One of the key talking points at Drupal Camp London earlier this year was the challenge of pitching and the difficulty in providing profitable work on fixed priced projects.
It was interesting to hear one of our industry’s leading peer agency’s admit that historically, they lost money on 35% of all their fixed priced projects.
To alleviate this risk, another agency we spoke to has implemented a policy of not engaging in the RFP process at all.
They choose to provide a chargeable detailed design and functional specification instead. And since switching to this method, their lead to conversion rate has increased, their profitability has increased, all their projects get delivered on time, and their advocacy levels have gone through the roof.
Our role as an agency in the pitching process is to primarily to overcome two challenges:
- Fixed budgets that are allocated by finance departments as percentages of marketing spend, profit or turnover, which bear no relation to the cost required to deliver a project successfully, and..
- Overcoming the tendency for a prospect to accept the lowest price because they can’t differentiate between the offerings
As a business ourselves, we fully understand the need to work with budgets.
But in the same way a fixed budget might let you fund an entry level Mercedes, but not a top level Mercedes with a bigger engine and stacks more features, so a budget you pledge to a web project may not be enough to give you all that functionality and design standard that you need to make the project a resounding success.
And success in most cases can be directly related to conversion rate performance, a subject that can produce eye-watering results.
Overcoming the tendency to accept the lowest price comes down to the challenge of helping clients understand that not all websites are created equal, despite them all being called websites.
And that in many cases, more investment will mean a superior return because the end result will convert a much higher percentage of users into leads, sales or advocates.
The anatomy of web design cost.
Web design cost is made up of two main components:
- The amount of hours required to build the project, and..
- The hourly rate of the agency
So what can a company do if they have allocated a fixed budget, defined their requirements and put it out to tender, only to find the projected costs coming back at two or three times their expectation?
Firstly, they can reduce the number of hours required to build the project
This is obvious, but no so easy to achieve.
It’s true that some agency’s work faster than others, Agency’s that have really sorted their internal workflow out, or that may have a deeper experience in the client field, or who have the ability to reuse code can often deliver a spec for spec site up to 20% faster, which translates to a 20% reduction in cost if everything else is equal.
Reducing the level of features is another way of reducing development hours, but prospects can really struggle with this. They will frequently use phrases such as ‘just’ and ‘only’ when talking about feature requests and who can blame them? The prospect only sees the end result, not what it takes to get there.
So if you want a £50k site for £20k you’ll start by trying to figure out how one agency might be able to work 20% faster than the others in your pitch pool, and that gets you down to £40k.
Then, you can try and understand how to reduce the feature set to reduce the development hours.
Wunderkraut, Europe’s largest Drupal agency have a great way of articulating this:
They argue that if 100% of the feature set will represent 100% of the cost and that’s too high, what if 80% of the feature set could be delivered for 50% of the cost?
That for us is a logical approach, and in many cases would deliver value for the client.
So reducing the feature set by 20% might get you your site for £25k, but if the 20% reduction is all the stuff that would really make your site fly, then caution is urged.
This is particularly relevant when it comes to conversion rate optimisation, and if that 20% of feature set or £25k of cost sees conversion rates drop from say 3% to 1%, you could be loosing hundreds of thousands of pounds of lost revenue in the first year.
Secondly, so what about reducing the man-hour rate?
Hourly or daily rates can be roughly split into five tiers. This is by no means cast in stone, but it does simplify the argument:
- Tier 1 agency – up to £3k per day
- Tier 2 agency – around £1.5k per day
- Tier 3 agency – around £700 per day
- Contractor – around £400 per day
- Offshore contractor – around £160 per day
Unfortunately, making direct comparisons based purely on agency rate is difficult:
A Tier 1 agency won’t be pitching for a £50k project anyway. A Tier 2 agency will have more senior staff that will work faster than junior developers. They may also need less R&D so ultimately may be able to deliver a project in less hours.
A Tier 3 agency may on the other hand have exactly the right project specific experience and may also be able to deliver a project faster than a competing agency.
A single contractor won’t have experience across all the main disciplines of creative, design, UX, architecture and development, so will only provide a cost saving if part of a wider team.
Going offshore won’t deliver the same standards by a long way and in our historic experience won’t offer a genuine cost saving – not when you take into account the greatly increased project management and delays for misinterpretation or reworks.
If you want a £50k site for £20k, its safe to assume you can’t. Something will have to give. You’ll either have to peg back your wish list of functionality, or accept lesser levels of design and development standards, or cut corners (and be aware these are being cut).
In our opinion, cutting back the functional wish list is one logical approach, because if managed correctly, you can always build this back up in the future.
Another option is to stick to the specification but build the project in two or more phases. We’ve had a few projects like this recently and its almost self-funding for the client. Phase One delivers an immediate sales uplift, which helps provide the budget for Phase Two and so on.
That said, the option favoured by many companies is to stick to the wish list and budget and keep going until you find an agency that will help – and there are plenty of agencies out there willing to take on a project for a relatively low budget and hope it all works out.
Unfortunately, motivations will probably wain after the thrill of the win wears off, and the chances are you will contribute to our deplorable industry statistics:
- 65% of all projects are delivered late
- Clients are disappointed and don’t getting what they expected in 35% of cases, and this rises to 50% when the work goes offshore
- (Source: Aberdeen Group).
But dissuading prospects from this approach is a tough sell – especially when all the indications at the start suggest you really can get a £50k site for £20k.
We continue to try and find ways of helping companies make better-informed decisions, and on the whole we are getting there.
I hope this article gives you food for thought, and best of luck with whichever approach you take.
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