The secrets of fixed-bid consulting

IT consultants who want to supplement their income should consider fixed-bid contracts. Here are tips for getting more work without the extra headaches.

 If the majority of your income is coming from one hourly contract, there's no reason why you cannot handsomely supplement your income with a fixed-bid consulting contract or two (unless, perhaps, you signed a contract with a really stringent noncompete clause). You must be careful, however, as the consulting trenches are filled with horror stories of fixed-bid contracts gone awry. Here are tips for getting more work without the extra headaches.

Understanding your value

The first thing you must do is translate your skill into an outcome that your buyer can benefit from. If you're a programmer, you don't write code -- you build applications. If you're a business analyst, you don't gather requirements -- you solve business problems. It's the same work, but you just approach it from a different angle. Think about your current and past engagements and ask yourself these questions:

  • What technical skills did I use?
  • What was the end result or product?
  • How did the end-user benefit from what I did?

This last question is the most important question because it sets the stage for proper bidding. We'll get to that in a moment.

Now create case studies by stringing together the answers to these three questions. Make sure to emphasize the benefits and the results over the technology used and downplay the technical skills. For instance, at a large technology company, I helped fortify a $100 million government contract by leading the constructing of a two terabyte compliance data warehouse using Oracle, Informatica, and Brio. This is one of my case studies. Once you have four to six of these, you are well-positioned for your next fixed-bid contract.

Finding the fixed-bid buyer

Next, you need to find a fixed-bid buyer. There are fixed-bid buyers everywhere, but they're not the buyers you're accustomed to if you deal primarily with hourly contracts. It's important to know that fixed-bid buyers and hourly contract buyers are very different. Do not try to coerce hourly contract buyers into fixed-bid contracts because this will surely backfire. The following types of people will be more amenable to a fixed-bid contract:

  • Buyers in sales, marketing, customer service, product development, or strategy. Stay away from finance, operations, legal, and especially IT. These buyers tend to be fixated on paying by the hour.
  • Buyers that are higher-up in the organization. Each company is different, but at some point you'll find buyers that are more interested in meeting objectives than staying within a budget. You want the former for fixed-bid contracts.
  • Owners of smaller and midsize companies. These companies are usually more flexible with their terms, and the owners are more motivated by results than somebody on the clock. There are lots of opportunities here. Even companies with several hundred million dollars in revenue are open to an occasional fixed-bid contract with the right person.

Marketing to these buyers is beyond the scope of this article, but a good starting place is contacting the people that you know. Referral is by far the best way to get fixed-bid contracts. In addition, find where they go and what they read, and position yourself as an expert by speaking at conferences and writing for technical publications.

Pricing the fixed-bid contract

Improper bidding is at the heart of most of those fixed-bid horror stories. It is very easy to get bidding wrong, and when you do, you're in a lot of trouble. You could spend countless hours trying to complete a project that's been underbid. Here's how to stay out of trouble with pricing:

  • Always start the pricing with the benefit to the company. Alan Weiss, the father of value-based pricing and my mentor and coach, insists that you price your projects based on the value you provide to the company. Have the client tell you what this project will mean to them, both in hard costs and soft benefits (such as reduced stress and better image).
  • Ensure you're giving the client at least a 10:1 return on their money. So, if there's a $500,000 financial benefit to the company, make sure you don't bid more than $50,000. This makes the proposal difficult to reject (who doesn't want a 10:1 return on their money?).
  • Make sure the project objectives are very clear to you and the client. Document what's in and out of scope.
  • Know your capacity to deliver. In my experience, most programmers are too optimistic and don't properly consider risks. A good rule of thumb is to estimate how many hours it will take you to complete the project, and then multiply by three. Also keep in mind that if you have a day job, you'll be doing this on nights and weekends, so schedule expectations appropriately.
  • Divide your bid (see the second point in this bulleted list) by the adjusted work hours to get your hourly rate. If the rate is too low, don't do the project. If the rate seems too high, do the project anyway. There's nothing wrong with making good money, as long as the client is getting a good deal.

Start today

Fixed-bid contracts can be a very nice way to augment your income, but you must successfully avoid the perils of these arrangements. Two important tips to remember are: Target buyers that already embrace the idea of getting results for a fixed fee, and price based on your contribution to the end users' benefit. You can start today by creating a "one-sheet" that contains your value statement, four to six case studies, and a few client testimonials.

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