Fixed pricing – greater profits – greater risks

Get fixed pricing right and your company can take off

When you are offering services as your product line, the majority of your costs will be wages.

When you are in construction you have wages, material costs and equipment costs.

Everybody starts a business with the intent of fully charging through their costs to the client.

This is great when you can get away with it – and if you can – please do.

However, there are good reasons to go fixed price.

1. Your customer wants certainty of price for budget purposes.
2. You are in a competitive market, and you need to price to match or beat your competitors.

All is not lost. You may in fact be more profitable going fixed price.

When you are asked to give a fixed price the customer is shifting some of the risk back to you on your estimate of the time and effort required to complete the work. However, for all services based businesses the client can hinder your work, leading to cost increases. You need to build this in.

If you can anticipate your customer’s issues and guide them through the issues faster than you priced, then you end up with a better profit than planned.

As part of this approach you should also take a peaks and valleys approach. That is, you win some, you lose some. Over time you will get better at scoping, scheduling and pricing work.  Put aside windfall profits and take minor losses on the chin. For major cost blowouts caused by the client make sure you can claim variations.

Get fixed pricing right and you could find your gross margins improving.