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
- 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.
- 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.
- 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).
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.