[Ask Catalyst:Ed] Fixed price or hourly? Structuring your project contract

by General

Here are two things that happened earlier this week:

From an email:
Expert: “Hey, the project scope says the project will have a deliverables-based contract. Can you explain what that means?”

From a scoping conversation with a client:
Catalyst:Ed: “Do you have any thoughts on whether this should be a fixed price contract or an hourly contract?”
Client: (silence)

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Contract terminology can get confusing. So here’s a quick primer (and we’ll do a blog post with a deeper dive into the not-always-fun world of consulting contracts sometime soon).

Contracts typically tend to be of three types:

  • Deliverables-based (aka fixed price contracts)
  • Hourly contracts (aka time-and-materials or variable contracts)
  • Retainers

Here’s where the rubber hits the road – the specific type of contract you sign for a project determines how you get paid.

For deliverables-based contracts, the client agrees to pay a fixed, pre-negotiated amount when the consultant completes and hands over the deliverable. The contract, in such cases, will lay out:

  • The deliverables (interim and final)
  • The timeline for completing the deliverables)
  • The amount payable by the client for each deliverable

Here’s what that could look like for a hypothetical strategic planning project:


Project start date: 07/01/16

Deliverable Format Due date Amount Invoice date

Report summarizing key research findings

Word doc

08/01/16

$5,000

08/15/16

Draft deck with key findings, recommendations and next steps

PowerPoint presentation

09/01/16

$10,000

09/15/16

Final deck with key findings, recommendations and next steps

PowerPoint presentation

09/15/16

$5,000

09/30/16

Implementation plan with key tasks, milestones, responsibilities and timelines

Excel spreadsheet

10/15/16

$2,500

10/30/16

The expectation here is that the consultant gets paid the fixed amount once the deliverables are submitted, irrespective of how much time she actually ends up spending on putting the deliverable together.

In hourly contracts, on the other hand, clients pay consultants based on the actual amount of time spent on the project. The payment period can be monthly or fortnightly. For a monthly contract, the consultant adds up the total amount of time spent on the project in the previous month (in education, time is often billed in 15 minute increments). The total number of hours is then multiplied by the agreed-on hourly rate to arrive at the invoiced amount.

A related type of contract that we often see in education is the hourly contract with a “not to exceed” clause. The expectation here is that the client pays the consultant based on actual hours spent up to a certain pre-agreed amount.

And finally, we have retainers. In these kinds of contracts, the client agrees to pay consultants a certain amount every month, with the expectation that the consultant will put in a certain amount of work. So, what kind of contract is best for the client and what kind is best for the consultant? Well, it depends on the project. When we scope projects for clients, we typically categorize 60% of projects as fixed price ones and 30% as hourly ones, with the remaining 10% being categorized as retainers.

In a perfectly predictable world populated by robots and with full information, a fixed price contract would work in the same way as an hourly contract. Unfortunately, we live in a world where circumstances change, individual capabilities vary and new information is often revealed. In general, when the project scope is clear and deliverables are well-defined, fixed price contracts work well. They offer clients the assurance that the work will get done without the budget getting out of hand. Consultants often find them easier to administer [1], plus they benefit if they end up doing the work more efficiently than they had originally budgeted.

For projects with a more ambiguous scope, hourly contracts might work out to be much better. For instance, one of our nonprofit clients needed several different grant proposals and reports written during a period of staff transition and did not know how easy or difficult it would be to find the necessary information. In this case, the hourly contract protected the nonprofit from paying too much if the information was easy to access, while at the same time, protecting the consultant from being paid too little if finding the information required a lot of legwork [2].

Retainers are best suited for interim and part-time consulting roles. They offer consultants a stable source of revenue while capping the monthly cost to clients.

Finally, here’s a handy little chart laying out the differences.

Fixed price Variable Retainer

Also known as

Deliverables-based

Hourly OR Time-and-materials

Monthly fee

Best suited for

Well defined projects

Projects with evolving or ambiguous scopes

Interim or part-time roles

Invoicing timeline

After “product” is delivered

Usually monthly

Usually monthly

I hope this was helpful! Feel free to add your thoughts or additional questions in the comments section below.

Notes:
[1] Fixed price contracts require more time up-front in estimating the amount of work needed to complete the work. However, they require less effort in terms of ongoing time-tracking.
[2] Even though time-tracking is not required for fixed price contracts, it’s a good discipline to follow if you’re a consultant. You’ll often be surprised at how “off” you were when you estimated that the work would take X hours to complete.

We hope you found this post useful! We’d love to have you join the conversation:

  • Respond: What’s your take on the different kinds of contracts? Any hard contracting lessons learned over the years? Share your thoughts in the comments below or tweet us at @_catalyst_ed. #edchat
  • Share: Here’s a pre-populated tweet to help you share our post: New post from @_catalyst_ed: The difference b/w fixed price and hourly contracts #edchat #consultants bit.ly/2cM5AV6
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“Ask Catalyst:Ed” is a new section on our blog. This is where we’ll be posting quick, practical responses to all the great questions that we receive from our community of users.

Here’s how we see this working:

  • Use the comments section of blog posts to send us your questions. You can also email them to us at info@catalyst-ed.org to tweet them to @_catalyst_ed.
  • The questions can be anything related to consulting in the education sector. We’ll be covering questions from both education organizations as well as consultants. Deep and mundane questions are equally welcome!
  • Every week, we’ll pick up a question and do our best to answer it using this blog. If you want regular updates, don’t forget to subscribe to our list here.
  • Please feel free to jump in and respond with your own perspectives and advice in the comments section of each Q&A. We do want this to be a community resource – and a conversation rather than a broadcast!

About us: Catalyst:Ed connects education organizations with vetted experts for short-term, mission-critical needs. More than a directory of experts, we set up projects for success by investing time and resources into scoping out projects (at no cost to organizations!) and matching projects with experts who are the right fit. To learn more about how Catalyst:Ed can help you gain quick, reliable and affordable access to expertise for your most pressing requirements, please visit our website. Ready to get help? Schedule a needs assessment call. Want to join our network of experts? Apply to join here.

How to write a compelling proposal

by General

If you ask consultants about the least favorite part of their jobs, proposal writing usually ranks in the top three. Drafting a proposal can be an unpleasant task for many reasons: it can seem impersonal and one-sided, you often don’t have as much information about the project as you’d like and pitching yourself in writing can feel uncomfortable.

But there are consultants who have learned to love the task. The act of writing a proposal forces them to slow down and pay attention: to internalize the needs of the project and determine whether they are the right fit. The proposal also becomes a launch pad for a meaningful discussion with the client and ensures alignment between client and consultant before the real work starts. Finally, for consultants who don’t have extensive networks or a readily recognizable brand, a thoughtfully crafted proposal becomes the opening that invites a second look from a high profile.

At Catalyst:Ed, a platform that connects education organizations with vetted experts for short-term, mission-critical projects, we’ve come to appreciate the power of a well-crafted proposal. It’s part science, part art. And we’ve put together this quick primer – gleaned from our collective experiences – on proposals for the newly-minted and still-hesitant among you.

The ingredients

Request for Proposals or RFPs (also known as project scopes in Catalyst:Ed lingo) typically ask for some variation of the following:

  • Proposed approach and work plan
  • Capability statement
  • Budget and payment schedule

While these terms can sound officious and intimidating, they essentially translate into a description of three things:

  1. How do you intend to tackle the project requirements and by when
  2. Why you’re the right fit for the project as evidenced by the skills and experiences that you (and your team) bring to the table
  3. What you’d like to get paid for your work and when

Putting these elements down on paper is good discipline. Even if the client and you have a long-standing relationship and you’re asked to do this “one quick project”, it’s probably a good idea for you to follow this structure and put down your thoughts before you get started on the work.

Putting it together

So let’s say you’ve decided to take the plunge and write out the proposal. What are some things you need to keep in mind that can maximize your chances of being selected?

Gauge your fit: This seems pretty obvious, but is worth repeating. Look at what the project is seeking. Ask whether (a) you’re interested, (b) you’re available and (c) you have most of the required skills and experiences. Note that we say, most, not all. Like job descriptions, proposal requirements sometimes include nice-to-have qualifications as well. It might be well worth it for you to respond to an RFP as long as you can check off most of the boxes.

Respond to the RFP you have, not the one you’d like: Far too often, clients reject proposals because they feel the consultants “just didn’t get it”. So here’s a tip: Read the RFP. Reflect. Repeat. Then, when you are ready to draft your proposal, (a) make sure you’re providing all requested components, (b) proposal an approach that makes sense given the task at hand and (c) underscore skills and experiences you have that are directly relevant to the project and show that you’ve worked with similar organizations before.

Research the organization: A quick Google search can often reveal a lot about the organization, its leadership and its driving philosophy as well as any larger challenges that it might be facing. These, in turn, can help you understand the “why” behind the project, gauge your own fit and tailor your proposal to what the client’s looking for.

Chunk it up: Break up large, complex projects into manageable phases, each with its own associated tasks, timeline, deliverable and budget. Thus, a strategic planning project might be divided into three phases:

Phases I. Current state analysis II. Draft and final recommendations III. Implementation plan


Key tasks

  • Task 1
  • Task 2
  • Task 3
  • Task 1
  • Task 2
  • Task 3
  • Task 1
  • Task 2
  • Task 3


Deliverable

Deck summarizing research findings and key insights

Final deck with findings and recommendations

Worksheet with detailed project plan


Timeline

2 months: 9/1 – 10/30

1 month: 11/1 – 11/30

2 weeks: 12/1 – 12/15

Chunking up projects offers several advantages: First, it makes it clearer to the client and to you how the work will get accomplished. Second, the mid-project milestones create opportunities to review progress, realign expectations and – when things go well – create a sense of momentum.

Pull together the right team: The pros know that consulting is sometimes best played as a team sport. More complex projects, in particular, may require a mix of skills and experiences – and even if you’re an independent consultant, it might be a good idea to pull together a team to be competitive. At Catalyst:Ed, for instance, we introduced an evaluation expert to an early childhood expert for an impact evaluation of an early childhood program. Individually, they were competent, but together, they made a dream team. When looking at the project requirements, think about what you bring to the table – and then think about who else you might partner with so that as a team, you bring the full set of capabilities needed to drive a project to success.

Aim for a price in the right ballpark: Pricing is a whole other topic that we’ll delve into in another blog post. But here are some quick guidelines:

  • Ask yourself “What will it take for me to get the work done”. This will involve some measure of breaking the work down into specific tasks and estimating how much time each task will take. Multiply total hours by your hourly rate to get to your desired budget.
  • Ask yourself “How much will the organization be willing to pay for this work”. Sometimes, you might find this information in the RFP (about 50% of the scopes we create at Catalyst:Ed have an estimated budget range associated with them). If the info is not readily available, substitute research and common sense. True story: A nonprofit with an annual budget of $750,000 received a proposal for a strategic planning project with a budget of $125,000. Needless to say, the client did not select the option, and reached out instead to Catalyst:Ed to source other, more reasonably priced options.
  • Find a balance between your desired budget and the client’s feasible budget. You can do this by paring down the scope of work – maybe do one workshop instead of two or substitute a survey for full-length interviews. Or you can offer a discount on your usual hourly rate. Or you can bring in someone at a junior level and outsource some of the more mundane tasks (scheduling!) for a lower price.
  • Finally, don’t worry about offering the lowest price. In 9 cases out of 10, we have seen the client picking the option who offers the best value rather than the option who offers the lowest price. Organizations are savvy and care about the quality that they are getting. Instead, offer the price at which you are prepared to do the work.

Tap into your enthusiasm: Clients can usually zero in on proposals where the consultant is truly excited about the opportunity to work on the project. It might be the thoughtfulness that has gone into the crafting of the proposal. It might be the passion for and knowledge of the domain area. Or it might be the additional suggestions that expand the potential impact of the project. I wouldn’t recommend faking the enthusiasm – it’s too much work! – but if you’re genuinely excited about a project, don’t be afraid to let it show.

The “fixings”

What about the format? Here are a few quick thoughts:

  • We’ve seen folks submit documents and presentations. In general, documents work better. They leave less open to (mis)interpretation.
  • Use formatting (bullets, bolds, italics) to enable easy reading. But please use your judgment. Too much formatting can be a distraction. And please avoid the urge to bold, italicize and underline the same sentence.
  • Tables, graphics, etc. are nice-to-haves, not must-haves, so include them depending on your own skill and the project requirement. Having said that, if you specialize in a specific area, it might be worthwhile to invest some time in developing a simple graphic that demonstrates your expertise.
  • Although cover pages are by no means necessary, please do include the following in your document: the project name, the client name (assuming it’s not hidden) and your name.
  • If you plan to include lots of acronyms, a list upfront is always appreciated.
  • For page length, use the guidance in the RFP. In general, shorter, simpler projects (<$10,000) should rarely require proposals of more than a page or two. More complex projects may require proposals of about 5-10 pages (although at Catalyst:Ed, we rarely recommend proposals of longer than 5 pages). For multi-million dollar projects at the state or federal level, the 50-page limit is often the norm.

Investments, and not expenditures
One reason why consultants don’t like proposals is because time spent on crafting one can often feel like it’s “wasted”. It’s not billable, and there’s no guarantee that you’ll get selected.

But there’s another way of thinking about it. A veteran consultant in our network thinks of proposals as investments and not as expenditures. “I’m building my own infrastructure and creating equity,” she says. “Each time I draft a proposal, I’m creating content that can be re-purposed for other similar proposals. I’m also investing in my brand and building networks. For new-to-me organizations and people, in particular, it becomes an invitation to a conversation and the start of a relationship that will hopefully continue, regardless of whether or not I am engaged on this particular project.”

To get you started, we’ve put together a very simple proposal format that you can play around with and tailor to meet the needs of your project. To access it, sign up below to download the proposal template.

We hope you found this post useful! We’d love to have you join the conversation:

  • Respond: What tips do you have for crafting killer proposals? What do you like/dislike about the process? Share your thoughts in the comments below or tweet us @_catalyst_ed. #edchat
  • Share: Here’s a pre-populated tweet to help you share our post: New post from @_catalyst_ed: The 3 Elements of a Compelling Project Proposal #edchat #consultants #therightexpertise bit.ly/2c22GgM
  • Connect: Join us in our mission to make education consulting more impactful. We’ll be sharing lessons from our journey on this blog. To subscribe, sign up here.

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About us: Catalyst:Ed connects education organizations with vetted experts for short-term, mission-critical needs. More than a directory of experts, we set up projects for success by investing time and resources into scoping out projects (at no cost to organizations!) and matching projects with experts who are the right fit. To learn more about how Catalyst:Ed can help you gain quick, reliable and affordable access to expertise for your most pressing requirements, please visit our website. Ready to get help? Schedule a needs assessment call. Want to join our network of experts? Apply to join here.