the start data as number of days/weeks from RECEIPT OF PAYMENT – many customers will verbally green light projects but have a change of heart (lost funding, lack of authority to officially authorize, no approval from funding source) a day before you’ve set aside time to visit.
  5. Go on-site with a written agenda (task list) – anything not on the agenda is a change request – have a separate section where you can write down proposed changes for the client to consider. The first few times the client may resist this and consider all your services (no matter what the scope) as fixed. Resist the urge to “throw in a few extras” or you’ll be setting this (everything included) as the relationship for the future. Explain that the price for the services would have been higher if they were meant to include all tasks.
  6. Send the client a list of what you’ll need for your first meeting – it’s especially important to request a computer workstation (if needed) so as to avoid wasted time while the client searches for a place for you to work (if a workspace is required be sure to note that in your quote) – or even worse can’t provide you with a workstation.
  7. If possible generate a written list of recommendations to “officially” close out the project – there needs to be some end point where you can deem the project complete and the client approves. If you don’t have this you’ll have problems being paid.
  8. Where possible work on-site – clients perceive a significantly higher value when they can see you – it also opens up many more opportunities for additional work. If most of your work is on-site then you’ve conditioned the client to expect that level of service – it also helps to knock out remote competitors who could significantly under-bid with overseas labor.
  9. When you estimate the amount should usually be about ( xx% – pick your percent) higher than what you think a medium complex project would cost if billed hourly. This number also must account for project management and on upgrades at least some time for interacting with publishers on bugs. Remember this is fixed – the client doesn’t expect the fee to change unless they request added services.
  10. Use options – conventional wisdom says to give 3. Make one a “do it yourself with a little of our assistance” and the remaining two can have varying levels of involvement. Clients like options and the varying fee level makes it easier for them to understand your fee.

Image: flickr

Many thanks to Ed Kless and John Shaver who provided most (if not all) of the guidance and ideas behind the above.

8 Replies to “10 Secrets To Making Money on Fixed Fee ERP Consulting Projects”

  1. Of all the tips my “we can start XX days from RECEIPT OF PAYMENT” is the one I recommend the strongest.

    It’s shocking how many prospects will green light an engagement yet either not have funding or the authority to pay.

    We also won’t purchase any software or non-refundable materials without payment. Same reason as above.

  2. 11. Give your proposal an expiration date within a reasonable time period

    12. Avoid quoting customers who “find” you over the web unless they’re willing to pay for the quote.

    Trust me that the vast majority of these quotes are shopping a local rate. If you never hear back from them after suggesting a paid review then pat yourself on the back because you just saved 10 hours of “phantom feel good growth” which is when you run around like crazy performing free work with the expectation that you’re landing a new client.

    13. The great thing about fixed fee? No more “can you send me what your rate is?” — that whole question is now obsolete.

    Of course now your other issue is the people who come in out of the blue and suddenly want to have you give them a “free” quote on some major project.

    See my item #12 — avoid giving free quotes to random web visitors where you have no prior business relationship.

    14. Be explicit in your quotes/proposals/scope — what you omit is going to come back to haunt you. Name the versions, and require that any issues related to trying to load software to an unsupported version is strictly an added optional change that the client can request (for a fee).

    Don’t get stuck becoming the unpaid troubleshooting department — if you can help it…

  3. I also put an expected completion date on all of my proposals, the verbage goes something like this…

    Complete implementation of [XXX] at [XYZ COMPANY] on or before August 31st, 2010, based on start date no later than July 26th, 2010.

    This plants a sense of urgency and an expectation that the project can only be completed in their time frame if it is started on or before a specific date.

    I have received approval faster on proposals which I have included this line in the Scope Statement.

    1. Mitch I do a similar thing. I put a notice that we are able to SCHEDULE a start date within 10 days of receiving payment.

      Prior to using that wording I’d have clients verbally agree to a proposal and then either change their mind the day before or they’d dispute the invoice, etc.

      I recommend expiration dates and also not starting until the client takes some action on their part other than nodding their head.

      1. Thanks Wayne.

        I am having a delima now about how much to request “up-front”, I want to request 100% of software and services right away, but I am not sure what or how to approach this? We have also progress billed, but it makes our internal billing and consultant incentives an administrative nightmare. Do you have any advice on this. I am starting small with request of 100% software and 25% – 50% of services.

      2. I request 100% up front — always on the software. The labor cost is negotiable but I start at 100% and usually the realistic split is 50% to start and 50% when complete.

        I find that if I don’t collect a balance in advance then it can be a long time before the client thinks we’re “done”

  4. My company, Enterprise Resource Consulting, has just initiated fixed-fee consulting for ERP selection. It’s based on annual sales and type of business – Wholesale Distribution, Discrete Manufacturing, Process Manufacturing, and Mixed Manufacturing. I agree that clients would much rather have certainty whenever possible.

    I’ll have to think about fixed-fees for implementation though. So many informal requests are made, and most are in a gray area as to whether they are part of “implementation”, that I have concerns.

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