When do you give fixed bid?

On larger projects, and especially those with fairly un-savvy clients (technologically speaking), it makes sense to go with time and materials bid.

But there are times to give a fixed bid:

- Simple projects where it is easy to estimate time and materials, and there is little risk of conflict over scope or the definition of “done.”

- Projects when you want to get a foot in the door and show what you can do, even if you may only break even (e.g. client could be very valuable long term). Best to do this on small, niche projects.

- When you have packaged your solution in a repeatable way, and so know what you need to spend to provide results.

- When certain audiences demand it. For instance, many construction firms are used to providing fixed bids, and insist that certain IT vendors do same. But here, you have to be darn sure you know what you are getting into before you go after that kind of market.

Do you agree or disagree?

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  • Ned Collyer

    Fixed bid everything that has a defined scope that the client will sign off, and you can estimate well. (Can even be big projects).

    Ensure that there is a clause that rework and/or change of scope is covered by some means (t&m or CR fixed price costings that are additional to your initial quote).

    The paperwork has to be up to scratch.

    You can go T&M if you want.

    Personally, i find fixed price makes me work more productivly, because the quicker i finish, the bigger the profit.

    T&M.. the longer a project drags on the longer you get paid. I would rather do lots of projects than one that drags on for years doing the same crap.

  • VoxxitDesigns

    Sometimes this is a good idea. Prepackaged solutions are often taken advantage of by smaller clients. Although, I do agree that when you want to get your foot in the door, you may want to give clients a packaged solution. I would also note, though, that you may not want to give those clients the wrong idea :)

  • http://www.realityedge.com.au mrsmiley

    I’ve found that when dealing with small business and trade contractors, they will only accept fixed price quotes. Depends on the project of course, but this is they work, so often the only way to work with them it to adopt the same business approach to pricing. As far as they are concerned, you are selling them a product (eg. a website, brochures, business cards, etc).

  • http://www.criticalmass.com Craig Bedard

    I believe that is always best to fix bid a project. The project price should be calculated on the value you provide to your client for a few reasons:

    1. As you get more experienced, a consultant gathers a lot of reusable work (code etc.) that can be used on future projects. If you charge by the hour, this added ‘value’ cannot be charged for.

    2. Clients never want an hourly rate without an estimate of how long it is going to take. This is the same thing as fixed bidding.

    3. An hourly rate is not motivating as you get paid more the slower you work.

  • Jonathan Snook

    I’ve always tried to provide fixed pricing. Sometimes this means a little more work upfront to nail down the statement of work but it creates a more predictable situation for both yourself and the client.

    The key is to be clear to the client what constitutes an “out of scope” change. It’s a tricky balance between just doing the changes because their small or you don’t want to jeopardize the relationship with the client while on the other hand trying to make sure the client doesn’t feel like you’re nickel-and-dime’ing them.

  • http://www.delyrical.com davidjmedlock

    I agree with Craig. Although I do currently have a situation where I’m providing a mix. I recently stepped into the world of freelancing/independent contracting. I have a full time contract with one company and when I left the last company, I signed a contract with them to provide consulting, since I was, at the time of my departure, their only web developer.

    So, right now for this company I provide consulting as needed. This includes troubleshooting, handling errors that occur, meeting with people at the company for various things, etc. When they need a big project developed, they come to me with specs and requirements (or I develop the specs for them and charge my hourly consulting rate) and then I give them an hourly estimate with the option to convert it to a fixed quote. Either way, it works out well for both of us since they get what they need and I get paid pretty well whether it’s fixed or based on the time I spend.

    It goes to show that sometimes, no single solution is the right one, but a mixed approach can fill everyone’s needs adequately.

  • shadowbox

    I always provide a fixed price for a project for all the reasons listed above. The only time I tend to fall back on time-based rates is when I have to install content into a site for a client – typically the info on the type of content to be provided can be vague, so I find it easier to say ‘hire me for a day to add content, I reckon I can get approx 30-40 products added’ etc.

    That said, I have one client who I always charge by time – this is because he is a complete nightmare over change of scope. Content is constantly changed, specs are vague and subject to several revisions after the fact ‘Oh, now I see it, I don’t like it, please change to this….hmmm, actually, could you now change it to this…’. I still try to get some stuff in at a fixed rate (e.g. design work), but because I know what a pain he is, I do tend to over-price to account for the expected faffing.

  • http://www.eleytech.com beley

    I work on a hybrid model. Most ‘projects’ are fixed-bids based on our hourly rate and estimated time to complete (as well as value provided, and any expenses). However, when I’m called in as a consultant I just bill my hourly rate. If it escalates into a larger project, we will write a proposal and charge by the project. I’m happy just billing hourly for maintenance, consulting, etc. though.

  • MarkB

    The only time we DON’T provide a fixed bid is when we’re doing simple maintenance or update work – which typically only takes a couple of hours, so we charge our hourly rate. And even then we can give an estimate of the time, and cost, involved.

    In my experience, fixed bids give the client a better idea of the project’s worth, and is easier to sell to them.

  • http://www.jamesinteractive.com ecaptus

    It is much easier to go with fixed-price when you know what the client’s budget is. You have no worries about coming in over budget if/when hiccups occur. My contracts also include maintenance for changes under 1 hour for the first 90 days. Any changes that take over 1 hour require an additional fixed price contract.

  • JamesPr

    I’m struggling with this one. My one main client (ex-boss), 80% of my time, is hourly. It’s at a lower than market rate but since it is rock-solid it is worth the discount. For my side projects, I did one hourly which was good because it ended up taking longer than I had estimated. The second one I did fixed-price, and it also is taking longer than estimated and now I am down to my discounted rate :( . I have new gig and debating. He is ok with hourly at a good rate, and looks like a long-term client with ongoing work–so sounds like hourly is best.

    But I got the Web Design Business Kit and I know Brendon Sinclair always pushes the fixed-price, and I see the other comments here. I just don’t see where this “profit margin” comes in–the projects ALWAYS take longer than estimated. I could give more fudge factor but I think clients would be shocked how long a high-quality site takes.

    And I just don’t see how to price on value for a brochure-y type site. Sure, e-commerce you can measure sales, or at least it is a business venture, so that could be simpler to price on value.

  • codescribbler

    I’m inclined toward fixed bid. On hourly rate, you get penalized for working efficiently, and the client gets penalized if you don’t work efficiently. Plus, I’ve spent too many hours hacking through one stupid little unexpected bug. Those surprise hours don’t add anything to what they client is buying, and I don’t think that they should have to pay for it. The way I see it, if I fail to forsee such problems and work them into the project fee, it’s my own fault.

    However, a very detailed SOW is required, with the understanding that any changes to requirements must be documented and added to the quote or charge on an hourly basis.

    For maintenance and consulting, I go hourly or on a period-based, hour-capped retainer.

  • http://www.lastcraft.com/ lastcraft

    Hi.

    I avoid fixed bids like the plague. You don’t have to go to the other extreme of hourly pay though. Adopting an incremental approach of monthly or weekly inch stones is possible, especially if either side can cancel the deal within one cycle. You will find that your estimates improve as the project progresses, so that even if you can calculate the closing stages, there is no need becuase of the trust you have built up.

    A bad fixed bid project can sink your whole business (I have lost a business because of this). Just because you have won the previous five goes of Russian Roulette, doesn’t mean you will win the next one.

    yours, Marcus

  • JamesPr

    CodeScribbler: Yes, I have had cases where I had to spend hours to fix a bug and was on hourly. But if I felt I should have known better, or if I had made a mistake like deleting files that I had to re-do, I simply wouldn’t charge for those hours.

  • JamesPr

    LastCraft:
    How do you do set up this “inch stone” process?

    Would it be providing an estimated number of hours for each phase of the development cycle, like setup, design, coding, testing, then stopping after each one to get with the client and assess how that phase went, to see how close to the estimate you got? Would you invoice phase-by-phase? And in advance or after?

    Thanks for your thoughts, that approach could work for me.

  • DONMAC17

    In most cases when dealing with a major client, the fixed bid is mandatory. The client has to budget for ‘something’ if it’s a project-based job. After some time in the saddle, most of us learn how to quote safely so as to always make a profit.

    Now… if the major client prefers to issue you an ‘Open Purchase Order’ that would be charged on a monthly basis with a formal bill that stipulates job numbers, time spent on each job and the total cost for a finished product, then my advice is to grab that sucker as fast as you can and do everything in your power to keep that purchase order forever ‘open’.

  • raj

    I do some web programming/database contract work for my brother’s clients (he runs an ad agency). I gave a fixed bid for two projects, which he marked up and passed on to two troublesome clients. Inevitably, both clients wanted changes and refused to pay my new quote. In fact, they wanted changes done for free, but my brother said “no can do, as we use an outside person for the coding”. But I still won’t get paid for all of my extra time.

    Previous contract experience says that if you work with small clients, you are more likely to have difficulties with them. They tend to be more belligerent about cost of fixes outside of the clearly-defined scope.

    So what’s the solution? Factoring a higher hourly rate from the start, plus a 30% buffer. If you think your total is too high, consider the CDQ (client difficulty quotient).

    If the client is easy to work with, reduce your project total and inform the client that any changes outside the scope will cost “this much” (either hourly or project-based).

    If the client is difficult to work, don’t reduce the total (unless you’ve worked with them before). But still let them know that changes outside of scope will be extra. If later, they raise a fuss, you have the buffer to cover you to some degree. The rest of it you will have to negotiate creatively. [Although I don't recommend this, I know of colleagues who put in "non-payment time bombs" in their Visual Basic software. That's not so easy to do for web site work, unless they are using your scripting, hosted on your site.]