IT Consulting project - how do you determine what to charge a client?
 

A friend of mine is finishing up the final details of a proposal for a fairly large IT consulting project. He's done similar work, but usually as a contractor for another company that's managing the project. In this case, he'll be in charge.

The Reader's Digest version is that he'll be creating a full featured online help presence where none currently exists for a software company with around $30 million in annual sales.

He's estimating the project will run 18-30 months and require 500-800 man hours to complete. It sounds like the idea is to initially spend 6-8 weeks to provide an interim help solution and then knocking out the real thing.

How projects like this get priced out? He's obviously looking for that sweet spot where he's making decent money, but the company feels like what they're spending makes sense. Suggestions? Resources?

Lot's of questions;
Is this a RFP?
Are they asking for a fixed bid?
Will he be the project manager as well as the "doer"?
Is he incorporated, sole proprietor?
What's the associated risk?



Bob

As an IT consultant, I pretty much charge buy the hour for all projects. But if the client does want a quote, I figure out the approximate hours, but with the stipulation, it could run a bit more by the end of the project and there might be a second bill for the extra time.

$50 per hour for the production + 100% up charge for the non production G&A ='s $50-$80k + expenses.

He should develop a milestone schedule to trigger payments.

Build in a kill clause. Common is up till 50% complete they can walk for monies paid. Once 50% or more is complete they are on the hook for 100% of the cost.

There was a book, "From Serf to Surfer". It was about becoming an IT consultant. The guy that wrote the book went through all of the details. For him, he figured out how long it would take him to do the work and essentially worked out a price by the hour (but didn't put it on the bid), but just gave the company a set price. If he came in under time, good for him, if it took him a bit longer, bad for him. A big part of it was to have a VERY clear scope of work, so that when they started adding, you could point to the scope of work and say - this is extra, and will cost you $Xtra. His theory was that he often wasn't the lowest bid, but that many folks appreciated the fixed bid because they had enough experience to realize that the lowest non-fixed bid was going to end up costing them more in the end anyway. If he knew or had a strong feeling that the people requesting a job were going to be a pain, then he could add a "pain in the neck" surcharge into the bid ahead of time. I haven't done it myself, just wanted to offer up what was in the book.

We call it "feature creep".

I do try and give my clients a rough estimate for the total time, so they have an idea up front, but I've been lucky that my clients are fine with me billing by the hour.

My IT consulting area is like the construction industry. Say it'll take 2 weeks, then it takes 4 due to unforeseen issues. I also am very fair. If there is an overcharge, It's never for the full amount of hours. If it takes 4 hours longer, I usually bill 2 2.5 of that.

By the hour with an up front estimate. There are always "creep" and "while you are here" occurrences that make projects grow out of hand.

<iframe width="420" height="315" src="https://www.youtube.com/embed/tXpx21Uf7hs" frameborder="0" allowfullscreen></iframe>

Is he writing helpdesk software from scratch?
Seems crazy in this day and age.
www.zendesk.com

Interesting synopsis. A reverse spin on, "you get what you pay for".

I have a different philosophy.

Most consultants I meet are terrible at accounting for and charging for G&A time.

My advice to people starting out is don't think of yourself as an individual, "the worker" who produces the product.

You are a business.

There is an owner, a sales person, an accountant, a receptionist, and "the worker."

At any time you could be wearing one of those other hats.

Everyone needs to get paid.

Too often consultants lose $'s to time because they don't think of answering the phone, sending an invoice, selling the client, etc... as separate functions.

They only charge for the time they actually spend doing the work.

Hence, figure out what "the worker" needs to be paid then up charge a set percentage for the G&A.

The set up charge helps to avoid the hassle of keeping time while wearing different hats.

I have not looked at zendesk but in general those turnkey solutions still require customization to function efficiently for a given business.

Can't tell you how many times I've seen an integration fail because the decision makers think they are a magical solution that already has their business specific functions covered.

A lot of times they'll assign the integration to a couple of admins who have no idea about the specific functional needs and processes of each department or business unit and despite their best efforts they end up with a turd.

Depending on the size and depth of the business even those turnkey platforms can take months to integrate.

The problem is that IT as a division of an organization has never really looked at the value of what they produce, only the cost, so if they hire someone it has to be a fraction of their overall cost (which they have already undersold to the business).

In IT your cooked before you start.

Very true.

I've run plenty of business units that were internally service based and the general impression is their impact on ROI is negative.

There are ways to combat it.

Internal service groups tend to get inundated with bull**** requests or not well thought out projects. An external vendor providing a similar or complimentary service is generally treated better because they charge for BS.

I gave my groups "clients" budgets. They had $xx.xx to spend on my services and when they used it up, too bad, so sad, go talk to your department head and explain to him how you mismanaged your budget and if it really needs doing he can come talk to me about a budget increase.

They were never billed back, it was all on paper but it helps hammer home the value that they are getting.

I can't say that I was 100% accurate in my description of the project. Was doing my best to paraphrase what my friend described.