Tech Startup Growth

Why you should charge at least £100k for a proof of concept

11th March 2021

James Brayshaw, Winshaw

10-second snapshot:

This article explores the three key reasons why you should charge a proper market rate for pilot projects. And a couple of tips on how to win the deal.

Why you should charge at least £100k for a proof of concept

Launching a new product is not easy. From the initial idea through to the market research, product development, testing, pricing and launch, building something new consumes a huge amount of time and money. Whether you are starting your own business, or taking a new product to market, at some point you'll need to validate what you're creating. At Winshaw, we often find that that journey involves a pilot project. We also tend to find that those pilot projects are delivered for free, but at great expense to the person or company providing the service. Here's why we think that should change:

1. The time, cost and energy that you have put into building a product

Having spotted a problem that needs fixing, you're naturally keen to have a crack at building a solution. You may have experienced the problem first hand, or witnessed an inefficiency in a particular process. So you start mapping out a plan to understand that problem, validating whether anyone else is experiencing the same issue. You may even start building a prototype, a website, perhaps even an outline go-to-market strategy and brand. You could be doing this in your own time or during working hours. By the time you pitch this to someone, you're probably already way down the road to seeing how this might work out in the wild. At some point along this journey, you want to test your idea or technology in a live environment. Now the temptation is to offer this for free. Lack of confidence, imposter syndrome, fear of what may not work. These are all reasons we default to a zero fee model, thinking that we're somehow asking for a favour. Now imagine if you were employed by your fnext client to explore possible ways of fixing a similar problem they noticed first. Imagine if you were paid for your experience, your advice, and for all of the hours you have already put in to solving that problem. Now add the time you are likely to spend tailoring your product to that situation. For a finger in the air calculation on input costs, 1000 hours (about six months in elapsed time), at £100 per hour (initially at risk) gives you the magic £100k figure. Voila!

2. Testing out ideas and proving whether there is an ROI has massive value

So obviously you think it's all about your tech. But often, the tech is the easy bit. You will be able to present a much more coherent value proposition if you understand different cohorts, customer journeys, pain points, user experiences, internal culture and most importantly, the underlying business case for change. You can then define the scope of the pilot to test various hypotheses as well as addressing the likely barriers to deploying your technology at scale. A proof of concept project is not meant to be about getting it right first time. It's about testing new operating procedures, trialling new technology, and taking some risks. For a Head of Innovation or Strategy Director, spending £100k to prove something does or doesn't work is a much better use of capital than a gung-ho all in approach, only finding out if it's a dud once it's too late. The logical argument should be test, test, test before you scale. And it's worth noting that the price of failure can be phenomenal, both organisationally and personally. In the end, it's all about return on investment and you should 100% be recompensed for proving whether there is financial upside to proceed, regardless of whether you go on to land any future business.

3. You have a mortgage to pay / you are not a charity / pay peanuts, get monkeys

Pick your own metaphor but you get the point! Charging for your work is hardly revolutionary but you'd be amazed at how much stuff gets done for nothing. Attaching a realistic number to your proposals should not be something to shy away from. You really shouldn't need to justify, so you're better shifting attention to the possible upside; maybe ask what would happen if this actually worked? You are better to win one deal at £100k than four at £0 (unless you are mega funded of course in which case you're probably not reading this!)

N.B. How do I land a paid proof of concept project?

So you may already agree with much of what is outlined above, but how does that actually help landing a paid gig? Why not check out our checklist below which outlines five top tips for getting paid properly for your next pilot project:

  1. Productise your proof of concept, including a formal contracting, onboarding and payment schedule in your standard pitch deck.
  2. Showcase the value from other pilot projects (alongside the broader business case for full scale deployment).
  3. Map out the journey from pilot to full scale deployment, demonstrating that you understand key milestones and procurement processes.
  4. Get started with the heavy lifting around supplier setup and IT risk management questionnaires as soon as possible.
  5. Increase your deal flow by setting up more meetings, calls and demos. And stand firm behind your pricing strategy.

Get The Winshaw Idea Validation™ Playbook

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