This sounds pretty straightforward, right? Just figure out what business you want to be in and what it costs you to deliver your services, then put together a spreadsheet. Of course, those of you who have been down this road realize that there’s nothing simple about some of these steps once you start dealing with the many details. So I’ll break down each of these steps to show you how my approach and the tool I’ve created to support it address the challenges of managing a service-based business.
Identify the Services You’ll Provide
The first step of building your estimating tool is identifying what services you’ll provide. Choosing these services is not a trivial problem. It involves considering a mixture of what your prospective clients might expect, what your competition is offering, what services you’re skilled in providing, and how you can make money. This tool defines the heart of your business model and strategy. To illustrate how you can build your own estimation tool, I’ll use a hypothetical business. As you build your tool, you’ll actually be defining your fee structure in a way that guarantees you’ll make money on every contract.
Our Hypothetical Business
Let’s say you’re just starting out in business, and you’ve decided to provide UX services to other businesses. You intend to provide Web-site design and UI-development services to companies that deliver all other parts of the Web ecosystem, including security, hosting, back-end code development. While this is a tricky business model, it can be very lucrative if you manage your business correctly. To keep things simple, you’re targeting mid-sized, enterprise-technology providers. As part of your discovery process, you’ve identified a set of pervasive, or common, problems from which these businesses suffer.
You want to keep things as standard as possible and you’re a whiz with WordPress, so you’re looking for partners who want to support WordPress front-ends. Of course, many other designers are competent at delivering WordPress front-ends. Is there something specific about your prospects’ businesses that you could leverage to give you a competitive advantage over a more generic Web designer? (This was essentially the situation I faced when I started my consultancy Phase II: delivering a competitive set of services to a targeted industry—systems furniture dealerships—by using a standard platform—AutoCad—that any designer could use.)
When identifying the services you want to offer, your first task is to break down all of the tasks and activities you would need to perform to deliver a complete Web-site front-end to your target market. As you list each of these tasks, you’ll note that some of them are enabled by technology—perhaps a commercially available plug-in or third-party service to which you can subscribe—while others simply require your time and skills. As you break down the tasks further, you’ll find that some are highly repetitive and could potentially be standardized, while others are one-offs, requiring custom work for each client. Look for tasks that are standard, repetitive, and could be enabled by better technology. We’ll focus on those for the initial version of the tool.
For Phase II, such a task was placing CAD objects into a drawing. Jobs might range from a few objects to several thousand. As I discussed in Part 1, the key here is to avoid getting trapped into thinking that a contract is just a matter of time. While larger projects do naturally take longer, you can bill by the piece—in this case, the CAD objects. For our hypothetical business, the number of component services would likely be much larger for larger projects than for smaller projects. Therefore, the trick is to price your contracts according to the number of different service components, their values, and the quantity of each type of service component.
To summarize this first step, identifying your services, you need to do the following:
- Identify all of the services necessary to serving your targeted businesses.
- Separate custom work from standardized services.
- Identify which of the standardized services you can automate or optimize through technology.
- Identify which services are less attractive from a business standpoint—perhaps because you can’t predictably estimate them, can’t optimize them, or have too much competition.
There’s one other thing you need to do for this step: figure out how much money you want to make per hour. For simplicity’s sake, let’s say it’s $60 per hour, which works out to $1 per minute. But doesn’t doing this contradict my assertion that you don’t want to bill by the hour? No, but you still need to put a value on your time. Even if you’re not billing by the hour, you want to establish your value and desired income by deciding what you want to earn per hour of work.