Fixed pricing model which is also known as project-based pricing is where you calculate a fixed price for each service you offer and essentially work off of a price sheet. This way you know the cost of a brochure every time, a web development cost for 3 to 4 page website etc. This pricing model […]
Fixed pricing model which is also known as project-based pricing is where you calculate a fixed price for each service you offer and essentially work off of a price sheet. This way you know the cost of a brochure every time, a web development cost for 3 to 4 page website etc. This pricing model does not allow for alterations if the scope of the project becomes a problem. So it can lead to difficult conversations with clients and making them to understand that, except they pay more, no more revisions.
The Importance of Fixed Pricing Model for Business
A fixed pricing model is normally a much better pricing approach for design firms, but it involves some risk. When you start working on a project, you agree on a flat amount that will be charged for services.
This gives an opportunity to either make an entrepreneurial profit or loss, based on how well you estimate and manage the project.
The aim is to make the project cost reflect the actual value of the work to the client, as measured by the positive effect that it will have on their business.
At the same time, your total price must be highly competitive within the marketplace for web development services.
It’s important for your fixed pricing model to be detailed about the actual scope of work-what is included and what is not included. This is done to avoid situations where clients will make additional requests after the project has started.
It will be easy to identify such request as being outside of the original scope if the scope was well defined initially.
When an extra request is made, you’ll have to decide whether you have the resources and time to take it on. If that is the case, estimate the extra expenses and time involved and propose a change order document to the client.
A change order is a small additional proposal that needs to be approved and invoiced separately. It is actually outside of the initial agreement.
As a result of this, several change orders are not approved. This is fine, it implies that the process is actually working and the profit margin that you built into your original work plan has been protected.
1 A great solution when working on simple jobs
Fixed pricing model is ideal when dealing with repeating client projects where every requirements and features are easily identifiable. This can be highly beneficial when working with clients with low budgets.
2 Bigger margins on smaller jobs
Fixed price for petty projects allow you to mask the short period of time required to complete them, resulting in healthier margins for your business.
3 Predictability is King
A fixed-price contract gives both the buyer and seller a predictable scenario, offering stability for both during the length of the contract.
A buyer may be concerned about the cost of a good or service suddenly increasing, adversely affecting his business plans. The seller may be concerned about the value of his good or service dropping suddenly, reducing his income with little to no warning.
A buyer may also benefit from the predictability of a fixed-price contract, since any degree of uncertainty on the final cost of the project exceeding initial estimates shifts entirely to the seller.
An employee of the buying company may favor a fixed-price contract because it gives him a concrete budget to present to his superiors for approval, versus a contract where costs may rise indefinitely over time.
4 Easy to Digest for Clients
Not all clients actually understand pricing models used by design firms or agencies. Fixed pricing model allows you to simplify the model of pricing by just presenting a single cost that covers the whole project, rather than overwhelming them with individual items.
Clients will actually compare your fixed fee with what you’ll be delivering, and make their decision whether they want to work with you or not.
5 Eventually it’ll be easy to price projects
When you have an understanding of the costs associated with different project; it’ll be easy to put together estimates for your clients. However, this is only true for small project that have common scope with other projects.
6 Fixed Pricing Makes Sense
Fixed pricing model is best suited for experienced web developers and designers (or agencies) that have a good amount of consulting experience to their credit.
This way you would have had enough time to experiment with different pricing style and can easily identify your minimum profitable price.
Even if your primary strategy is different, you should rely solely on fixed pricing for projects that aren’t extremely custom or technical in nature. While is not perfect for complex projects like full web development, it works perfectly well for small or repetitive projects such as banner ads, email templates, and sometimes even simple website setups or home pages.
Fixed pricing model is also a good strategy for add-on requests. You can charge clients a fixed fee when they request for additional revision that is outside the scope of the project or if the project requires extra resources.
Some agencies will charge an additional $400 – $600 for every extra revision request which is outside what was initially covered in their scope of work — this is a great way to safeguard you from overrun costs.
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