What Price Estimation?

If I want someone to, say, build me a website, in most cases there are two possible constraints I have. I either have a maximum amount I want (or have available) to spend, or I need my website delivered by a particular date. In a truly Agile project, both of these are the same for the supplier because there is a fixed team, i.e. time constraint = budgetary constraint.

Back to my requirements. Let’s say I have $5000 available. If I engage a web design company, I can choose to not tell them my constraint, perhaps because I want to save money and get the “best/cheapest quote”. I can simply ask “how much will my website cost, given that I want x, y and z?”

This is the predicament many software companies have – how do we determine a price for the customer? The answer is invariably to take the customer’s requirements, devise a solution and estimate how long that solution will take. This will then derive the cost to the company, which will determine the price to the customer.

As customers, let’s stop and think about this. Is this the approach I want the web design company to take? Does this provide the best possible value for me? When I engage the web company, would I rather the following:

A: Stay shy about my $5000 budget, and the company comes back and tells me they can build my site for $4500, having based that decision on a fixed design/solution and guess of how long that design will take to build. Perhaps they’ve actually shaved time from the team estimates in order to under-cut a competitor. Perhaps they’ve added on time as a “buffer”, increasing the price for me. We will sign a contract based on a SoW detailing what I will get for my money. If I want to change any of the detail as I start to see the website built I will need to pay extra or I will need to drop out some of the originally agreed features. These small increments will need to be costed accordingly, again based on a guess of how long the new feature will take compared to the original feature.

B: Reveal my budget. They come back and say that my $5000 buys 5 weeks of work, and the team will build the best possible website they can for that price. They might show me examples of other clients’ websites that cost around $5000 to give me an idea of the quality my website will be. They will work with me in weekly iterations to ensure I’m happy with the progress, can change things as we go along and that the key things that are important to me are always being built first. They will deploy my site to a demo URL daily so I can see the site evolve and provide feedback at any time. If after a week, or two weeks, or 3 weeks, I’m not happy with what is being produced I can choose to end the relationship. This makes it clear to me that the web company is absorbing much of my risk and they are very confident they will do a great job for me. I as the customer am the one gauging the progress against my requirements rather than them estimating that they are “on track”. They want to form a working relationship with me in order to build the right thing, and that they might get my repeat business. That I might recommend them to my friends and colleagues. Their mantra is to delight their customers.

Option A requires estimation (guessing/risk/uncertainty), upfront design and makes change hard. Option B requires no estimation, design can change and emerge as we go along, embraces changes as I see the site evolve and shows a company wanting to work closely with me to achieve a result I am delighted with. One that is prepared to front extra risk (of losing money on the contract) because they are so confident in the quality of work they do and of the relationships they form with their customers.

I know which I’d choose. How about you?

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