Project Estimation (2 of 3) – Pricing

November 2, 2010

Last week, we started a discussion on project estimation. It starts with good requirements gathering. Then, you can break down the project into a set of tasksthat meets the requirements and make estimates the effort, duration, and cost of those tasks. Now, we move on to translating that into the actual project price.

Pricing Method

Once you have estimated the cost of the project, you can determine the total price for the bid. Yet this is another area, where mistakes can be costly. So, you should develop a common, efficient and standard method for pricing projects. This becomes particularly important as your organization grows and you look to delegate the responsibility.

Cost of Goods

The cost of hardware should be straight-forward, right? You may have common products stored in a spreadsheet or rely on the vendor’s web site to look up prices. But, do you have a method in place to validate your cost of goods? If that is too much overhead, you should require validation on higher-priced items.

Labor Rates

How about labor rates? If you have done so already, you should consider establishing different labor rates depending on seniority, certification, and so on. If nothing else, it creates value that can be negotiated. For instance, in a competitive situation, you can ask the customer other bids included labor from certified developers. Or, if your customer is pushing for a lower price, you may want to say ‘OK, we’ll give you a discount, but because you are a good customer, we’ll be providing a certified architect at certified developer prices.”

The Price Is Right

Other possible variables that you may want to include in your price are pre-sales effort, marketing, and other overhead. You may not want to provide them as line-items in your quote, but ultimately they need to be accounted for. And, finally, you should assess the capacity and ability of your organization to take on the project. Not to mention the overall risk of the project (more on that next time).