top of page

How NOT to do fixed pricing

~ by Alan W & Candice R

As we transition into a value-based pricing model for service driven businesses, our first milestone as we step away from time based pricing is most often, the move to a fixed pricing (also known as project based pricing) strategy. In this fixed pricing realm, we no longer allow clients to buy our time, but rather buy our solution for a said amount. We are now paid to deliver an outcome, not our time, even though in many instances time is still an evident factor in the pricing. Still, it’s a great leap towards value-based pricing, a natural first step in how we evolve our pricing models.

A common misstep in this transition is when we simply calculate hours for the project term. There is no real difference then in time base vs fixed when we do this. Why? Because we absorb the risk, meaning if we do not deliver the outcome in those exact hours, we lose. Doesn’t sound like a smart move after all! The whole reason why we make the move from time-based to fixed, is to move into the value space. To get this right, take note of the following:

1. Use your hourly/daily rate as a starting point

Yes, this is only a STARTING point. If you assume a project will take a month, you can start with your daily rate and multiply by the days you will work on it in that month, for example. This is simply your BASE.

2. Add all expenses

Expenses must be added, all of them, even if you do not use them all, you have to make room should they be required. Things like travel, workshop room hire, catering, etc. If these are not included and you are required to travel to the client to present - this takes from your profit margin - not a smart move.

3. Add 10-30%

This is most often foregone and where one falls short. Remember your fixed price based on time is an estimate and does not account for any overtime due to unforeseen circumstances. And there are almost always unforeseen circumstances we simply cannot predict. When in a time based model, we simply extend the time. This cannot happen at a fixed price, so you want to add this percentage to safeguard yourself. If you know your client well, and establish good ways of work, this adds to your profit margin.

4. Call out your risks & assumptions

This MUST be evident in your proposal so that if any assumptions are incorrect, you have leeway to add an additional costing due to the additional requirement or impediment.

As we embark on the road to the destination that is value based pricing, we must be cognisant and committed to taking leaps with each pricing milestone. To simply approach fixed pricing by calculating hours….. means we haven’t taken a step forward at all. Transition means change and it requires more thought, deep thought, into how we arrive at our price for the client. And remember, we are taking our clients on this journey with us, they must experience the transition with us, for the better of us both in this mutually beneficial business partnership we create. Fixed based pricing offers our clients the assurance of knowing that they WILL receive a specified outcome for a specified cost. They pay for this peace of mind. Make sure you both win, not just your client.

Work with Alan W

Work with Candice R

"Solving niche challenges founders face”.

Illustrator: Lisa Williams (Instagram: @artist_llw)


bottom of page