With such a variety of billing practices, how do you compare cost estimates from multiple agencies that use different business models?
Comparing estimates can be tricky. In some cases, the billing rate is obscured, but you can usually ask the agency if they don’t provide it in their proposal. This can be a starting point to get a sense of comparing agencies by cost but assumes each agency is equally efficient. This is a point worth discussing.
DOES THE EFFICIENCY OF AGENCIES VARY SIGNIFICANTLY?
It can. Typically, larger agencies have greater overhead, such as layers of client services. This overhead can increase overall estimates even if individual hourly rates are comparable to other agencies. However, variability between proposals is usually more attributable to different agencies proposing very different approaches.
This can be even further obscured by the billing model of the agency—fixed-bid may include a detailed statement of work, but other models may simply include a high-level approach and understanding of the endeavor. This lack of detailed requirements is often appropriate. The first step of an engagement usually should entail research, discovery, and recommendations. The result would impact the scope of the engagement.
Watch the Details
A simple example would be if you received two proposals for a website, and one is twice as much as the other. That one agency is probably not twice as efficient as the other. It’s much more likely that the less expensive agency is taking an entirely different approach. They could be cutting out strategy/discovery, using a pre-built theme, allowing limited time for quality assurance, and so on. Details are often lacking in proposals, so it’s not always clear how to compare them.
This is particularly true for technical projects like web design or software development when the point of contact for the client is not technical themselves. In these cases, the hourly rate could be the same, but the level of effort and final product being quoted is very different. If you talked with the more expensive agency and agreed that a less involved approach is appropriate, it’s possible they could produce a revised quote that’s in the ballpark with the other agency.
SO, IT’S COMPLICATED, BUT HOW SHOULD YOU EVALUATE COMPETING PROPOSALS?
Keep asking questions. Proposals are often turned around with incomplete information, including a company’s budget. They should be viewed as the start of a conversation and not a piece of paper with a take-it-or-leave-it number.
Focus on the traits you should be looking for in an agency (in a previous post I discussed that those should be candor/sincerity/honesty, transparency, culture fit, professionalism, good references, willingness to challenge assumptions, willingness to listen, experience with the task at hand, talent, and results focused). Find the agency that checks those boxes for you, and see if you can figure out a way to work together. If they can’t make the numbers work for you, go to the next agency on your list.
Providing accurate estimates is at the heart of the client-agency relationship. Accurate estimating is hard, though. There are a million frameworks and techniques for improving estimates during the sales process but, at the end of the day, there is a limit to how accurate they can be for a few reasons that don’t have clear, easy, or quick solutions.
- The personalities of the point of contact at the company and the stakeholders has a huge impact on the amount of time spent on a project. While good agencies turn down work from prospective clients who will clearly be difficult to work with, this is something that is not always in our control—new stakeholders pop up and points of contact change as people leave the company, etc.
- Provided requirements are often incomplete and non-technical.
- When extensive requirements are provided, they often include features and/or directions that the agency’s development team feels are incorrect or don’t fit with the team’s approach. Additionally, in some cases, it’s expensive to review 100+ pages of requirements in detail.
- Clients often do not respect the approval process, making changes to approved work after the fact.
- When clients are providing content, it commonly leads to delays. Having staff jump on and off projects as we wait on clients is an inefficient use of time.
- Strategic insights that occur over the course of the project can result in changes of direction. I’d argue this is a good thing in most cases. However, it can affect the accuracy of initial estimates.
- Expectations for proposal turnaround times sometimes do not allow for detailed estimation.
- The nature of the sales process can lead to agencies hedging their exposure to risk by artificially inflating their estimates. On the other side, hungry or desperate sales people or agencies may be inclined to underbid a project.
- The inner workings and approval processes within companies are rarely able to be fully understood before working with them.
- Without extensive documentation, it’s likely that expectations between the company and the agency are not 100% aligned. With extensive documentation, it’s unlikely the company will fully digest it, resulting in the same situation.
One of the most critical and difficult tasks for you in evaluating agencies is to ensure you’re comparing apples to apples when reviewing proposals. Making sure you understand the implications of an agency’s business model can help point you in the right direction to do just that. Even further, understanding a few of the issues agencies face when providing estimates allows you to address those issues when discussing your project, which better positions you to compare estimates from different agencies.