Monday, February 23, 2009

Anatomy of a proposal...Costs and budgets

It’s important to clearly display your project costings to allow the buyer to make a clear analysis of what is included, what it's going to cost and that the financial benefits are. This is a detailed breakdown of the costs - you should include high-level financials in the Executive Summary, including a mention of the return on investment or financial benefits.

Break down your pricing down where you can. This gives the appearance of value to the buyer – there are more items in your list (making it look like they are getting more) and because your items are broken down the cost of these items are smaller.

Additionally, breaking down pricing allows you to again demonstrate the value in your solution by including discrete value added components. These may be listed as options, allowing buyers a “pick and mix” approach to selecting the extras that you are able to provide.

Use the smallest sensible unit for your item costs e.g. 1 month’s support @ £500 rather than 1 year’s support @ £6,000. Dependant on what it is your are selling, the unit may vary. If you sell widgets, you will be putting in a price per unit, quantities and discounts etc. whereas a professional services organisation may charge per project element. Consultancy work may just require a daily, or even hourly rate listed.

Return on investment

If you know the client's business model well enough, then include financial modelling to show the specific financial value that your solution brings. Read more in our article Give the client a return on investment.

Invoicing schedule

Your buyer wants to be able to plan costs for the duration of the project and you want to plan when you need to have money coming in to finance the project.

Think about which parts of the project require most effort and make sure these have an appropriate value associated with them. Don’t be scared of front-loading the project values or requiring a project initiation payment – you may need money up front to finance some later project activities.

If the client isn’t happy with your breakdown this will usually be negotiated at the contract stage, especially if the client needs the project outlay to timed with income.

Budget assumptions

Budget assumptions are there to remove ambiguity. For example, do your costs include taxes? Travel and expenses? How long are you prepared to keep your offer open for? Basically anything that the client is going to pay for that isn't listed in your principal table of costs.

Estimated expenses

Even if your costs include expenses provide a breakdown of what those expenses are. This demonstrates your transparency in all your activities on behalf of the client and ensures no surprises to be argued about at a later date.


Always start calculating your project costs early...don't wait until the end of your proposal and you only have a day left to figure out what you are going to charge. Estimating and presenting your costs is an integral part of every partof the proposal development so make sure that any changes are reviewed and signed off by management and/or your financial department at every stage.