August 19, 2022

How NOT To Write A Project Proposal (pt2)

Thanks to everyone who replied to yesterday’s message about Travis the plumber :-)

You can read it here if you missed it, but the core concept was that Travis gave me a really unattractive cost-based estimate for some work I needed done.

As a counterexample I rewrote it as a benefits-based fixed price quote.

There were three types of replies that cropped up repeatedly:

Oh no... I have been writing proposals like Travis! Thanks for the example!
What if $edge_case happened and Travis ended up losing money on the job!
Shouldn’t the fixed price be a lot higher?

Today, I want to talk a bit about the last point.

Shouldn’t the fixed price be a lot higher?

Travis’ estimate was $1,422.38 and the fixed price I put on my imaginary quote was $1,500, so basically the same amount of money.

Could Fake Travis have charged more for the job than Real Travis?

Probably yes, because he’s taking on more risk.

But there’s a bigger picture here that I think is worth pointing out.

If we can assume that Real Travis was going to make some profit off of the job at $1,422.38 then it stands to reason that Fake Travis could also make a profit at $1,500.

Perhaps more importantly, I think it’s a pretty safe bet that Fake Travis would beat Real Travis (and other plumbers like him) out of virtually every single bid he gives to non-price buyers (i.e., the best kind of buyers).

If so, this would give FT lots of work with the best kind of clients, which can directly lead to things like:

Increasing the number of customers he has who care more about the service experience than the price
Increasing his customer satisfaction percentages
Increasing the number of amazing testimonials
Increasing the number of word-of-mouth referrals
Decreasing customer acquisition costs, which would increase his profit margin across all jobs.

Assuming that Fake Travis is good enough at estimating jobs that on average he makes a reasonable profit, he could keep going like that indefinitely.

In other words, he doesn’t have to make a profit on every single job as long as his business is making a profit overall.

So to bring it back to the question of whether Fake Travis’ price should be higher, I’d say...

It could be higher, but for strategic reasons he might not want it to be.

Okay, but what about the increased risk?

What about the risk of scope creep eating into Fake Travis’ profits?
Or what if he can’t deliver the benefits he promised in the quote?
Or what if his part supplier sells Travis defective parts?
Or what if there is unreasonable wear and tear on the work product?