In my business to business sales career I’ve learned to use risk as a tool to set expectations, position my price and protect my profit margins. It’s a simple tactic that can work for you too.
When quoting a project my company would offer three levels of solution and offer to structure which ever solution the prospect selected one of two ways. We would either do the project on a not to exceed fixed fee basis or on a time and materials basis. The fixed fee quote would always be higher than the time and materials quote.
I would explain that the difference in price depended on who took the risk for the successful completing on the project. If the prospect wanted to take the risk that if something unexpected happened they would pay more I would let them. Of course if the project took less time than expected they would pay less.
If they paid me more for the fixed fee it was up to me to make sure the project was completed on time and within budget. If not I covered the extra cost because I took the risk. On the other hand if the project was completed more quickly I earned more. The higher up in the organization the decision maker was the more this resonated with them. Business owners understood what I was saying immediately.
This is a very useful way to position a project with a prospect for a number of reasons. The fixed fee gives you the opportunity to set your price based on the value of the project’s successful completion. It gives you a way to move the discussion from how much do you charge per hour to what is the value of the successful completion of this project. If you can move the discussion from the value the prospect will gain rather then the price they will pay you should be in good shape to win the business.
Having this conversation with a decision maker can also help to avoid awkward conversations later. After this talk it’s harder for a prospect to complain that a time and materials project has cost too much and if they do you have a ready response. The risk talk also helps avoid questions like “Will it cost less?” when you’ve completed the project early.
If you currently don’t use fixed fees my recommendation is try it but start with a project you know well that doesn’t have variables you haven’t worked with before. Be confident you can do the job well for the fee quoted. Finally if you and your organization assume the risk for a project you have to perform. Doing so can help you get better, keep sharp and stay competitive while protecting your profit margins and increasing revenue.