Proposals · 4 min read
A wrong quote costs you for the entire life of the project. A practical method for moving from an estimate of the work to a proposal that is clear, sustainable and defensible in front of the customer.
Many proposals are built backwards: you start from the price you imagine the customer will accept and adapt the work to fit. It is an understandable shortcut when competition is fierce, but it almost always leads to underestimated projects in which the margin is gone before the halfway point.
A sounder approach starts by breaking the work down. You split the activities into blocks small enough to be estimated with reasonable confidence, assign each one a role and a number of hours, and only then arrive at a total cost. The price is a separate, later decision that can take the market into account, but it starts from a known base.
Estimating by role matters as much as estimating in hours. An activity carried out by a senior profile costs more than the same activity done by a junior, and a proposal that does not distinguish between roles makes it impossible to see where the margin lies.
The contract model decides who carries the uncertainty. In a fixed-price project the price is set and the risk of overrun stays with the supplier; in time and materials the customer pays for the hours actually worked and the risk shifts to their side. Hybrid models combine the two, for example a fixed-price analysis phase followed by time-and-materials development with a cap on hours.
There is no model that is right in every case. Fixed price works when the scope is clear and stable, time and materials when the work is exploratory or likely to change often. The mistake to avoid is offering a fixed price on a scope that is still vague, hoping the details will become clear along the way.
Fixed price
Time and materials
Every estimate rests on assumptions: the number of meetings with the customer, the availability of their contacts, the quality of the data to be migrated, how long documents take to be approved. When these assumptions stay in the head of whoever prepared the proposal, they become a source of argument as soon as the project starts.
Writing them into the proposal has a double benefit. The customer understands what is included and what is not, and the project manager, who often took no part in the negotiation, knows the basis on which the budget was built. If an assumption turns out to be wrong, there is a shared reference point from which to renegotiate.
The same goes for exclusions. Stating clearly what is not part of the proposal is less pleasant than listing what is included, but it prevents far more misunderstandings.
What to put in the proposal
Once the cost of the work has been calculated, the price has to cover three more items: planned expenses such as travel or licenses, a contingency for the risks identified, and the target margin. The contingency is not a hidden margin but an amount proportionate to the project’s uncertainty, to be reviewed as risks diminish.
Discounts deserve particular attention. A discount granted during negotiation looks small against the total, but it comes entirely out of the margin. Before agreeing to one, ask how much margin will be left and whether there is an alternative, such as reducing the scope or moving part of the work to a later phase.
Finally, a proposal should go through internal approval when it exceeds certain value thresholds or falls below a minimum margin. This is not bureaucracy: it is the moment when someone who did not follow the negotiation looks at the numbers with fresh eyes.
The value of a good proposal shows after signature. If the estimate by role, the milestones and the assumptions sit in a separate document, the project manager has to rebuild them from scratch, and comparing plan with actuals becomes impossible.
In Sales, the proposal is created from the opportunity, carries the lines by role and the commercial terms and, once approved, feeds customer onboarding: the project’s budget, milestones and resources start from the same numbers used to sell it. At the end of the project you can then compare the estimate with the real work and improve future proposals, which is perhaps the most valuable benefit of the whole process.
Keep reading
The moment a signed contract becomes a project is one of the most delicate for any services business. Here is how to structure the handover from sales to delivery so nothing falls through the cracks.
Knowing how much budget a project has used only helps if you compare it with the work actually done. A practical guide to tracking budget burn and stepping in on time.
Innovaq is a company in its launch phase.