# General Business Category > General Business Forum >  tips on quoting for projects

## duncan drennan

I'd like to know what tips you Forum-ites might have on how to quote for projects - here's my dilemma...

I'm relatively new to owning/running my own business and am still learning (lots and lots and lots). If you don't know what I do, check out my post in the "Meet & Greet" section, or my website.

It would seem to me that quoting on a project is an extreme art where you pit your experience and skills against the risk of losing a lot of money (btw I classify profit below a certain level as loosing money).

There are a lot of issues when trying to quote on a project. Basically we have the know things and a LOT of unknown things. The unknown items decrease with experience, but are still there. So how can one go about quoting and reduce the risk of losing money, but still quote a sellable price.

For example...

I need to quote for a project where I have little knowledge and experience of the product. The skills that I have should place me in a good position to do the work, but there are a lot of unknowns such as,

What I need to learn (partially known)How long certain things will take (always an unknown, as snags are bound to happen)Cost of hardware (not known until design is done, won't do design until work is secured...grrrr...vicious circle)Cost of tools (difficult to gauge what tools may be required)Implicit value of solution (this has to do with how the client wants to handle IP on completion)

There are other things, but I think that makes it clear(-ish)? Let me know if I should try to explain better...

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## duncan drennan

Oh sorry, I left something important out - the project type that I am talking about is one that is *quoted on deliverables*, not an hourly rate.

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## Dave A

Welcome to the wonderful world of risk and the pleasures of starting up.

I'll skip the obvious because I suspect you've already done that (break it down to parts, break it down, break it down..)

The challenge in costing a fixed price contract, of course, is the unknowns. And they *can* fluctuate considerably.

Once a business is rolling, you get an avantage because you've got stats and can apply some sort of average risk adjustment. When you're starting up - you'll have to guestimate those unknowns as closely as possible. In the fumigation game I was told "If you're unsure, whatever you think it might be - double it. And if you're still not sure that will cover it - double it again".

In many ways it's a mindset struggle with oneself. The temptation to trim margins and increase the chances of getting the contract vs playing safe and risk not getting the contract.

Of the two scenarios - the first is actually riskier at startup IMHO. You can succesfully deliver and wipe yourself out financially in the process. The less you know, the more you have to factor in for unknown variables. Even if it risks losing the contract. The school fees don't stop when you leave the classroom.

When I started out, I was pretty averse to asking questions of my client. I thought the best thing was to be a "know-it-all". But here's the funny thing. I've found that asking questions of the client actually demonstrates knowledge!!! At least, if you're asking the right questions. *And* it builds a relationship that means that they are not just going to be looking at your price.

People tend to make decisions at an emotional level *first* and then back it up with logic.

We're too timid of pushing the client when we start out.

Push the client with questions, try to build a better understanding of their needs and expectations, and in so doing get a better understanding of the project and the "unknowns".

You've really got to take the attitude of "If it comes in at *my* price - it's worth *me* doing it" - Especially in your line of work.

Put that price in - look them straight in the eyes and say "This is how much it'll cost" whilst thinking "I'm worth every penny".

Of course, all that goes out the window in a tender situation where the client is obliged to take the cheapest tender - but then they deserve what they get. I can't recall the last time I took the cheapest option. I always look for the value proposition.

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## duncan drennan

One of the things in particular that is bugging me is the hardware costs - can't predict that without design, can't design with a contract  :EEK!:  

I was thinking about saying that the physical costs will be passed directly on, or quoted on at a certain point (I'll break the project up into a number of deliveries and payments). What are your thoughts?

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## Dave A

Damn. Hit the wrong button - I've ended up editing your post Duncan.  :Sorry:  The problem with getting mod status is that you get an edit button on everyone's post - I had meant to hit quote. ... And there's no undo button once you hit save. I'll have to pay more attention...

Isolating the direct (and provable) material costs to developing a prototype sounds good. If you don't ask, you won't get. The worst they can do is say no.

In the bigger scheme of things, you'll probably need to allocate a budget towards the expenses associated with research needed to make bids like these. It seems like it goes with your territory.

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## duncan drennan

> Damn. Hit the wrong button - I've ended up editing your post Duncan.  The problem with getting mod status is that you get an edit button on everyone's post - I had meant to hit quote. ... And there's no undo button once you hit save. I'll have to pay more attention...


You know what the worst thing is? I can't remember what I wrote! (other than what is there)  :Blushing:  

As far as the expense of quoting it is an issue, but not right now. Obviously if I get the work, the expense (time) of the quote is worked into the project pricing...if I don't get the work, then well I've lost some time (=money), but gained experience. More experience means faster quotes.

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## Dave A

> As far as the expense of quoting it is an issue, but not right now. Obviously if I get the work, the expense (time) of the quote is worked into the project pricing...if I don't get the work, then well I've lost some time (=money), but gained experience. More experience means faster quotes.


My point is to some extent you need to work into this budget the cost of estimating for the next project.

It's about getting ahead of the cash flow monster.

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## duncan drennan

> My point is to some extent you need to work into this budget the cost of estimating for the next project.
> 
> It's about getting ahead of the cash flow monster.


Agreed - I just didn't express myself very lucidly

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## Dave A

I suspected I was just confirming what you already knew.  :Yes:  I hope that at least the affirmation helped the confidence to go for decent numbers.

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## duncan drennan

> I suspected I was just confirming what you already knew.  I hope that at least the affirmation helped the confidence to go for decent numbers.


Thanks for the encouragement, it definitely does help  :Thumbup:  

Does anyone else have some thoughts and tips on this?

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## duncan drennan

Broken things up into a bunch of steps (probably still missing some) and guestimated how long each step will take (tried to over estimate). I'm still pretty sure I'll end up doing more hours than I've guessed (I used the lower of two numbers).

Then multiplied that by the rate I'd like to earn and ended with a very large number!  :EEK!: 

Now, I believe my time is worth that (and as I said I'll probably end up working more hours resulting in a lower actual rate), but I'm not too sure that they will think so.

The amount came out to what I'd guess to be 3 - 4 months salary for an engineer (obviously got no idea what they pay their staff - but do have a friend that works there...hmmm).

What do you think? Quote it and see what the reaction is? May be  :Rofl:  ,may be that they feel they are getting reasonable value  :Bananadance:  

For this project, the client has the skills to do it, just not the time (engineers have other important tasks to do, but this is also a big need right now). At the end of the day they'll compare it directly to what they would have to pay to put one of their guys on it.

Suggestions?

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## Dave A

What's your guestimate on time to do the project?

How long would one of their engineers take to do the project full time?

"Casual" use of professionals comes at a higher rate because allowance is made for the fact that they are not always employed, and there aren't all the fringe benefits.

I think Chris Bouwer might be able to shed more light on that aspect.

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## duncan drennan

> What's your guestimate on time to do the project?


I'm estimating around 250hrs. This includes some of the things which I would subcontract out.




> How long would one of their engineers take to do the project full time?


Difficult to say - they would have the information advantage at the start (background knowledge). Most of the knowledge has to do with fully understanding all the nuances of about 3 standards, but 1 in particular. They do have a version already, but want a bunch of extra features + future extensibility.

Because it is a "side" project as such, it would probably take quite a while due to having to juggle it between the "real" work.




> "Casual" use of professionals comes at a higher rate because allowance is made for the fact that they are not always employed, and there aren't all the fringe benefits.
> 
> I think Chris Bouwer might be able to shed more light on that aspect.


Yes, the "casual" rate is higher, but budget constraints are still a reality. Being an engineer (and an engineer will be the first person to see the quote) I know that we tend to under estimate the real cost of developing an item. I've learned a lot about how much time small things take over the last couple of months due to logging my hours for the contract work I do - enlightening!

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## Dave A

> What do you think? Quote it and see what the reaction is? May be  ,may be that they feel they are getting reasonable value


I like face-to-face at times like these. It gives you a clue for next time - and also there's a chance to catch the ball if you're way off...  

The trouble is you've got to be in control of your own body language. It's why I stress the "I'm worth it" visualisation first.

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## duncan drennan

> I like face-to-face at times like these. It gives you a clue for next time - and also there's a chance to catch the ball if you're way off...


Good idea - I'll see if I can work things that way

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## duncan drennan

Had the face-to-face today which was a good thing. Turned out that he was quite happy with the quote - now I feel like I underquoted! (makes me worry I might have missed something  :EEK!:  )

Anyway, I'll know within the next week or two what the head honchos have to say, but for now it seems positive  :Smile:

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## Dave A

Yee Haa!  :Thumbup:

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## Yvonne

I know that my comment has nothing to do with your question directly, but it is a small reminder of things that can go wrong, due to "tunnel" vision when trying to quote the best price to make sure you are competitive, and overlooking some seemingly tiny matter which comes back to haunt you at a later stage.

A young relative started a new business, he sold a large power surge/lightning protection system to a casino.
The unit was "guaranteed" to protect the equipment, but no-one told him that one lightning strike and the equipment itself was now useless and would have to be replaced.

He had "quaranteed" the item he sold.  

End result, possibility of being sued and he had to at his own cost purchase an even better system to honor his sale agreement
For his start up business this was a massive loss as his commission on the item had been a very small percentage.

Do not overlook possible negative factors. 

So if you selling something as a agent, firstly check all quarantees, and make absolutely sure that you understand what you in turn are guaranteeing to your client.

Yvonne

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## duncan drennan

Now this is dragging an old thread out of the archives....

I've certainly gained lots of experience over the last few years and approach quotes differently now. I still find them quite difficult to do, and fairly time consuming. There doesn't seem to be a clear way to do this for electronic design, but at least I have a framework now. So I wrote down my current "rules" for quoting.




> *1. Always give a quote*
> 
> An offer is on the table ensures that you are in the running. Set a time frame for the quote and deliver on your commitment. This the first opportunity you have to demonstrate that you can deliver – make sure that you do. I recently quoted on a project and was shocked that at least three other companies had not bothered to deliver a quote.
> 
> *2. Know your worth*
> 
> Understand your own value and how that contributes to the project. Undervaluing yourself leads to difficult financial situations and lack of motivation. Overvaluing results in a begrudging client who is unlikely to use you again. Clearly communicate the value that you add.
> 
> Read the rest on The Art of Engineering


I would be interested to know what you guys think, and what your own "rules" are when you quote for a project or something that you don't actually _know_ how long it will take.

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## Dave A

A great blog post, Duncan.

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duncan drennan (09-Feb-09)

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