Captain’s log, stardate 20220820
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How NOT To Write A Project Proposal (pt3)
A few days ago, I wrote a message about Travis the plumber.
The central theme was that Travis gave me a really unattractive cost-based estimate for some plumbing 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?
In my last message, I talked about #3 (i.e., the price).
In this message, I want to talk about #2 (i.e., the risk).
Let’s talk about risk…
When you give an estimate to a client, you are putting most of the risk on them.
When you give a fixed price to a client, you are putting most of the risk on you.
When you take on risk for a client, you are generally able to offset it by charging a premium (i.e., a higher fee).
That’s perfectly fine if that’s what you want to do.
But for reasons discussed in my last message, let’s say our “Fake Travis” decides to keep his prices competitive for strategic reasons.
This raises a bunch of questions like:
- What if he underestimated how hard the job would be?
- What if scope creep eats into his profits?
- What if he can’t deliver the benefits he promised in the quote?
- What if Travis’ supplier sells him defective parts?
- What if the client places unreasonable wear and tear on the work product?
I’ll take them one by one…
What if he underestimated how hard the job would be?
If Travis is penalized financially for doing a bad job estimating his costs, guess what’ll happen?
He’ll get better at estimating his costs!
Will there ever be surprises?
Sure, but over time there will be fewer because he has a strong financial incentive to get better at it.
What if scope creep eats into his profits?
If Travis is penalized financially for doing a bad job controlling scope creep, guess what’ll happen?
He’ll get better at controlling scope creep!
Will there ever be surprises?
Sure, but over time there will be fewer because he has a strong financial incentive to get better at it.
What if he can’t deliver the benefits he promised in the quote?
If Travis is penalized financially for doing a bad job delivering the benefits he promises, guess what’ll happen?
He’ll get better at making promises that he knows he can keep!
Will there ever be surprises?
Sure, but over time there will be fewer because he has a strong financial incentive to get better at it.
What if Travis’ supplier sells him defective parts?
If Travis is penalized financially for doing business with shoddy suppliers, guess what’ll happen?
He’ll get better at sourcing suppliers who only distribute high quality parts!
Will there ever be surprises?
Sure, but over time there will be fewer because he has a strong financial incentive to get better at it.
What if the client places unreasonable wear and tear on the work product?
If Travis is penalized financially for doing business with unreasonable clients, guess what’ll happen?
He’ll get better at weeding out unreasonable clients in the sales process!
Will there ever be surprises?
Sure, but over time there will be fewer because he has a strong financial incentive to get better at it.
Here’s the thing…
Quoting fixed prices and sticking to them aligns the financial incentives across your entire business with those of your customers and clients.
Instead of just getting better at your craft, you start to get better at delivering results.
Which, of course, is what your buyers actually want.
Yours,
—J
P.S. Want to get better at delivering results? The Pricing Seminar returns for its tenth session in September.
To get first crack at early bird registration, add your email address to the notification list here:
I hope to see you there!