Should I Quote Based On Parametric Pricing?

Gents,

I know most of you here are well experienced in the world of surveillance and access control, but I'd like to know what you guys think about issuing quotes based on "parametric pricing".

An example would be:

10 Cameras; Labor, Installation Materials* per Camera: $300

Total 10 cameras installed would be $3,000.

*Inclusive of all materials such as wirings CAT6, pipings EMT/PVC, configuration, documentation, etc...

Is this considered a professional thing to do or more of a trunk slammer kind of business?


Good question. Unit estimates like this (i.e., X dollars per camera) are useful for ballpark / rough order of magnitude / budget estimates.

For an actual quote, there are 2 problems:

  • You're too high and a competitor who has studied the site details and spent a little while calculating this out can underbid you and still profit.
  • You're too low, so you win the job but lose money on it.

If you are going to use this for quotes, I'd recommend keeping it to simple ones where there are few unknowns.

I've never heard it called 'parametric pricing' before, but it sounds good!

Estimates like this are inevitable in the course of business. Detailed quotes / scopes of work are obviously more comfortable for all parties, but I think you'd have a hard time finding any installer or integrator that hasn't 'shot from the hip' an estimate at least once or twice.

Some types of jobs are less risky for doing 'parametric pricing', and it takes some experience to know when you should just keep your mouth quiet than quote a flat number that could be way off.

For example: an indoor only (drop ceiling) standalone system, using minidomes is much easier to generalize cost than an outdoor install with many different FoVs, camera types, and potential infrastructure expansion.

John and Brian - I wholeheartedly agree with you guys and sounds like we'd have to basically be at the management level or at least very experienced in the industry to be able to give numbers like these away.

I personally think it adds an extra step - quick and easy - but at the end of the day, we'll still have to get pre-sales in and do a survey and do a proper estimate. Some clients may also be shied away if it's a small site (such as a small/medium sized office) as the "parametric pricing" basically has to cater for a medium-large sized office (you win some, you lose some style of pricing).

If I was the end-user and a supplier did this to me, I would think that the supplier is just lazy or doesn't have the resources to expend to properly scope out my requirements. But that's just me...

"We'd have to basically be at the management level or at least very experienced in the industry to be able to give numbers like these away."

Related to this, a story when I was an integrator. I did an exercise where I asked our sales people, PMs and techs to quote a small sample task (something like 1 indoor camera, etc.). The range of responses were a little frightening - from 30 minutes to 10 hours, though our sales / sales engineers were (thankfully) the most accurate. So, yes, whenever doing such estimates, make sure you have someone experienced not only at doing things but tracking costs of prior jobs.

In the construction business in the United States, these are often called "unit prices". You see them listed on bid forms, typically after the lump-sum bid amounts for the overall project.

On a well-specified project, there will normally be some descriptive language that further defines what is being provided for the unit price. ("Unit Price for Fixed-Position Dome Camera: 1080P, Acme Model 123; assume 100' of cabling; installation on T-bar ceiling..., etc.")

On a large security/surveillance project, we might request unit prices on ten to twenty work items that would commonly be added to or deleted from a project during the construction phase. These unit prices typically serve as the starting point for negotiating change orders. The prices are not necessarily cast in stone; the contractor can always explain why the work item being requested should cost more than the unit price, and if the reasons are valid, the higher price will normally be accepted by the owner.

When evaluating proposals from several bidders, we look closely at the unit prices as a part of the evaluation process. Most of the time, the range of unit prices is fairly close between bidders. If we see unit prices that are wildly high or wildly low, it can be cause for concern.

Is this considered a professional thing to do or more of a trunk slammer kind of business?

'slammer. There's a whole section on it in the classic reference "Tools of the Trunk" Chapter #2 - Eyeballing and Guesstimation:

Consider rating your quotes like poker hands. The less detail the higher the hand. For instance quoting only the total number of cameras at a single price point with no other info*, is akin to a straight flush, beatable by only the Royal, "1 Surveillence System $3000". This also helps develop your trade lingo, useful when discussing options in front the customer or even socially with others in the guild.

*Except for Sales Tax of course, see chp 15 "You can't Sell Bricks from a Brick Cell."

But seriously, this low-info technique can be used to great advantage since it:

a) cuts down on unbillable and uninteresting hours spent (spec'ing something that you already have decided what you're making regardless of what they're paying)

b) allows you more freedom in using sliding scale substitution of parts when your quote is 'called'.

The biggest challenge lies in getting good at the estimation aspect. Of course the estimation I'm referring is not the for the typical 3C's, (components, connections or capacity), (although chp 6 "How to quickly judge distances using multiples of car lengths and football fields", is a must.), but rather for the more important 4th C, the Customer and for estimating what is the minimum level of detail needed, for him to sign on the line which is dotted. Remember the quote is the physical manifestation of your relationship to the customer, expressed thru line items descriptions and dollar amounts. So correctly anticipating what they expect to see in your relationship is probably the single biggest determinant of success around.

Addressing John's problems

You're too high and a competitor who has studied the site details and spent a little while calculating this out can underbid you and still profit.

This can happen, and sometimes you don't even know. Other times you do, and when you do you can use your ambiguity in your favor, by revealing your 'wild card' line items, e.g. "That's because CutRateCamera is probably planning on Wodsee, I'm quoting you Axis, go ask them"

You're too low, so you win the job but lose money on it.

This can happen to those who low-bid a fully spec'd job, but should not happen to you, again because of your wild cards. You can splurge a little and 'give it the once-over' now that the job is yours. Then you simply choose the quality of product necessary to ensure your profit level is acceptable, all without any visible deviation noticed by the Customer.

"You can splurge a little and 'give it the once-over' now that the job is yours. Then you simply choose the quality of product necessary to ensure your profit level is acceptable, all without any visible deviation noticed by the Customer."

Wow, that truly is a trunk slammer special...

Related: Should Quotes Include Line Item Price Breakdowns?