“So, how much is this going to cost?”
This is one of the toughest questions in the business world, and for a good reason. To give a client an accurate estimate, you need to consider a bunch of different factors—the client’s budget, the project’s goals and main deliverables, your own organization’s goals, information from the sales team, etc. Making accurate project estimates isn’t easy.
As you’re putting together the important components of your project estimate, such as exclusions, deadlines, and terms, make sure you ask these questions. They’re surprisingly simple, but they’re fundamental considerations that can make or break an estimate (and a budget, down the road).
Refine your estimate and get as close as you can to hitting the bulls eye with these questions:
What are the client’s goals for the project?
Before dicing up deliverables and features, you need to fully understand the client’s high-level needs, ideas and goals. Get into your client’s strategy and do thorough, detective-like investigation. It’s often the case that clients do not know exactly how to express their ideas in a concrete or technical way—it’s your job to be able to translate your team’s offerings into language that speaks to your client’s overall goals, and vice versa.
Knowing your clients goals is the foundation for making decisions about which deliverables to include in the SoW. Without knowing exactly what the client hopes to achieve with the project, it’s hard to know exactly what to deliver—or how much it would cost.
How much is in the budget?
A simple question, with an elusive answer. Clients usually don’t want to give out this information because they’re afraid that you’ll respond by saying that you’ll need the whole budget. Ask this question directly, and you’re not likely to get a direct response.
You can approach this topic by offering up some relevant budget information that gives clients a starting point for thinking about their budget. If you use resource management software, you can draw up a report showing budget data from previous projects in order to give them a visual, concrete idea of how much similar projects have cost. A lot of people use Microsoft Project, but there are loads of great Microsoft Project alternatives as well. By leveraging some of the budget spend info from your existing data, you not only benefit from concrete numbers but also the trusting relationship that you form by being transparent about your organization’s past work.
What are the main parts of the project plan?
You won’t know every deliverable. feature, and requirement at the stage when you’re providing a project estimate. In fact, you might not have much more than an email from your client saying “We’d like a website refresh!”. It’s up to you to start refining the idea and reducing the ambiguity.
You may have to guess, but in this phase of the project, an educated guess is better than no guess at all. The project plan will change multiple times, and that’s just the nature of project initiation. To inform your estimate, draw up a rough project plan using resource scheduling software (it could be a timeline, a Gantt chart, a spreadsheet, etc). Make it easy on yourself, and use a project management tool to create and save project templates so you can simply adjust the template from a similar project and quickly come up with a rough project plan.
Define the major parts of the project plan and make an estimate for how much each will cost. Then, construct an estimate based on the sum of the parts.
Why am I estimating?
What is the actual purpose of the estimate at this point in the project cycle?
Know why you’re estimating, because this will help you decide on the type of estimate that you need to provide.
For example, here are two different scenarios with their own separate set of reasons for needing an estimate:
- If it is a new market, or a new client, prepare a wider estimate that can account for lots of changes as you learn more about the market and client. In this case, why are you estimating? You’re estimating so the client can get a general idea of whether or not their budget lines up with their project goals, checking whether the idea is generally feasible. A ranged, ballpark estimate will likely be your starting point.
- If it’s an existing client that you’ve done similar work for, it’s possible to give a narrower estimate based off budget spend from the previous project. In this case, why are you estimating? You’re estimating so that the client can resource properly on their end—at this point, you’re less concerned about leaving wiggle room in an unfamiliar market and more concerned about giving the client a reliable number that places the new project in context with previous ones.
What kind of estimate do I need?
You can generally make 3 types of estimates:
1. Ballpark estimate: This is the starting point, and it works well for cases where clients do not give full disclosure regarding their budget. It’s usually a ranged estimate, for example: $150K – $225K. This type of estimate is the roughest of all, and should not be used for final plans.
2. Budget estimate: This is the point where the client has a better picture of how much they can spend, and now you should start working on details. The ballpark estimate went well, and it is time to come up with a breakdown of the main parts of the budget, the deliverables, and how much they each cost.
3. Definitive SoW estimate: You have every detail worked through, and now you wait for budget approval. You have factored in assumptions, exclusions, third party costs, deliverables, contingencies, and risks.
Making accurate estimates is not an easy task. You will need to use combine the insight from your past projects and project metrics, your knowledge of the client, and your negotiation and communication skills. To summarize, ask these 5 questions:
1. What are the client’s goals for the project?
2. How much is in the budget?
3. What are the main parts of the project plan?
4. Why am I estimating?
5. What kind of estimate do I need?
To learn more, read a full guide on project estimation.