CRM Tips: The Fixed Price is Not Right

Many companies buy CRM consulting services the way they buy hardware: Fixed price. What if this just isn't the right model, no matter how good a price you get?

By David Taber
Mon, November 02, 2009

CIO

Imagine a CRM consulting project with inadequately specified requirements, no clear internal project manager, and ill-defined success criteria. Your consultant bids it on a time and materials (T&M) basis. You're in a rush, no time for a detailed RFP — you know the consultant can do the job, but you need a budgetary number to get approval. We've all been through this drill: somebody brilliant suggests that this has to be fixed price, it'll be easier to get project approval and manage to conclusion that way. You know, just like it would be when buying servers.

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But you're not buying servers: you're buying services. While 80% of CRM projects are formulaic and could be bid as a "standard project," the other 80% of the project work is not only a one-off, but an unknown. Nobody actually knows the requirements, or the ramifications of "something simple," or the shape of your data, or the tricky parts of external interfaces. You may think you're signing up for a three-hour tour, but you're on the way to Gilligan's Island.

What if Fixed Price is a Lose-Lose deal?

While fixed price projects are easy to measure, the simplistic calendar-and-budget approach misses the point. Will the project result in any value to the business? Did it satisfy the letter of the requirements without solving any real problems? Let's look at this a little deeper.

You don't want to pay too much, so you get competitive bids. But all consultant have a powerful incentive to bid too high: they need the wiggle room to manage the risk of scope creep, weak project management, and ambiguous success criteria. This is particularly endemic in CRM projects that have to satisfy right-brained types in Sales and Marketing. Look at it from the consultants' economic perspective: a fixed price project must be more profitable to compensate for the extra risk. Listen to Alan Weiss, the dean of high-profit consultancies: he insists that his followers always bid fixed price because that's the only way to make real money. Only fixed price lets vendors hide costs and margins.

Let's say you get lucky. Your consultant made a low fixed price bid. You win...except you don't. The consultants will be spending all their time during the project trying to figure out how to deliver as little as possible and develop some engineering change orders (ECOs) or other tricks to get you to pay more on their money-losing bid.

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