Getting Paid … for Your Proposal?!

How do you cover the costs of the pitches and proposals you do? It’s the age-old question of every freelancer, and everyone’s approach is different.

The disclaimers: I’m not an accountant, and I don’t often have to recoup the costs for a pitch that involves lengthy research and hours of preparation time. Also, I’ll keep this discussion broad, because discussing the specifics of pricing can raise all kinds of legal issues.

Probably the most obvious way to recoup the proposal preparation costs are simply to include them in your estimate, and charge your normal rates for the time involved. If the client takes you on, they pay for the time it took to prepare the proposal. If they don’t, they pay nothing. Simple.

You may not feel like you’re in a position to charge for your proposal costs, though — many freelancers don’t. But putting proposals together takes time, so rather than just writing that time off, you might consider an alternative approach: work the time you’ve spent on the proposal in your project costing estimate some other way.

Spreading your costs

Let’s say you know that the labor cost you have to cover for every hour worked is $10. (I’m using small, simple figures here so we (okay: I) don’t get confused.)

Now, let’s say you spend five hours researching and preparing a pitch for Web Project A. And you estimate that completing Web Project A will take 20 hours.

Ordinarily you might estimate a labor cost for that time of 10×20, or $200 — then you’d add your profit margin. That’s okay, but it’s not going to cover the cost of pitching for Web Project A.

Instead, add the pitching time (5) to the job estimate (20). Now we’re looking at 25 hours of work. Multiply that by your hourly labor cost (10) and you can see that you need to recoup $250 to cover the full labor costs of this project.

Now, divide that figure by the number of hours you’re estimating the project will take (that’s 20). We can see that to cover the real cost of Web Project A, you need to charge $12.50 per hour, not $10.

But I have fixed rates!

If you have a schedule of fixed rates, and you don’t want to deviate from that right now, then you might take a different approach. You might consider building the time you spent preparing the pitch into your scoping or project management costs, for example.

The main problem with this approach is that it can add a significant chunk of money to an otherwise ordinary estimate of time in a given area (for example, scoping). And if you add it to the project management estimate, and then need to itemize that cost in your invoice, you might face an ethical issue re: “fudging” your figures.

If I were taking this approach, I’d probably add the time to the scoping estimate — because, after all, preparing the proposal entails scoping — and charge for it openly on the first invoice.

On the average

I know what you’re thinking: what about all those jobs I pitch for, but don’t win? How can I recoup those costs? Well, you could apply the per-proposal formula I just outlined to your annual proposal-and-work load.

Ideally, you’ll set your rates on the basis of how much it costs you to freelance — including the pencils, the paper clips … and those proposals you pitch for but don’t win. That means that you’ll need to total how much time (read: money) you spend on creating proposals each year, for example, and how many of those proposals you win.

If it takes you an average of five hours to create a proposal, and you win one in three proposals, then in fact you spend 15 hours, on average, to land a job (not counting meetings — I’m still trying to keep this simple).

Now let’s say that your average job takes 40 hours. If you wanted to, you could use these figures in the formula I explained above, and come up with a figure that represents the hourly rate that, on average, you need to charge to cover the labor costs of the projects your business completes (in this case, you’d charge $13.75 per hour instead of the current $10 per hour in the example above).

These are the basic ways I’d go about covering the costs of putting together a proposal for a client. If you use another approach, do tell us.

Image by stock.xchng user lasop.

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  • stephanhov

    Project minimums are another option. With a project minimum (that perhaps varies by category of project) you can factor in your proposal and scoping costs and cover yourself. This combines attributes from #2 and #3 in your article.

    It’s also worth noting that the more deals you do, the better and faster you’ll become at them. So always be looking at ways to build efficiency into your proposal process. Maybe your proposal is 90% boilerplate info about your company and process, with 10% pricing ranges and general terms. If the proposal is accepted, a contract is written up with a more finite scope of work — and that’s where you spend the bulk of your time in research, but you’ve essentially already landed the job.

  • Andre van Rooyen

    So all the poor sods who end up taking you on, end up paying for the duffed proposals you toiled on, as well? Gracious. Now that hardly seems fair? Or smart, considering the inflationary effect this would have on your prices.

    Here’s another option. Everyone gets a free “hour”. Call it a meet and greet, call it the golden hour, whatever. I call it discovery. It may not be 60 minutes. Might be a 30 minute “hour” if you sharp-up and have a plan going in. Your mission in this “hour” is not to establish scope or specifics. It’s to establish their intent, and commitment level. And to sell the seperate, up-front scoping project (i.e. 5 hours at $10) in interaction with their staff, as a first step. From which your estimate for the product will be orders of magnitude more accurate and better understood.

    That tells them you’re serious about KNOWING what they want before you start throwing numbers at the job. It will also give you the opportunity to speak to a range of staff who will need to use, manage, and receive output from the product. The folk who REALLY know what the widget you’ll make for them, has to do.

    Now, when they’ve paid for the work done in the proposal, 1. You’re not out of pocket for those hours, or looking for someone to hang them on, 2. they can now decide to accept or reject. From an informed place. It’s valuable to them either way. And all they’ve paid for was a couple of hours.

    I’ve worked my custom software business quotation/estimate/proposals like this for years, and never had a client say “You want me to pay for a scoping project?” They instinctively understand that this is win-win.

    That’s my 50 cents.

    • Wolf_22

      Andre, that’s not a bad idea. The only thing I find hard to swallow out of this is that your clientele have accepted your $10 rate prior to being charged your *real* rate ex-post-facto scoping project…

      How did each transition unfold thereafter? Was it met with acceptance or did they normally attempt to run away once you told them your real “hey, I have kids to feed, too” rate?

  • Doug Johnson

    An alternative that I have used to good effect is to charge for a specification document. I work with the client to determine their specs and provide them a document, for a fee, that they can then use to shop to anyone they wish.
    They get a much better specified project than they would have had in the first place, they have a sense of being free to bid the job around based on “real specs” and 9 times out of 10 they ended up going with me anyway.

  • Georgina Laidlaw

    Thanks for these great suggestions guys :) I had a feeling that once we got the ball rolling, a lot of alternatives would appear, since everyone’s got their own approach.

    Keep ‘em coming!

  • Colin

    I build in two hours “maintenance” into my annual “hosting, email services and maintenance” charges. That means scoping, phone/email conversations and tiny website tweaks (e.g. phone number changes) can all be taken out of that pot, without incurring separate billing.

  • Charles

    On small jobs, I’m willing to eat a couple of hours meeting with the client and putting a proposal together. I’ll meet with them first and from there decide whether to put in a proposal. If the customer is unprepared, unorganized or doesn’t have a clear picture of what they want, I walk.

    On jobs that will be large and/or complex I take a different approach.

    I’ll go through their requirements – which are usually not very detailed at this point – and provide them with a proposal just to take things through the stages of putting proper requirements document together and an initial cost analysis.

    Most customers underestimate the cost and time involved in a project, confuse wants with needs and have trouble prioritizing those items.

    So at the end of the day, the customer pays me for advice and providing them with a requirements document, expected project cost and a defined scope for the project.

    Sometimes we part at that point and another company takes over, sometimes they put the project on hold because they realize the project doesn’t make any sense from a business perspective, and most of the time we sign a new contract to complete the project.

  • Steve

    I found that the solution to getting paid for proposals was very simple – I changed my title from “designer” to “design consultant”.

    As a “designer”, I found I sometimes had a hard time convincing clients to pay for non creative paperwork. Whereas these same clients have no problem paying a “consultant” for paperwork at all.

  • Michael

    Excellent information and just in time for a blossoming writer. Thanks for your time!