In my first years as founder/CEO of a contract research organization, I tried to figure out the best way to price what we could do. My lab manager and I took a detailed look at several projects, tracking hours and materials, and developed a spreadsheet for calculating our costs based on scope. We added what we thought was an appropriate profit margin and used that model for the next couple of dozen projects.
What we found was that 1) we were not good at estimating the time requirement for projects ahead of time; 2) our staff was not good at tracking their time with multiple projects going on at the same time; and 3) our clients were often willing to accept our pricing no matter what we asked.
I started to ask prospective customers more questions: "What will happen if you don't get results on time? What will these results allow you to do? If we tried this extra experiment would that give you more to work with?" By doing this I learned to develop proposals and contracts on the value realized by our clients.
There are two very important reasons you should learn to do this:
1. If you connect with your client by understanding their need, you've made a much deeper connection than one based only on your offering. They will come back because you "get" them, not because of your capabilities or price. Knowing exactly where they measure value gives your product or service greater impact.
2. If you don't take low value projects, and you focus your work has the most impact; your clients will advocate to use your company more often. They will be fans and champions for you both internally and externally.
Recently I got a great recommendation from a top scientist I worked with a few years ago, Dr. Mark Hayward [formerly with Lundbeck Pharma]. What Mark said reminded me of and learning this lesson.