You can reasonably expect to have to justify your project costs. In an ideal world, you’ll be working with people who understand that you’re a professional, that your estimation process is as good as possible, and that your suggested project costs match their requirements. But that’s not always the case1.
The conversation should start from a point of clarity in the estimate and supporting proposal, if you’ve produced one.
There are two parts to this article: what you should show clients in your estimate, and how to justify your costs.
Know your estimate inside-out
Before ploughing on, it’s worth mentioning that you should be completely au-fait with every single line item in your estimate. If you worked on it with a colleague, make sure you know all the stuff they’ve estimated. If there are some bits which you feel unsure about, figure out why that is, and banish those doubts.
A ruthless negotiator will pounce on any uncertainty and pick holes in a supplier’s estimate. If you’ve been in the position of buying something bespoke you’ll probably recognise this. As the supplier, you need to be on top of your game, and super-confident.
What to show in an estimate
As we’ve outlined in an earlier article, building up a list of estimate line items is the ultimate output, and you should be as accurate as you can be. But you might want to choose carefully how you display this to a client.
As an agency, we’ve found being honest and transparent about our costs has contributed to winning work, and helping to create a strong relationship with the client. However, in many cases, showing all line items to a client can end up baffling them: they need to see it in their terms.
As an example, we normally reduce our estimate line items into their parent headings. Where the client sees a ‘Consulting’ header and four key line items underneath (Workshop and writeup, IA & UX Consultancy, Prototype Development), the main estimate may be made up of 8 or 9 consultancy line items.
A lot of our clients are busy people and don’t want too much detail. Many of them don’t understand the more technical line items anyway, and don’t want to. By over-sharing your detail, you run the risk of the client incorrectly pulling apart a quote, and you having to go through the rigmarole of justifying essential stuff.
This is a conscious decision per proposal, though. If the client is technical (for example, we’re dealing with a domain expert) or explicitly requests a complete breakdown, we will go ahead and share it with them.
How to justify costs
You will sometimes have to get into a discussion with your potential client about the cost of the project. That’s OK, it’s their money and you need to persuade them of your worthiness to do the work. Treat their questions with respect, but have a clear handle on your value to them.
I often ask myself, “does this person routinely question the cost of fixed-price things, like laptops, their phone bill, or a meal in a restaurant?”. Often the answer is 'no’2 - they would assume that the price they’re paying is a fair representation of the value they’re receiving from the computer, phone call or meal they’ve eaten.
Providing you’ve followed our advice in earlier articles you should feel really confident in the price you’re quoting. It’s a realistic estimate based on the client’s requirements; you will be getting a decent return on the work, and the client will be gaining from your expertise - something they don’t have themselves. So be confident.
Do it face-to-face
If you can, discuss costs with the client face-to-face. On more than one occasion at Error I’ve been sitting with a client who’s asked “does it really cost that much for you to do x?”. It’s a lot easier to confidently look them in the eye and say “yes, that’s the price” than it is on the phone. But once you’ve got the confidence, phone calls work just as well.
If you feel uncomfortable, it’s ok not to commit to stuff in the room
I don’t think that presenting an estimate should be a negotiation. You’ve used your best professional skill and judgement to come up with a cost for the client which represents the effort for the work. Getting into a negotiation in the room (or on the call) is likely to result in a couple of unwanted outcomes:
- you’ll end up lowering your price, which immediately undermines your position as a credible adder of value to the client
- you will have undermined your earlier efforts at estimating the work correctly
If there’s any doubt at all about whether we can lower the price for a piece of work - or if it feels like we’re getting into a 'haggling match’ over the estimate - I will always say, “we need to refactor our costs, and I can’t do that now. Let’s discuss the rest of the agenda and I’ll get back to you about the estimate”. That leaves you in a strong position to either push back to them if you can’t lower the cost, or appraise their request in a calm manner later.
Have some wiggle-room if the client is cost-conscious
If you have a cost-conscious client, you should do your best to understand whether they have a target price in mind, and estimate to that before presenting it.
But using a variable day-rate means that you have probably got wiggle-room if the client demurs at the cost you’re presenting. You could always slide your day-rate towards your cost rate if you really want the work. In a few situations I’ve been upfront with a client and said “we can knock off x from our day-rate” in a meeting. You have to do that with care to avoid seeming like you’re overcharging in the first place.
Our number one cost-cutting question: “what can we remove from the project?”
The cost of a project is entirely made up of different portions of work, for which you’ve estimated time. If the client wants a lower price, you can challenge them to remove something from the project.
One tactic we often use is to ask “can we push that piece of work back to a phase 2?”. Often, clients will have budget in future years, or from another funding source, with which they can look again at the project. This approach also cements you as a long-term partner, as opposed to a one-shot consultant.
The client says 'yes’: what then?
Hooray! In our next article we’ll discuss what you need to do next, so you can call the project a 'win’. Hint: it’s not “start working on it”, just yet.
Invariably, projects with a lower cost will be questioned more closely by clients, who might be more cost-sensitive. In a future article we’ll cover how we deal with the issue of clients who see cost as more important than value. ↩
Sometimes the answer is 'yes’. We like to avoid clients like this if we can. ↩