What you will learn in this episode:
- Many of Zao’s clients do not start from proposals. The work often comes from an existing relationship where the trust has already been built.
- By the time the proposal is created, there have been about a half-dozen conversations with the potential client.
- Framing the proposal conversation is concentrated around new work with a new client.
- The proposal is often delivered at the same time as the contract, but they are two separate documents.
- Proposals are pretty simple. They tell you about the vendor, how much the project will cost and will identify the parties.
- Pro Tip: If you are using Google Docs for proposals make sure you make a copy of the original. Google Docs keeps track of revisions and comments that the client can see.
Things to be aware of with a new prospect:
- A client can come in as a referral or from the contact form on the website.
- A video or call will be scheduled by a project manager. A video call is best if you cannot meet in person.
- Get into the comfort zone of the new customer.
- The type of client will factor into the pricing. A client who needs a lot of management can expand the costs of the project. It pays to get to know the client as much as you can in the beginning.
- You can find out what you need up front to determine adjustments to your pricing.
- You are trading time for money on projects.
- There is a lot of time going into answering the questions that come up.
- Value-based pricing is very popular right now. You need to figure out what the value is for the client. You need to make sure you are providing value for what you are charging.
- The market is really good at determining value.
- Understanding your business and the client’s business helps with your pricing.
- If you cannot price the project, it is impossible to come up with the value.
- Do not let imposter syndrome (or the opposite) Dunn and Kruger syndrome impact your pricing.
- Understand the value that you are providing by surrounding yourself with people that you trust and help you access your skills.
To Follow Justin:
About Justin Sainton:
Justin Sainton is the founder of Zao, an agency based near Portland, Oregon. As a core contributor to WordPress and lead developer for the WP eCommerce project, Justin believes passionately in the philosophy of open source software. Working exclusively with WordPress and an array of other open-source technologies, Justin and Zao have provided creative and effective solutions for a wide variety of companies and associations ranging from Amazon to PayPal to Pitney Bowes. When not building the Zao empire or spending time with his beautiful wife and four incredible kids, Justin can be found enjoying the best espresso in Portland.
Carrie: Hey Justin. Welcome to the show today. How are you doing?
Justin: I’m doing awesome. How are you Carrie?
Carrie: I’m well, thank you. So today I wanted to chat with you about proposals and pricing, and I didn’t choose that topic because of the incredible alliteration of proposals and pricing, but they go hand in hand. So at some point you’re doing some project discovery and then you have to present your [00:00:30] client with a proposal, okay, I think here’s what we’re going to do and there’s probably going to be some dollar amounts attached to that. So you game? You down for this?
Justin: Yeah, let’s do it. I think you’re right on there.
Carrie: So I know that different agencies, freelancers, everybody’s process looks a little bit different, but can you share at Zao where the proposal fits into the process?
Justin: Totally. I mean to be honest, a lot of our projects have no proposal at all. [00:01:00] Loads of our work comes from repeat clients, clients who already have a relationship with us, already trust us to do whatever we think is best for them and so because we have that level of relationship and trust built, a lot of times the proposal process is a couple minute conversation or email or Slack message or something like that. We do tens if not hundreds of thousands of dollars in work without proposals from existing relationships. I think that’s [00:01:30] important to notice that when you talk about proposals and pricing and things like that, it changes the game when you’ve already built relationships with clients that trust you as a technical partner rather than as a hired hand, and so framing the proposal and pricing conversation really comes back to when you’re biding on new work and when you’re doing proposals where you haven’t built that trust with clients, how do you build an effective proposal [00:02:00] that wins work and how do you price it so that you’re profitable as an agency, right?
Carrie: Absolutely. Tell me the answer.
Justin: Well, if you buy my ebook for $99 and … Oh man, don’t get me going. Yeah, so I think honestly it comes back to how do you build trust and how do you get to the point in a proposal so somebody can trust you, so the point in the project or the sales funnel [00:02:30] where we’re building proposals. If we’re building a proposal on a project, it’s almost the last thing we do. In fact, oftentimes by the time we’ve built a proposal, the client already knows who’s going to be working on the project, they already know how long it’s going to take, and they already know how much it’s going to cost. We’ve already gone over most of this with them because one thing that we did early on was we moved the proposal process further back in the sales cycle, [00:03:00] where one of the first things a client might get would be a proposal, and what we found, which was super unfortunate, is that we lost a lot of those proposals.
We spent a lot less time getting to know the client and a lot more time working on fancy designed proposals with our logo and testimonials, and they ended up at like 40 or 50 pages and we didn’t win any of them. We just wasted a lot of time on them, and so by changing the process quite a bit to [00:03:30] really changing the sales funnel process, the sales cycle process to be very conversational and relational rather than this transaction built upon a proposal, it became a lot more effective. So by the time we send a proposal, we’ve already had several, probably half a dozen, conversations with either the main decision maker or the team who’s in charge of the project at our client’s end and our team. [00:04:00] They already know our names, they already know how we price things, and the proposal at the end of the process is mostly a formality or a pleasantry, something to get sign-off on, maybe from a CEO or CFO or C something O, and then they just pull the trigger.
So moving it towards the end of the cycle, building a relationship, building trust up front, and making sure the proposal … Sometimes what would happen as well earlier on is if we would just send a proposal, we hadn’t [00:04:30] talked about pricing, we hadn’t talked about the value of the project at all, they just got this proposal and we didn’t know what their budget was. They didn’t know how much we charged and so they’d get this proposal that’s $50,000 and then it’s like wait a minute. We thought this was a $5,000 project, and so there’s a total expectations mismanagement that can happen if you start with a proposal too soon. I’d say the proposal when it’s required is almost the last part of that initial [00:05:00] phase of the project that we do.
Carrie: That’s interesting and I like that you used the word transactional versus relational cause I think that’s a lot of it’s view proposals. It’s a formal document and it is transactional, something that you’re wanting to get approval on. So for you guys, is there a difference between the proposal versus the contract or is that all rolled into one?
Justin: Totally. So usually we’ll deliver [00:05:30] the contract with the proposal, like as an addendum or an attachment, but they are separate documents. We spent a lot of money and a lot of time with lawyers getting our contracts in a good place that protects us and protects our clients. Those are totally separate documents, and proposals are pretty simple. They tell you a little bit about us, which you already know as our client. They tell us how much the project is going to cost, which again they usually already know or have a good idea of. They tell [00:06:00] the client how long the project will take assuming there’s no scope changes, and spoiler alert, there’s almost always scope changes. The proposals are a lot simpler than the contracts.
The contracts get into the nitty gritty of this is how you pay us. This is how long you take to pay us. This is how the relationship works. If it goes really well, this is how the relationship works. If it goes not so well, it gets into a lot of the legal [00:06:30] clauses and liabilities and things like that that we agree to when we enter into a business relationship. The contract is much more transactional. It is much less fun, and it is in a separate document from the proposal.
Carrie: Okay. Do you guys do a formal … So you’ve got a lot of repeat clients that already know you, already have a relationship, a level of comfort with you, so I can see how it’s let’s hop on the phone and let’s just talk about this, but for someone, a [00:07:00] completely new prospect, can you walk me through? Are you getting on a phone call, an hour long meeting, or how are you getting the data and the information that you need to ultimately talk about a proposal?
Justin: Sure, so from the time someone contacts us through our contact form on our website or through a referral from somebody else, they get into our system and our project manager sets up a time to go over everything [00:07:30] with them to really understand the project, first to filter out if they’re a good fit for us. Some projects aren’t a good fit because it’s not really the type of client we serve. We’ve had more than our fair share of people who want to build sites that are super flashy lingerie sites. Because we specialize in e-commerce, a lot of people want to sell things that aren’t terrible savory, that just aren’t really our target market, so we turn a good chunk of those away. Also because [00:08:00] we focus on the higher end of e-commerce, we’re not really implementing WooCommerce themes and things like that. We’re really if somebody has complex membership requirements or complex maybe performance or caching issues or custom payment gateways, things like that, that’s the end that we work on. So when people come with maybe a two or three or four thousand dollar budget, that’s a filter for us that it’s not a great fit, and so that’s the first phase as they come [00:08:30] into our system and we figure out if there’s a good potential to work together.
After that, then we get into the technicalities of okay let’s set up a get to know you meeting, and we do our best to always do those in video. So if the client’s used to something like Google Hangouts or Skype or Zoom, or whatever, whatever the client’s used to we try to get into their comfort zone rather than getting them into our comfort zone. Once we have them as a client and they trust [00:09:00] us and everything’s good, then we get them into our systems, but when we’re just trying to establish trust we’ll try to get into whatever works for them, but video is best. If we can get in person, that’s even better, but because of the nature of what we do, that’s not usually the most common approach. So we’ll kick off a video call usually with a project manager, who right now we just hired Lizz Ehrenpreis who’s awesome as our project manager, and then usually it’ll be myself or myself [00:09:30] and my partner Justin Sternberg. It’ll be the three of us on a call with them to get to know their technical requirements, get to know their project requirements, get to know them as a client.
Some clients require a lot more just as a client, totally separate from the project, but just as a client. They require maybe a lot more communication, maybe there’s a lot more stakeholders, maybe there’s a lot more going on that requires committee based approval versus a single [00:10:00] decision maker, things like that we can discover about them as a client on that first call, and we can also discover a lot about the project to understand if it’s something that we’ve built before, if it’s something that’s really close to what we’ve built before, if it’s something that we just don’t know anything about and it is going to require a lot of discovery, things like that we can definitely figure out on the first call.
Carrie: So you just brought up something that I want to ask more about. So you mentioned those clients where it is going [00:10:30] to be there are multiple stakeholders involved in the decision making process, so automatically you know that conversations are going to take a little bit longer or there’s going to be more time involved to push decisions through, or maybe it’s you just get the feel okay this is going to be a really high touch client. How do you factor in pricing-wise? How do you factor that into your bid ultimately?
Justin: Sure. I mean the type of client [00:11:00] definitely factors in to the pricing, and we can sit on proposals a little bit before we get to pricing cause there’s probably more to cover there. If it’s a client that requires a lot of handholding … We have a client right now who’s a great client and it’s a great project, but they have required loads more handholding than we’re normally accustomed to and it’s not because there’s several levels of stakeholders to get through, it’s just because they’re a highly [00:11:30] non-technical client and we are highly technical people, and that has produced just probably five to 10 times the amount of communication that has just really caused the project to be much bigger than it was as strictly a technical project.
And so that’s why we encourage other agency owners to really get to know the client more than just the project because sometimes, just one client to another, if you’re doing the exact [00:12:00] same project can take 10 times as long for a variety of different reasons, so definitely getting to know your client up front and understanding hey this will take three times longer so we have to charge three times more than we normally would for project management. Those are the types of things that with a really solid project manager on that first call you can figure out up front, that if it’s just maybe you’re a developer, like a freelance developer, or if it was [00:12:30] just me and Justin on the call for example, we wouldn’t necessarily pick up on those things that somebody who is more skilled in those project management and account management types of things would pick up on immediately.
Carrie: Okay. Gotcha, and I assume that you’re not telling a client, “Hey, you’re not technical. We’re charging …”
Justin: Automatic. There’s certainly much more diplomatic ways to say things when you’re dealing with people. [00:13:00] Absolutely, and honestly most of these clients understand these things about themselves better than we do, and so we don’t necessarily go to a client and say, “Hey, you’re super highly technical. This is going to be way easier than it usually is so we’re going to charge you way less,” and we also don’t go to clients and say, “Hey, you’re not super technical. I’m going to have to explain how to refresh your browser to you three times a month and it’s going to be a half hour conversation every single time so we’re charging you for that.” [00:13:30] Those are things that we understand up front and build into the pricing in a very fair and very diplomatically communicated way.
Carrie: You funny. Do you ever … Since proposals are coming at the end of your sales cycle, do they ever get kicked back to you, okay here’s some changes we need to make, or are they always pretty spot on by that point in the process?
Justin: Yes. Yes is the way to answer that because it really is both and that has actually shaped [00:14:00] our tooling for proposals. Way back in the day when I started Zao as an 18 year old kid who didn’t know anything, and I mean tools were what they were in 2005, I would literally build out proposals in Microsoft Word, building out each page, fussing with tables and things like that for fee structures, and the tooling has come a long way. There’s a lot of really great SAS tools to build proposals that can track open [00:14:30] rates and win rates and communication comments on proposals on things like that, and we’ve experimented with a few of those over the years and have really liked them.
Awhile back, probably 2012 to 2014, we used a tool called Bidsketch that was really great. After that we experimented with I think one called Quote Roller, and then over the last year or two we’ve used one called Proposify by some guys over in I think Ottawa, and it’s [00:15:00] really great, and we like it a lot. But this year we’ve experimented with just doing proposals in Google Docs, which has been really interesting because it’s stripped away all of the templating, all of the design, all of the prettiness, and all of the tracking and analytics that you get with some of the SAS things, and it has really simplified things, and it has caused a lot more collaboration between us and clients. They’re able to use the suggestion [00:15:30] and commenting features and things like that to literally in real time chat with us, or comment on the proposal, ask clarifying questions that would usually be lost in an email thread between two people, are now these collaborative documents between us and clients, our whole team and their whole team, so it’s a lot easier to get a lot more buy-in and a lot more of a collaborative effort on the actual proposal. And we spent a lot of time fussing about is this stock photo on the [00:16:00] cover page of the template the right one for this client or whatever, like it’s just text. It’s just the meat and the content and that’s what the client gets.
Now obviously if somebody takes this approach, which we really like and it’s been effective for us, if someone takes this approach one caveat is make sure that whenever your team has built the proposal, create a copy of it in a new document because Google Docs has revision history and so if your client is seeing your revision history, they’re probably seeing a [00:16:30] lot of internal notes that you may not intend to expose to them. We did not have to learn this the hard way. This was good foresight, but I imagine someone listening to this may end up learning that the hard way so hopefully we’ll save a headache or an embarrassment or two.
Carrie: Oh my gosh, that is an amazing pro tip right there. Well let’s shift and I could sit here and chat with you for a whole nother long while on proposals, but we need to move along little doggie. Move [00:17:00] along.
Justin: Move along.
Carrie: Move along. So let’s talk about pricing. So I know just like proposals, everybody’s got their own preference for how they do pricing: Hourly, value, fixed bid, time and materials, blah blah blah. How do you guys at Zao approach that?
Justin: Yeah, I mean like you said, they’re like belly buttons. Everybody has one and they all stink. That’s the PG version of a very common saying. Pricing is [00:17:30] one of those funny things that a different strategy will pop up on someone’s blog and then it becomes the lingua franca for pricing for agencies, and then people come back to sanity and reality and they realize what I think has always been true is that we’re all spending time building projects for clients and we’re all getting paid for it in theory, ideally, right.
So no matter what your strategy is, you’re trading time for money, and I think a lot [00:18:00] of people get lost in the mirage of this ideal situation where I’m no longer trading my time for my money, but the reality is we’re not all Tim Ferriss. We don’t all have a four hour work week. We’re all going to trade some time for some money and hopefully we’re doing work that we like, that we get some level of enjoyment and satisfaction out of, and we feel like we’re paid well for it. That to me is pricing strategy, so when you get down to how do you price [00:18:30] a project, is this a five or 10 or $100,000 project, there’s a lot that goes into answering those questions, right. So I mean one of the common things that’s really popular right now is value-based pricing, and I think a very common misapplication and misinterpretation of that is okay, well we’ll just figure out how much money this client has for this project and that’s the value.
Justin: And we’ll just start really high and figure out what the highest possible amount that they’d pay for it is and we’ll just keep coming down until they say yes and that’s the [00:19:00] value, which I mean that’s a terrible and crude way of describing maybe how some people look at it, but internally in their heads that’s how they look at it. And so if I go to a client and say, “Well what’s it worth to you?” and they say, “Well we don’t really know,” value pricing means that it’s your job to figure out hey this is going to save this client $50,000 a year, or this is going to make this client an additional 50% [00:19:30] on revenue, or things like that and so I think there is some merit to value-based pricing, but I think what a lot of people miss is that what they’re already normally charging as their hourly rate is about what things are valued at.
One thing that we’ve found really commonly is that when we just price out our costs, we figure out this project’s going to be 50 hours, our rate is 200 bucks an hour, and so it’s a $10,000 project, [00:20:00] we come back and find out wow, that’s about the value that the client is getting out of it, and so I think a lot of fuss is made out of this value-based pricing stuff when the market is actually pretty good at determining value. If you figure your hourly rate, as long as it’s a decent hourly rate … There’s really good developers who are charging 60 bucks an hour, and they’re just not charging enough and so they’re trying to find this pie in the sky thing through value-based pricing when the reality is they just [00:20:30] need to raise their rates. I would say our strategy’s … We don’t really have one that we’re dogmatic about. We’re not really religious about one strategy or another. We’ve done value-based pricing.
One of my favorite value-based pricing stories is we had a client awhile ago who, this was when the WordPress REST API was brand new. It was version 1.0. They were using it for an iPhone app, or I think it was version 7.71 or something. They were using it for their iPhone app for [00:21:00] something that it was tracking NFL and Major League Baseball and all these things, and so it was 12 hours before their app was launching on the app store and the REST API for WordPress was totally broken on the one multi-site instance that mattered most, which was their NFL site. And they said, “Hey man. We have to launch this in 12 hours. None of our techs can get it fixed. Can you fix it?” And it was the end of my day. I was going to hang out with my kids, my wife, eat dinner, probably tacos, and [00:21:30] so I was like man, a) I don’t know if I can fix this, and b) I know it’s worth a lot to you but I don’t know what it’s worth to you. So you guys, you tell me what this is worth to you and I’ll figure out if it makes sense.
This was a client that we already had, so they literally said, “You might be on the phone with us all night and so if you are that’s a bummer, but if that’s what it takes we’ll pay you $10,000 to do it.” And so I don’t know about everybody listening to this, but I talked with [00:22:00] my wife and I’m like hey is it cool if I go missing for 12 hours for $10,000? And you can imagine what she said. Yeah, see you later babe. No problem. And so I mean luckily it literally took 2 minutes of work to fix and we got paid 10 grand for it and that was awesome, but it made that client … They had spent over a million dollars on that app already, and so to spend $10,000 to make sure that it actually worked when it counted was a drop in the bucket to them.
[00:22:30] And so I think there’s really big wins to be gained through value-based pricing, but I don’t think it’s one of those things you have to be dogmatic about, and I don’t think it’s one of those things especially as service based agencies that necessarily makes the most sense every time. But the big caveat here is that it’s our responsibility and I think we’re being pretty negligent if we don’t take this seriously to make sure that we’re providing value [00:23:00] for what we charge. If I’m charging a client $50,000 for some project that we build for them, I want to make sure just for the sake of their business that they’re getting at least that much value out of it, if not more, and so really understanding your business and your client’s business, understanding the project and how it makes a return for them I think is really, really important and that has to play into your pricing. We’ve turned away lots of projects because there’s no way to price the project [00:23:30] in such a way that it would provide the necessary value for that business.
Carrie: Wow, that is … There is a lot there. I’m just going to have to rewind and listen to that section again. So you talk about knowing your value and say there is the developer that is charging 60 bucks an hour really ought to be charging 2x that, how do you recommend that someone determine or put a price tag on what their rate is going to be? And this could be somebody that’s all they’ve done at this point is [00:24:00] implement a few websites, or maybe they’re really heavy duty backend developer with a great skillset.
Justin: Yeah, that’s a really good question and so there’s two things that are at play that are really important to understand and most people if they understand either of them they only understand one of them. One is called imposter syndrome, which I think has been written about extensively and most people understand the concept of. The other is called Dunning-Kruger syndrome, which has been written about in our space [00:24:30] much less, and is also equally important to understand. The imposter syndrome idea is what we talked about earlier, really solid developer, market rate is 150, 200 bucks an hour or whatever as a freelancer or an agency, and they’re charging 50, 75 bucks an hour. That’s in the pricing sense an extrapolation of imposter syndrome. They’re not charging what they’re worth because they don’t believe they’re worth that when the market would dictate otherwise.
Dunning-Kruger [00:25:00] is the opposite. It’s somebody who maybe has a basic knowledge of PHP, little bit of understanding of WordPress, and they basically maybe buy themes, change a few options, that kind of thing. They spend half a day building a website and they charge a client 10 or $15,000 for them. No problem with that at all as long as the client is getting the requisite value from that. That’s totally cool. The reality [00:25:30] though that I find from a lot of our clients who come to us from these types of implementers or developers is that they feel pretty ripped off. They feel like man I could have done this myself, and so that’s where the Dunning-Kruger thing comes into play, and it’s really a matter of understanding man am I actually providing the value that I’m charging for or do I think I’m a lot better than I really am, and I think the way to avoid these two traps on either side of you and walk in the middle where it’s safe [00:26:00] is to surround yourself by people who you trust, who can be honest with you, and I think that’s really rare especially for solo freelancers and even for agency owners.
It’s hard to feel like you can trust somebody, but if you can trust somebody, if you can come into a relationship whether it’s a Mastermind or somebody local, a business owner that you trust, somebody that can really assess and say, “Man, you’ve gotten really, really good at what you do, and you’re just not charging enough. You need to raise your rates. [00:26:30] Here’s what the market actually is for what you’re doing and it’s double what you’re charging.” Having people around you who can be honest with you and tell you the truth about yourself that you don’t see because of the blind spots you have is huge, and on the inverse of that, having people who you trust who can say, “Man, you keep coming back to me every week and saying I’m not getting the work that I need to get, and I don’t have happy clients because I’m just not doing the work right. I’m not [00:27:00] doing it fast enough. I’m not doing what they expect. What’s my deal? I can’t figure it out.” You need people who are honest enough and who are brave enough to say, “Yeah, you’re charging $300 an hour and man you should be charging 50 bucks an hour for what you’re doing until you really level up your skills.” Those relationships in your life as a business owner and as a freelancer are the difference between sinking and swimming.
Carrie: Oh my gosh. You’re like Mr. Wisdom.
Justin: [00:27:30] I’ve just done a lot of things wrong for the last 13 years, and I’ve figured out a few things that are right.
Carrie: Well that is all excellent, excellent advice. And with that we’re going to go ahead and wrap up. Justin, where can people find you online to say hello or see what you’re up to?
Justin: Nice, so here’s one of the things that I’ve done wrong. After 13 years, we finally have a business Twitter account. So they can follow our business stuff @zaowebdev [00:28:00] on Twitter. People can follow me, JS_Zao on Twitter. Our website zao.is. People can reach out. Those are the best ways to get in touch.
Carrie: Heyo, Zao. Well thank you so much Justin for your time. I appreciate you.
Justin: Yeah, likewise Carrie. Thanks for having me.