September 1, 2014

What to Do When You Underbid on a Project

For many of us who work as consultants, writers, contractors or other project-based entrepreneurs, having the ability to estimate what a project will cost is a necessary skill to have, but a difficult one to master. While some projects are cut and dry (i.e. “I’ll write 8 600-word articles for you”) others can be harder to bid on (i.e. “We’ll create an online presence for your brand using social media.”) What do you do when you inadvertently bid less than a project ends up costing you?

negotiation

Why Underbidding Happens

First let’s look at how you could end up in this situation.

Scenario 1: You didn’t really understand the scope of the project.

We all know those clients. They say, “I want more sales” then give you no clear-cut plan on how to get there. Or they change what they want.

It’s extremely important to pin the client down on scope up front so that everyone’s on the same page about what you are expected to do. The more measurable the scope, the easier it will be for you and your client to assess whether you achieved your goals. Outline what the client expects and how much you will charge for these specific goals.

Scenario 2:  Your client keeps piling on the work.

These are my favorite (not) kind of clients. The ones who say they want one thing, then slip in just a little extra, and a little extra, and a little extra, until you realize a project you estimated would take you 5 hours took 10. Your rate of $100 per hour is cut to $50.

Be polite but firm that, for the price you bid, you will only do what is outlined in the scope. Any additional work will come at an additional charge, by the hour or by the additional projects. Your client should respect this. If they don’t, stick to what was agreed upon and don’t do extra work.

Scenario 3: You have no prior projects to base your bidding on.

If this is the first project of this kind that you have worked on, it may be hard for you to know exactly how much time it will take.

If you have colleagues in your industry that you feel comfortable asking, get some input from them if they’ve done similar projects. Otherwise, structure your pricing so that you don’t get shorted if the project goes on longer than you anticipated. For example, you could bill hourly, or you could start with a flat rate that includes a set number of hours of work, with any additional time billed hourly. Once this project is complete, you’ll have a better sense for what similar projects should be billed at.

Eat the Cost or Ask for it?

When a project goes over budget, you have two choices: eat the cost yourself or ask your client to cover it. Which solution you choose will be based on several factors, including your relationship with the client, whether the overage is due to the client giving you more work, and what the likelihood is that this client will bring you more business in the future.

Sometimes eating the cost yourself is best if you underestimated the time it would take you or if you think doing so will improve your chances for a long-term relationship with the client. On the other hand, if the client wasn’t clear or went beyond the scope and you’re comfortable asking, you should bring up the subject professionally and feel them out for covering your overages.


Handshake Photo via Shutterstock

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Susan Payton - Awards Communication Mgr.


Susan Payton Susan Payton is the Communications Manager for the Small Business Trends Awards programs. She is the President of Egg Marketing & Communications, an Internet marketing firm specializing in content marketing, social media management and press releases. She is also the Founder of How to Create a Press Release, a free resource for business owners who want to generate their own PR.

9 Reactions

  1. Most outsourcing companies are really like that, depends on the client too, but there are some companies that will look or search a client for you that will match your skills and desired workload. Besides that, some of them pay well. More important, you really need to ask your colleagues or your office mates, it’s not bad to ask questions, you’ll get answers and you’ll gain friends as well. You also need to tell your client about the things that you can do and can’t do, so that they won’t expect too much from you.

  2. Shannon–
    Good points. If you can’t do certain tasks, you can always partner with someone who can (I write, and I partner with graphic designers, for example).

    Susan

  3. Thank you for sharing this great insight. I agree with you on judging what to do at the end of the day. If you anticipate a long-term business with the client, and the extra cost of project did not go too overboard, then it is better to eat the cost. Also it would be a good learning experience to be more educative with budgeting on the next project.

  4. Did this project you are talking about come from Cincinnati? I got all the footprints.
    513-293-8609
    Thx,
    Sara

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