Updated: Jun 29
One of the most important determinants to consider when sourcing spreadsheet & VBA development projects is the pricing. An hourly rate of an Excel Expert might seem like a very tangible indication of the cost, but is that the only good way of keeping cost under control? The famous project management triangle model states you can only choose to optimise two of the following three: cost, time, quality, but... What cooperation model would let you balance cost, risk & quality of spreadsheet services you are purchasing?
Who provides Excel Consulting services?
The supply side for Excel & VBA consulting is very fragmented. The vast majority of the spreadsheet experts work independently, full time and relatively often on a contractual basis. They frequently find their projects via agencies or just job boards.
Blogging & Video Experts
Some others provide spreadsheet development services to create an additional stream of income on top of providing tips & tricks for Excel users. They call themselves Excel Experts, Gurus, Consultants and so on. You can read here a bit more about how to make sense of all those job titles.
On the other hand, you have a handful of companies bringing together a few, maybe a dozen skilled Excel professionals to combine their power for advertising & customer services.
Many consultancies employing skilled Excel specialists that work on spreadsheet automation & repair client's workbooks don't call themselves Excel Consultancies. They rather refer to the area in which the majority of their customers function, such as financial modelling or data analytics consulting for the logistics industry. That's even despite the fact that 50-90% of their work is done in spreadsheets.
What does mean for the pricing?
That means that for a vast majority of service suppliers there are intermediaries - recruitment agencies or companies adding their margin on top of independent consultant's fee. The easiest and safest way of pricing the services for the intermediary is by agreeing on an hourly rate. That's why so many VBA developers and other types of programmers charge an hourly or daily rate. What's the problem with that?
Hourly & day rate of Excel & VBA Developers
Well, simply put - we receive what we pay for. If you pay per hour, you create an incentive to get billed for as many hours as you are willing to accept. It is more than fine when you as a client have a reasonable influence and control over the work that's delivered.
That, however, requires having a person with sufficient technical knowledge of VBA or programming in-house. Delegating them part-time to oversee the project assures the right level of control and lowers the asymmetry of information. Otherwise, you might lose control over the timing and volume of hours billed.
In the UK, the matter is also a bit more complicated because of the IR35 changes adding additional constraints to B2B cooperation. In a nutshell, from April 2021, a vast majority of single-consultant Ltd. companies in the UK will only be allowed to provide services inside the IR35 framework, being included on payroll and paying taxes equal to full-time employees. A higher tax burden creates pressure for charging higher rates or seeking full-time employment by such consultants.
Charging hourly rate is comfortable when there is no significant asymmetry of technical knowledge and no rigid timeframes to deliver the project. Alternatively, when a company requires ongoing help that can't be provided with tailored Excel or VBA training.
In the light of tax changes and the popularity of stand-alone Excel Experts, that means however higher cost of hiring Spreadsheet Developers and in many cases almost equates it with hiring a full-time or project-based employee in terms of the procurement process.
Charging per spreadsheet project
An alternative pricing approach is charging for a successful project or technical solution, for instance, an Excel-based reporting tool or a financial model with ETL functionality provided with VBA macros. In such a case, the price tag is put on the desired output of the cooperation described with a set of deliverables and appropriate SLA (service level agreement).
That requires a bit more effort and initiative of both sides but is the most comfortable pricing method for the buyer of services. It allows to lock in the price of the end product and creates the right set of incentives for the developer.
The company buying services is able to budget for it in advance and avoid costs spiralling out of control because the technical risk is on the developer's side. The consultant assumes the duty of timely delivery of the project and has the incentive to be efficient because there is no incentive to spend more time than necessary on the project.
This type of pricing requires, however, a bit more detailed outline of the scope of service and preferably additional initiative of the developer or consultancy to provide a detailed quotation and service specification.
This solution also empowers the party that purchases the services and enables to see the approach of different consultants. Some might take utmost care to deliver a personalised quotation and suggestions bout the project, while others would just mention an hourly or daily rate (which could range from 6 to 9 hours!).
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Other pricing models for Excel & VBA services
There are other pricing methods for more sophisticated projects that combine the spreadsheet development with other services (e.g. maintenance, administration of help desk, etc.) or attempt to measure the impact on the business.
Value-added sharing/ROI-based valuation
In some cases of IT projects that drive efficiency or reduce cost, a consulting agency might be keen on deriving their fees from the impact their project would have on the client company. It makes great economic sense as both parties have their share in the financial outcomes of the project.
On the other hand, it is not always easy to estimate an ROI or the cost reduction value that would be realistic for both parties. Sometimes it might also require revealing too much information about the operations and working patterns of the company procuring the service.
Let's take a case of spreadsheet automation with the use of macros. The majority of VBA automation projects result in significant workload reduction and prevention of the errors resulting from manual data handling. Defining exact time savings is not always that clear, especially if the process being optimised has just been created.
Also, the expected cost of a certain error might be very difficult to estimate. Sending a report with data discrepancy could often mean several extra minutes or hours to fix it, but sometimes could be a tipping point and the reason for losing an esteemed client spending millions with us.
If assessing the project impact over a reasonable timeframe is possible, an arrangement such as 20% of cost reduction value might be feasible and even support choosing the right degree of automation and scope of services.
Maintenance & troubleshooting
Sometimes the challenges that Excel systems solve are expected to change over time. A spreadsheet tool for creating a consulting presentation might require periodical maintenance to facilitate new types of decks necessary. If the user base is wide and variates significantly, there might be a need to assure technical compatibility or modify the system to facilitate not anticipated cases of use.
If the spreadsheet solution bought is rather a customisation of a very complex system of macros, very elaborate model or even an entire built-in Excel tab, the client might not be paying for its development, but rather licensing or set up.
This solution is only feasible if the buying party doesn't need to have control over the mechanics of the system, but rather deploy it as just a user. A general version of such a system must also exist on the sell-side and there has to be a possibility to adjust it for that specific case.
Combining different pricing methods could be a solution to balance the risk-taking and to avoid the asymmetry of information. It is especially the case when the developer is able to estimate the cost of the tool creation, but not its maintenance.
Then, a quotation made of a fixed price for the development of a solution with certain functionality parameters could be combined with a warranty (i.e. 3 days right after implementation for submitting repair claims to be considered under the SLA). In other cases, a set number of maintenance or ticket processing hours could be included in the pricing offer.
That way, the project sponsor encourages employees to learn how to use and own the tool, while the developer prevents the errors to meet SLAs and limit the number of changes required after the testing phase.
An appropriate structure of pricing allows to easily budget for the spreadsheet development project and compare it with other improvement projects using metrics such as payback period and ROI. It also allows to distribute the risk between the parties, limit the information asymmetry and provide the right incentives.
The pricing approach and quotation process also reveal the approach of the consultancy or stand-alone developer and whether they think about the long term use of their systems or just use "develop and dump" approach.
This article is an augmentation of our complete guide to improving Excel & VBA systems with help of the right consultants. When it comes to pricing, Senacea assumes the burden of technical risk and most of the times we offer you a fixed price. We want your company to gain full ownership of the systems and tools we develop and thus we test, implement and document them, focusing on bringing you tangible process improvement, not just Excel files.
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