3 Deadly Traps of Bid Pricing

Posted: May 26th, 2009

Last month, I did a series on what you should be charging your clients, however, I forgot to mention some pitfalls that freelancers frequently fall into when coming up with a price for a project. Methods aside, other factors such as fear of not finding work or perceived work shortages tend to cause us to resort to desperate pricing in order to win projects.

This couldn’t be a bigger mistake. To come up with a fair price on a project for both you and a client, you have to keep three things in mind at all times.

#1 Deadly Trap: Not knowing Your Market Price

Your clients are likely do do some shopping around plus they can get a general idea of what price they will pay just from the bids they receive from any project. Its your job to do the same also. Keep in mind that we are not talking about your hourly rate here, but an X dollar amount for a particular service you offer.

By not knowing the pricing in your market, you essentially guess at your pricing which may cause you to underprice and potentially leave money on the table. You may also overprice and virtually guarantee you will not win any bid. It pays to do the research and know exactly what your services are worth on the market. You can view the previous post on how to do market research here.

#2 Deadly Trap: Not Believing in the Law of Averages

For those unfamiliar with the law of averages, you will notice over time that a fairly fixed percentage of bids will be won. For example, after bidding one hundred times, you may win ten, twenty or even thirty of them. While the actual percentage of bids won is irrelevant, it is important to keep number in mind when determining your bid price.

The reason is that you may eventually hit streaks where seemingly no bid you make is accepted. What most often follows is that pricing is lowered on successive bids in hopes that a new client will bite and accept. Big mistake. The proper reaction to a cold period is simply look for more work and make more bids. The slow streaks tend to be followed by a return to bids being accepted and even hot streaks.

Of course, the percentage of your bids that are accepted are dependant on other factors such as how you write the bid and shifting market conditions for your type of service. The law of averages, however, does tend to hold true to its meaning when it comes to the number of bids you make. So use it to your advantage.

#3 Deadly Trap: Settling For Less Than Your Market Price

Most freelancers are aware that there are other freelancers that offer the same services you do for far less than you are willing to accept. It doesn’t have to be said that there are also many companies, individuals and small businesses seeking them out.

What many freelancers do not realize is that, while they do have an effect in lowering the general market value, many times they do not provide the quality of service that businesses need. Many of those hiring for cheap services have even been burned by cheap freelancers and end up paying more in the long run to get the service they want.

Bottom line is that there are many out there who do know the value in what they are getting by paying more for freelancers adhering to the old saying “you get what you pay for.” Sure, you will have to work a little harder and submit more bids to overcome the cheap freelancer seekers. You eventually will find those clients that will pay your price though.

When It Is OK To Lower Your Rates

There are times when lowering your bid pricing can actually be a smart business move such as:

  • A prospective client that may have the potential to be a long term client
  • A project comes along that would be impressive for your portfolio
  • Offers on your services to drum up more business.

Of course, use your discretion here. A discount of 50% may be pushing it but 10% – 20% will keep you earning a reasonable amount.

Planning, So Your Project Doesn’t Kick You In The Ass

Posted: March 25th, 2009

Today, after a week and a half of balls-to-the-wall work to get a project done by today (on time!), I learned a valuable lesson which I repeated as a fledgling freelancer. One single word: PLAN.

Normally, new freelancers do not give much consideration to the planning stages before bidding or starting on projects. The misconception is that time spent planning is not time spent working. The truth is that even a few hours of planning, or however long you need, can help you find and uncover those important details to help you make accurate estimates. By an accurate estimate, I mean you don’t severely underprice which is often the case when you hurry through this process.

Surely, you create a project agreement or project specifications (I’ll save this for another post) for every project you undertake. If not, lots of luck to you. Before creating an agreement or spec, though, is an exact outline of what you will do to complete a project has to be done. This is where the details come in. You have to list every last one of them.

The following is a good procedure for outlining your project:

1. Break your project down into smaller tasks. If necessary, break them down further into even smaller tasks. Write down these tasks in an outline form. By breaking down you can usually find parts of a project that are more time consuming than others. Others may be new and not have been done before which leads to. . .

2. For those “new” tasks, do the research and come up with a method to complete them. Don’t just wing it. Be 100% sure you can do them.

3. For smaller projects, create a calendar and set a goal to complete one or more tasks on a particular day and chart this until the end of the project date you set. For larger projects, this could be done on a weekly basis, but I highly recommend charting it daily even though it is cumbersome.

4. After charting your project tasks on a calendar, you should be more able to calculate the time required for the entire project. A pretty reliable rule of thumb is to add an extra 15% overhead time to this since poop happens.

If you follow the above, it can be time consuming but you come out ahead in the end. From what I learned, though, is that even if you spend an entire day planning a project down to the last day, you can probably save anywhere from a few days up to a week in added time completing it. Projects that drag on and on end up costing you time and money, WAY more then the planning time, itself.

Which leads me to my last point. Your time planning is also a part of any project. Include this time in any project estimate.

Odds are you’ll repeat my mistake of not planning carefully but better to learn sooner than later.