Why I believe in Fixed Fee Pricing
Posted by Glen Mund on Thu, Sep 15, 2011 @ 05:48 PM
I thought I would take this opportunity to discuss why I believe in Fixed Fee pricing vs Hourly billing. It is a very controversial topic as many clients and prospects I discuss fixed fee pricing with seem to feel as if its a scam. Plus Computers will one day soon be an organization that only offers Fixed Fee services. I hope the following explains my motivations.
1) I do not believe time has value. As that would indicate that the longer a project takes the higher the price should be. This would then mean that a poor consultant who takes longer to do their job should be of more value than a strong consultant who takes less time to do the same work. In fact it means that the strong consultant should charge less for the same work. Some would say that we should then have different rates for different consultants but some consultants are stronger at some types of projects than others. Some say that we should then charge different rates for different types of work. I do not feel right charging one rate for report writing and one rate for training as they both have value and every client would have a different perception of which is more valuable.
2) I believe results have value. I believe our clients want results. I believe they do not really care how long it takes to get the result but rather that they get a result that improves their business. If you had cancer and one doctor indicated they could remove 100% of the tumor with a non evasive high tech surgical technique that takes 3 hours and another indicated they could remove 100% of the tumor with a evasive technique that takes 12 hours. If they were charging by the hour the more risky surgery would cost more. If they were charging for results I expect the high tech doctor may charge more. I don't know about you but I would strongly consider paying a premium.
3) I believe clients do not like projects where they are uncertain of the cost prior to the job beginning. I believe clients enjoy cost certainty.
4) Almost every product and service in the world is based on a fixed price other than professional services. I do not believe professional services should be different.
5) I believe as an organization we sell knowledge not time. The value of knowledge is determined by the client or customer. Clients pay us to give them information and expertise they do not have. The level of expertise and information varies from client to client but the value of this expertise can rarely be correlated to a time measurement.
6) Since we have moved to Fixed Fee Telephone Support contracts and Updgrades our client satisfaction ratings for these services have gone through the roof. Our clients on Fixed Fee plans are more satisfied than clients on hourly billing plans with rare exception.
7) I believe charging by the hour is unethical.
8) I believe tracking time via timesheets is a complete waste of time and energy.
9) Hourly billing is based on a theory developed by Karl Marx around 150 years ago. It is old, antiquated, and it was developed by a communist, need I say more.
10) I believe so firmly in Fixed Fee pricing I am willing to offer a 100% guarantee on Fixed Fee engagements.
For more information on the benefits of Fixed Fee Pricing and why the billable hour should be buried please go to www.versage.com.