Clearly Explaining the Value of Your Services
The next competitive advantage of using the tool as part of your negotiating strategy: Your prospects might not understand the value of each of the individual services you provide. Perhaps all they’re looking for is your delivering the front-end for their Web site. But if you bury the necessary activities in a broad service category such as Discovery, you miss an opportunity to upsell the individual activities that goal requires. This increases the risk of a prospect’s choosing not to pursue an entire category of service.
Transparently exposing each of your service deliverables and being open about the work you’re proposing builds trust with prospects. It also allows you to improve your prospect’s understanding of the full scope of effort for the work you’re proposing. By educating your clients, you establish a bar to entry that your competitors must then meet or exceed.
Rapidly Handling Changes in Scope
Project goals change. That is a fundamental reality. Changes in project scope are particularly difficult to manage for a services business. Using this tool to calculate your services estimate affords some advantages when handling changes in scope, as follows:
- It reduces the energy that identifying and responding to scope changes requires. All you—or your clients—need to do is change a few quantities for specific line items and the new costs appear immediately.
- It lets you create a snapshot of the costs of work completed to date that you can present to your client.
Your contracts should state that the client agrees to pay for services you’ve already rendered, even if revising project scope means the client is no longer taking full advantage of those services you’ve completed. By stating the specific quantities of activities or service components you’ll provide, you can avoid arguments about what is done and what remains to be done. For the example Crafting an IA, perhaps you had completed only one iteration before the client decided to go in a different direction. No problem. While the original estimate shows two iterations, you bill for only one. By making a simple change to the spreadsheet and doing a quick comparison, you and your client can easily agree on the project’s current costs.
Putting Your Customer in Control
The greatest competitive advantage of this approach is that it puts your clients in control of costs. For example, during my early use of this tool at Phase II, the scope of projects sometimes changed enormously—expanding or contracting by as much as a factor of three. But my clients and I understood that was the nature of the work we were doing. Using this approach, your clients know going into a project that they can communicate clearly to their customers the potential costs resulting from changes in scope. In fact, I give my clients a copy of the spreadsheet for their own use. What could be more empowering than letting your clients run what-if scenarios for their project? You can build a strong clientele using this rapid, transparent approach—all because of a simple spreadsheet model.
Risks and Opportunities
Assuming you’re willing to suspend disbelief that my tool actually delivers the actionable results that I’ve described and want to try it out, you should keep in mind that this approach does have several risks. However, mitigating these risks is relatively easy, and the approach’s opportunities for competitive advantage are worth the effort.
This approach avoids billing by the hour, as well as the apparent alternative of a fixed-fee contract. Let me be clear that I am not proposing a fixed-fee approach because there are real risks inherent in fixed-fee contracts, as follows:
- They make handling scope changes difficult.
- Predicting the proper scope at the proposal stage is impossible.
- Their focus is on a monolithic number—a fixed fee for your overall effort—rather than your competitive advantage.
Clients actually prefer fixed fees over billing by the hour for three reasons:
- Their perception is that costs won’t change.
- It gives them a total amount for which they can budget.
- It commits you to doing a specific amount of work for a specific amount of money.
Scope Changes Are Difficult to Manage
Fixed fees bury the subtleties of scope changes, making it more difficult and time consuming to manage change orders. It’s actually quite common to uncover new information throughout the course of a project that has material impact on what work you should do next. Fixed-fee contracts, by definition, assume that there will be no changes.
Predicting Scope Accurately Is Impossible
Many UX services—especially those that occur during the discovery stage—exist to understand what you should do. Your client is paying you to discover what you don’t know today. How can you predict what those things will be? A fixed-fee contract must make assumptions about those discoveries. Because they are inaccurate, those assumptions could either price you out of consideration for a job or, equally risky, commit you to doing work you can’t afford to do.
Clients Focus on the Bottom Line
Let’s face it, your clients’ focus is always on the bottom line. Presenting a fixed-fee contract enables and reinforces that behavior. Throughout a project, clients are likely to compare change orders against the original fixed fee because that’s the amount for which they’ve budgeted and are likely being held accountable.
Again, I want to be clear that this tool is not meant to support fixed-fee contracts—it’s in service of piecework. The key difference of my approach is that you assign a fixed cost to each service element, not a fixed price for the contract as a whole. The contract is a summary of each of these indivisible activities. By providing quantities and factors for each component, you can clearly communicate to your prospect how you are calculating an estimate for the services you’ve mutually agreed upon.
However, just because this isn’t a fixed-fee approach, that doesn’t mean it presents no risks. Piecework contracts have their own risks, which I’ll cover in subsequent installments. Nevertheless, the advantages of this approach are enormous.
During the proposal stage, a piecework approach offers the following advantages:
- All of your negotiations are about the deliverables you’ll be offering, not the time you’re going to spend on them. In our IA example, the service deliverable you’ll be providing is Crafting an IA.
- In discussions with your client, you’ll be communicating the reasons they need an IA, what you’ll likely do to create the IA, and why it would be in their best interest for you to do that work. You can include a snapshot estimate from the tool as a part of your proposal. Of course, you should use the appropriate language in the contract, clearly stating that the estimate could change based on clear rules and mutual agreement.
Throughout a project, you’ll continue to use the tool in communicating with your client, adjusting the numbers as the scope changes. For example, assume a client was initially being held to a fixed budget, but early discovery work has uncovered the potential for significant change to that budget. Using the tool, the two of you could reconsider how to achieve a mutually beneficial outcome with the money available. Because the tool presents detailed service elements, you have far greater flexibility in navigating a new course of action than when facing a monolithic fixed fee or simply throwing hours at a problem.
Finally, at the billing stage, you can use the tool to do a final reconciliation. If you’ve attached a copy of the spreadsheet with every bill, the final bill won’t come as a surprise to your client, who has been tracking the financials throughout every stage of the project.
In Part 1 of this series, I’ve introduced an approach to modeling your service business that lets you work transparently with your clients and put them in control of their costs, while creating competitive advantage and avoiding exposing yourself to unnecessary risks.
In Part 2, I’ll describe how you can create a simple spreadsheet that lets you do the following:
- Identify the types of services you can best deliver versus those you can delegate to others.
- Establish the value of completing quantified service components—that is, piecework.
- Use the scoping and estimating tool in negotiating with your clients up front, exposing the proposed cost of each deliverable.
- Maintain a level of trust with your clients through transparency across the entire project lifecycle.
- Use aggregates of piecework—eliminating hourly rates and fixed fees—to rapidly adapt to project changes.
In subsequent installments, I’ll delve more deeply into these topics and show you how to use this scoping and estimating tool to help your stakeholders understand the place of User Experience in the broader context of Product Management and the Software Development Lifecycle.