You take the high road, and I’ll take the low road…
The problem with using ranges when pricing anything.
I previously discussed the difficulty associated in creating accurate estimates for projects as a result of things you don’t know. A frequently used approach to address this is to use a pricing range.
My experience with this usually starts with ill defined requirements in an RFP. In response to asking for clarification from the client, we get a response that makes it evident that the client does not have the answers we need.
If the scope is not clearly defined then it becomes a challenge to ensure the estimate is precise. One solution is to accept the lack of definition, and respond with a lack of precision in estimation, manifested as a pricing range.
The problem with a range though is that when someone tells you that something you want will cost from $75k to $150k , you tell yourself “I can buy this for $75k”, but your vendor tells themselves “we can get up to $150k”. We effectively ignore the end of the range that doesn’t suit us, but there are two problems with this.
Firstly, the vendor will often artificially lower the bottom end of the range to reduce sticker shock. But knowing they’ll need more than the base amount to deliver something worthwhile, they tell themselves that they should at least be able to meet in the middle, which is in reality where the bottom of their range should be.
The other issue is that you’ve created a disparity between expectations of the two parties doing business. It will be hard to avoid one side grudging the lack of budget and the other grudging the pressure to break their budget.
There’s a simple solution to this though. Instead of giving a general range for the entire project, give specific pricing for specific aspects of the project that you can define. Break down your bid into a menu of items that the client may or may not want as part of their scope. This approach allows you offer a range of features, with specific pricing for each.
And ranges aren’t just dangerous for pricing — they are notoriously frustrating for durations too. When your contractor tells you they’ll complete your home renovation in 4 to 8 weeks, you hear that work will done in a month, and the contractor thinks he just bought himself two months.
As always, it’s invaluable to consider every situation from the perspective of the other interested parties.
Image credits.
- Stelvio Pass, by Damian Morys. Image cropped and graded.