Alok’s post on the Formula of Success inspired me to pen-down a Formula that I have been following myself for a couple of years now, on how to estimate if a Services Quotation is Fair or Inflated.. I hope it comes handy to my fellow Rodinhooders too..
An Entrepreneur is often faced with a situation where he / she has to avail the services of an External Agency to execute a certain part of the Project.. And more often than not, an Entrepreneur is also faced with the dilemma of deciding if a Quotation that they have been offered is actually Fair or should it be further negotiated or should they find some other Vendor and will that impact the quality of Service and so on..
I have devised a formula that gives a rough idea on whether the quote is Fair enough.. The formula is,
Q = (MH x CH) x (PM x CL)
Q = Quotation
MH = Man Hours required to execute the Job (part of a Service Contract)
CH = Cost per Hour (one can research this on Elance.com for the Task concerned)
PM = Profit Margin
CL = Clients
Profit Margin Factor
– 1.25 for Companies who have been in business for 1 to 3 years.
– 1.75 for Companies who have been in business for 4 to 6 years.
– 2.50 for Companies who have been in business for 7 to 9 years.
– 3.50 for Companies who have been in business for 10 & above years.
Clients Factor
– 0.70 for relatively Unknown Clients like ABCD & Company, XYZ Corporation etc..
– 0.90 for relatively Known Clients like Meru Cabs, Zomato, Burrp etc..
– 1.10 for Large Clients like Flipkart, MakeMyTrip, Games2Win etc..
– 1.30 for Giant Clients like Pepsi, Infosys, Tata etc..
(You can use the names of Client companies that apply to your Sector)
To explain it, lets take the example of Software Development.. Suppose you want to get a website designed by a Web Development Company and following is the Data available,
MH = 200 hours
CH = $15 per hour
PM = 1.75 (supposing the Company has been in business for 4 to 6 years)
CL = 1.10 (supposing they have provided their services to Games2Win)
Hence,
Q = (200 x $15) x (1.75 x 1.10) == ($3000 x 1.925)
Q = $5775 or INR 3,21,263
On the contrary, if we change the PM to 2.50 (for a 7 to 9 year old company) and the CL to 1.30 (having serviced Giant Clients), the equation would become as follows,
Q = (200 x $15) x (2.50 x 1.30) == ($3000 x 3.25)
Q = $9750 or INR 5,42,295 for the same Task..
I would love to hear any Comments / Inputs that anybody would have on the same..