As a psychology major in college I was always fascinated by the Rorschach test. How people perceived ambiguous situations was, in my mind, a revealing and fairly accurate way of judging their underlying personality traits and characteristics. In other words, their intentions. For those of you who need a refresher from Psych 101 here is how Wikipedia defines a Rorschach or inkblot test:
The Rorschach test (German pronunciation: [ˈʁoːɐʃax]; also known as the Rorschach inkblot test, the Rorschach technique, or simply the inkblot test) is a psychological test in which subjects’ perceptions of inkblots are recorded and then analyzed using psychological interpretation, complex algorithms, or both.
Where am I going with this, you ask?
During a website design new business pitch our team was given insight into how our competition was pricing the prospects project. This is almost never revealed but I think we were in good enough standing with the prospect where they felt comfortable sharing these numbers. What we heard was there were companies bid=ding 3k for this particular project (project was a full website redesign, e-commerce, SEO implementation, etc.) and there were some companies bidding upwards of 150k. Think about that. Everyone was given the same scope, or inkblot. Company A’s perceptions of this project was $3,000 in man hours and Company B’s perception was $150,000. How do you account for $147k in misperception? Here are a few reasons why:
- Hourly Rates: Each digital agency has different hourly rates, although, you’d be hard pressed to find an agency (not a freelancer, an agency) that will perform quality web design/development and strategy work for under $50. As a business owner I can tell you that this hourly rate simply doesn’t pay the bills. Furthermore, some agencies see a project and assign a team of 10 employees where others will assign a team of 3-4, accounting for some variance in the project pricing. The natural question is: Will my project be more successful if 10 people are assigned vs. 3? Unfortunately, there is no clear answer to this question.
- Understanding Scope (or lack of it): Simply put, some agencies aren’t good at understanding the scope of a project, and as a result, will under or over bid accordingly. In my years of managing new business efforts this is the number one reason why agencies lose their shirt on a project in the long run. It’s absolutely imperative that the right questions around functionality, revisions, content management requirements, etc. get asked prior to bidding on a project so that expectations are clear, assumptions are transparent and to protect the agency with fair pricing structure.
- Desperation: Often times we’ve seen agencies grossly underbid a project to simply win on cost alone. Very risky play but everyone has their reasons – Either they are eager to break into a new market/industry, are trying to save their business or simply willing to take on a project at below cost to gain momentum and put work in the queue. Regardless of the intention, it’s hard to compete with these situations and they often account for variance in agency bids.
- Guy in His Basement vs. Big Agency: We’ve seen this time and time again, where a big agency will be bidding on the same project as a guy in his basement. As more and more individuals become savvy with search engine optimization and play in the paid media space, they are able to place well for various terms (web design Boston, for instance) and thus capture the leads that allow them to compete against the big boys. These individuals or freelancers will almost always win on price but will almost never win on results, creative expertise and the ability to handle multiple projects at once.