Case Study: Increasing Project Fees to Make Customers Happier

by Krystina Francis, Director of Projects

The harder they worked, the less satisfied their clients were...

I worked with a company that offered marketing and web development services, and they would frequently get requests for rush work. The owners at the company were adding a laughably low rush fee to the project cost and wearing themselves out trying to meet demand. They would work 12+ hours a day and on the weekends, yet still miss deadlines. 

Full-time employees weren't being compensated for hours overages at the time, so the owners would step up to do the extra work. As a result of the owners' long hours focused primarily on production and not business management, the whole company was suffering. Their clients were increasingly dissatisfied with the timelines, and  the burn-out was starting to present itself in the quality of the work.

I took them through a very simple exercise to expose the issue, and it started with a very simple question, "How much is your time worth"? In order to determine what they were paying themselves for these extended hours, I required them to start tracking their time. (I will save the lecture about tracking where all of your time goes for another article, but everyone, regardless of their position within the company, should do it.)

After we broke out the rush fee against their after hours efforts, we determined they were getting paid something in the range of $5 an hour in overtime. To managers and owners of larger companies, this seems absurd, but small companies afraid of losing business by saying no or charging "too much", will often undervalue themselves and run into scheduling issues by overburdening their human resources.

Next we took a look at how they priced projects. Although they presented a flat project fee to clients, that was accompanied by a breakdown of how much time a component would take to build, and that was multiplied against their hourly fee and compiled to produce the project cost. Interestingly enough, we discovered through their time tracking that they were also underestimating the amount of time required to finish work. So in the process of fixing the rush fee, we also fixed their starting estimates.

From there, it was a simple thing to calculate a fair rush fee. If the project had to be done after standard working hours of 9am-5pm in order to move it up in the overall schedule, then their hourly rate was multiplied by time and half, increasing the base project cost to the client by 50%. This also allowed the employers to offer employees extra pay if they volunteered for these types of projects.

The results of these pricing changes were huge. It came to light that many of their clients didn't have to have the project rushed, they only asked for it because it was so cheap to do. The owners had been killing themselves to get work done for clients quickly, when 90% of the time the original timeline would have been fine. The clients that DID need work rushed, found the rush fee to be fair, and understood that the company had to pay employees extra to get them to stay late or subcontract the work which increased the project cost.

The owners would still regularly work long hours, but they had time to dedicate to the management of the company. Employees were happy to have an option for making more money but not being forced to work the extra hours. Clients were glad to still have a rush option, and the company didn't lose anyone as a result of the increased fees. It was win-win for everyone.