Until recently I worked exclusively for time and materials plus a project overhead fee (that cover the cost of things like fuel, tools and my van.) That has always worked. I wrote about my motivation for working that way here.
After about five years of doing this kind of work and specializing in redwood fences and gates, I have gotten to a point where I understand it very well. I know what is involved with each kind of service, and what kind of variations I am likely to encounter that can make a big enough difference in the cost of the project to matter to me. That kind of knowledge is easier to gain because there are so few services that I offer, and because I artificially limit the kind of projects I accept.
Some subset of the things I do for my clients is now straightforward and mostly predictable. More than half of the work I do falls into this category.
Until now I have gone to the discipline of estimating each and every project, from a complete bill of materials through a detailed list of each step and how long it would take. My estimates were meticulous and thorough. Because it was all based on time and materials the price varied. But, it was more often below than the estimate than above it. There was always some margin of error for estimates because I could not predict things like favorable parking, debris in front of the fence, roots in post holes, and needing to dig through unusable stock at the lumber yard. It is hard to know exactly how long any creative process will take to finish even if you are in complete control and everything is nominal. But, I got very good at estimating this kind of project after doing it a few hundred times.
When I worked for time and materials based exclusively on estimates I was taking the least possible risk. I certainly did take some risks because I purchased materials trusting that my client would eventually pay for them. I took the risk that if I buy the wrong materials or too many, I don’t get paid for those within the project. I took the risk that if I make significant mistakes while I work or accidentally damage a piece of wood or other materials I will have to replace the wood at my own cost. I take the risk of injury and of accident and of having my van and/or tools stolen. I actually take quite a few risks.
But the risk that the project might cost more was mostly bourn by my clients. If it took longer the invoice would reflect that.
Now that I have a real basis to understand the cost of normal projects it is easier for everyone if I simply have a price for them. I will not have to spend 1-2 hours preparing an estimate for each project for each client, and I’ll be able to give clients a verbal estimate while I am with them at their location. Clients who visit my web site can get a good idea of what different sized projects will cost.
I will still need to evaluate each project to make sure that the prices I offer suit the details of the project. And some projects are too varied to have a single price that I can offer that is fair. Those will always require an estimate. They deserve to have an estimate made because I simply do not know enough to set a price fairly. If I end up doing that project multiple times and learn enough to set a price, then I will and it will be easier for everyone.
But for nominal projects that are just like previous projects of the same kind, I can offer prices. Those prices will not exactly agree with a time-and-materials project estimate or cost. Sometimes the price will be higher and sometimes lower. People were already trusting me to keep good records about time and materials. It is a different kind of trust to believe that I will do the right thing for a given project and not cut corners. But, it is still trust. I think it is less difficult to trust me to do the job right, because I stand behind my work and if there is something wrong with it I will have to fix it. So, I cut no corners because I’m only paid to do the project once. I’m accountable for the work I do. But when keeping time there usually is no witness and no accountability. My clients would not be able to tell if the time was off. So, objectively, trusting of quality is easier.
So, I am trading trust of one kind for trust of another kind, and for the effort of the trade I am relieved from detailed accounting and my client is relieved of the worry that they do not know what the project will cost.
Of course things can come up in the middle of a project, such as a client changing their mind in a way that requires rework or replacement of parts. Or if they add something new, like a gate to an existing fence project. Changes must always be negotiated. I’ll still keep daily records of time spent on the project so I can make an assessment of how much a project change will cost, but changing the project plan will also be easier because it too can rely on prices for new services.
So, you might ask, “Isn’t a price the same thing as a bid.” No, not at all. A bid is what you do when you set a price based on “market price” or “value pricing”. In other words, charging the most you possibly can, including different amounts to different people based on how badly they need the work done, or how little they know about projects like this, or how many other projects are waiting for your time. A bid is what you do at an auction when you’re trying to maximize your value (minimize price). A bid explores the edge of value to the customer to eke the most possible money out of them. A bid intrinsically makes an adversary of one’s client.
By comparison, a price is the same for everyone. If the conditions are the same, the price is the same. A price doesn’t change if you desperately need the work done. A price doesn’t change if you are ignorant of how projects like this work. A price doesn’t make the client an adversary. The relationship is free to become the partnership that helps projects succeed.
My prices will change for projects over time, because my costs change. But I’ll make all my offers in writing and honor my written offers for six months.