Proposal mistake #2 is using an outdated pricing strategy.
Here's how the traditional, obsolete pricing model goes:
You meet a few times.
You run a few fee scenarios – perhaps you estimate the number of sheets, tally up the estimated hours and compare these to a percentage fee.
Then you decide on a fee that lies somewhere in the middle.
The problem with the traditional pricing model is that the client needs something to compare this price against because we understand things through comparisons, not absolutes.
They might compare it with their preconceived notions of what this type of service should cost.
They might compare it with what their brother-in-law said it should cost.
Or if they're an institutional client, they might compare it to the last project they had done.
So they shop other firms or ask you to sharpen the pencil, with limited understanding of the scope and value offered by the various firms.
We Judge Through Comparison, Not Absolutes
The root problem here is that humans judge things through comparison, not absolutes.
Let me give you an example:
Imagine you walk into a room that has no windows except for up high – just two clerestory windows of average size. The light from the windows bounces off the white sloped ceiling and gives the whole room a beautiful, bright feeling. It seems like there isn't a corner where the light isn't penetrating.
Now imagine that you walk into the next room. This large room has two windows of exactly the same size as the clerestory windows, except these are at eye level, south facing. The light coming in is extremely bright. In contrast, the corner and walls of this room appear dark.
The first room seems brighter even if they both have the same amount of light coming in.
You have two bowls of water.
One hot, the other cold.
You put your right hand in the hot water, and your left hand in the cold water.
Now you put both hands in another bowl of lukewarm water.
One hand will feel the water as cold, the other as warm.
Both hands are experiencing the same temperature, however your perspective of that temperature is different based on what you experienced directly before.
This is the power of perspective.
Clients Judge Our Proposals Through Comparison
The same thing happens when clients look at our proposals.
A client's judgment of value is based on a subjective comparison with other things that are within their realm of understanding – even when that realm of understanding has little or nothing to do with the value and services we are providing.
Fortunately, we aren't powerless to counteract this.
If we provide internal contrast our clients don't need to judge our proposal solely on external criteria.
Create Contrast With An Internal Pricing Strategy
Move to an internal pricing model so that your proposal offers different fee ranges within itself.
Let's say you are delivering a proposal for a custom home.
Instead of saying, “My fee is X” … you say, “There are different levels at which I can be involved in the design and construction of your home. I can offer you option A at X percent, or option B at Y percent.”
For instance, if you offer sustainable design, option A could be basic sustainability.
Option B could a LEED certified home.
Option C could be a Net Zero home.
Now the buyer has options, and can make an informed decision concerning the scope of the project.
The buyer is happy because now they have a custom-tailored solution for their needs.
And you're happy because the conversation now moves to which option they want, instead of a binary yes or no answer based on the one option you've given them.
Use this strategy and you'll add money to your bottom line, and have more content clients.
Ditch the traditional pricing model, it's outdated and it just doesn't work.
Although I'm not a fan of the food, Burger King had the right idea by giving it to us our way.
Thanks Enoch for the tips. I am changing the way I present proposals and this I believe is a sure fire way to gain more clients.
Is it the same when you get approached for adding on to an existing building, for example, a restaurant?
Hello Luis. Yes, you can use this strategy for projects such as an addition to an existing building or a restaurant.
Thanks as always for the insight, Enoch! Certainly gives me another approach to preparing fee proposals.
Good points Enoch, thx.
Problem is the client expectations are for the most part uninformed and incorrect. WRONG is not what I can say.
On Thumbtack they have price comparisons and most are low ball
I counter by indicating much greater quality of service and value, in design, in construction but most of all in listening carefully to my client needs
“ you get what you pay for.” This is probably your highest lifetime investment, go with low risk as prof pricing will more than make up for that cost in construction cost savings…
“You don’t hire a race horse to plow fields. “