The Paydirt Blog

Quoting a Fixed Price? It’s All About Your Hourly.

When I started quoting fixed prices for projects I was basically guessing. Trying to estimate how long each component would take was a huge challenge. Humans are generally terrible at estimating duration. How long does an hour at the dentist feel like compared to an hour at the beach? My overall estimate would be lucky to be even in the ballpark of accurate.

In the end I’d usually resort to choosing a figure that looked acceptable and was unlikely to be rejected, totally unaware of just how short I might have been selling myself. Looking back, I often at least halved my hourly.

Obviously pricing takes experience, but if you play it right you can calibrate in weeks rather than years.

For me, the trick was to keep track of my working time perfectly for just one project, building a website for ABC Inc. I logged every minute I worked on that project, along with descriptions of the work, and categorized everything in a big spreadsheet. It was a bit of a chore, but gave me an invaluable point of reference.

After that, future projects became much easier to estimate – not by breaking down item by item, but by simply asking myself: “How many ABC Inc. websites does this project feel like?”

If I felt a project looked like X times as much work as that ABC Inc. website, I was usually spot on. That kind of gut feeling turned out to be surprisingly accurate, and so were the quotes I calculated using it. All I had to do was multiply the total hours logged towards the ABC Inc. site by X, and then by my hourly rate to get the total for my quote.

If the quote appears too small, congratulations, you’ve been promoted – up your hourly. If it appears too large, you can send a heavy quote and likely get rejected, or take a cut to your hourly, knowingly.

In the end, you’re always working at an hourly rate, whether you’re selling your services that way or not. Your rate is what’s variable, so being able to accurately estimate how long things take is essential.

Now I try to track all my work time as accurately as possible, even for fixed price projects – not because it changes the invoice I’m sending, but because I’ll be using it for my next quote.

Posted on

November 11, 2012

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