Instead, I’ll let you be the judge

Yesterday, I was forwarded a post from Dwayne Wright who could not be more wrong about project management and value pricing. Please read his post before continuing.

I posted wrote a comment, he rejected it saying, “Well, just rejected the first comment for a blog that wasn’t clearly SPAM. It came from a value billing advocate and was equally harsh, combative and lacking of substance.”

“Harsh, combative,” HELL yes. “Lacking in substance,” I’ll let you be the judge.

My comment:

I am probably the original source of the comment about billing by the hour as being unethical. (It is clearly suboptimal and I believe immoral as well, but that is a whole other story.)

First, let me be clear, I do not accuse anyone personally of being unethical; it is the practice that is unethical because it promotes some very bad habits.

  1. It puts the consultant and the customer is an adversarial role. It is in the consultant’s financial interest to maximize hours; in the customer’ interest to minimize hours.
  2. You state, “It also says this (hourly billing) is often used when a precise statement of work cannot be quickly prescribed. Does that sound familiar to you and your consulting business?” Yes, it sure does and that is just plain wrong. Prescription before diagnosis is malpractice in any profession.
  3. While the PMBOK (and PMI, in general) have some good things to say about project management, they are overly obsessed with costs. After all most of this stuff comes from government (think defense contractors and NASA). In business, customers do not care about your costs, nor should they. They care about the results. They pay for results not efforts. This again is a misalignment.
  4. You are arguing that the risks should be borne by both the customer and the consultant. That is just wrong. You are the one with the knowledge not the customer. It is your job to spread diversify your risks across all your customers not put it back on each of them. Your customers hire you because of risk. If what you did was easy, you would not be hired in the first place. To put it back on them is ludicrous.

Lastly, it is not “value billing” is it “value pricing” or better yet “pricing on purpose.” A price is set ahead of time a bill comes after the fact. You bill now, we at the VeraSage Institute, encourage you to set a price beforehand.

Ed Kless

Senior Fellow, VeraSage Institute

www.verasage.com

By the way, Dwayne Wright, you are free to post any comments here they will not be rejected. You can thank me later for giving you a larger audience then you ever thought possible.

9 thoughts on “Instead, I’ll let you be the judge

  1. What a way to run a blog. Don’t like a comment – just delete it.

    I haven’t seen anything like that in quite a few years.

    My only comment is an overall observation relating to your item # 2 and my experience is that hourly billing is often also offered when the engagement isn’t perceived as large enough to carry the overhead of drafting a formal document to describe the work (fill in fancy word of choice as to what this document would be called).

    My response to that issue has been to figure out a way to make the quoting process faster while still accurate. I’m hoping that using a standard set of Google Docs will allow me to quote from nearly anywhere with a set of pre-designed templates.

    In short I see growing (not lessening) interest in this area and believe within a short amount of time more firms will offer value pricing than not.

  2. Ed,

    And here I thought the biggest controversy, the most followed know down drag out would be Coakley v. Brown!!

    Boy, was I wrong! 😉

    Joking aside, as someone who reads a lot of blogs, usually it is within the comments that the best nuggets reside *because* blogger and commenter disagree…the discussion develops, more theory/practice shared, and the reader benefits.

  3. Thanks, Wayne and Dawn. I mean, I didn’t even cuss!

    With respect to your comment Wayne about small engagements, there are a few paths to take.

    1) Establish a minimum price for any and all “small jobs.” If they are small and developing a scope of work is considered onerous than this minimum price would kick in. If the provider is worried about overages than I submit you really do not have a “small job.”

    2) Move off the solution with the customer who is asking for the small job. Example, “Thanks for calling we do Crystal Reports (or other small job) like this all the time. However, we have found that often times a customer does not need a new report because they can get this information in some other way from the system, Would it be OK for me to ask you a few question as to what the business reason is for have this?”

    3) Say, “Sure, we can do that. What is my budget?” Note, not “What is your budget?” I can answer that, it is zero!

  4. I changed to Value Based Billing ( I personally call it “Flat Rate Pricing” ) about a year ago after reading some articles by Jonathan Stark. It took some time to get it worked out. Like learning any new system but I am really starting to see the benefits now and I’m already on track to have my best year ever in database programming.

  5. Patrick, thanks for your comment. Yes, when talking about this with a customer is would be referred to as a “fixed price.” The phrase “flat rate” usually refers to a single hourly rate that is charged on a project regardless of who the individual is or the function they are performing.

    A new term was recently proposed by attorney Jay Sheppard on his blog. He calls is an “open price.” –> http://www.clientrevolution.com/2009/11/an-alternative-to-alternative-billing.html I like it, but it takes some getting used to.

  6. Ed, Wayne, Dawn, Mark and all,
    Gee, this concept is so basic that even plumbers in the local Southern California area have gone to fixed price billing. I hear a local commercial on the radio almost daily that says “We unclog any drain for $99.” And customers are flocking to them because they know how much the service will be, regardless of how long it takes to perform the task. Not that I am comparing the services that our talented partners provide to customers with plumbers; I’m just saying that these folks get the value of value pricing. Not long ago I was at a partner’s customer conference where the President of the firm addressed his audience and discussed how they had adopted this pricing strategy with their customers a year earlier. He presented figures that showed that his customers used his company’s services for about 25% more time than in the previous year and that their customer satisfaction scores were an even higher percentage than that. And, he told the audience, the majority of customers ended up spending less money with him, but that his firm was more solvent. His consulting staff was busier than ever, customers were getting better service than before and taking advantage of it more often, and his firm made more money than before. Everyone wins! It’s easy to see why you are a devotee of this – quite simply put, it works.

  7. @Erika – Thanks for your comment. I have many similar stories to the one you mentioned.

    What is funny is the number of objections I get to this idea under the banner of, “How do others do it?” You mentioned the plumber, but when you think about it it is really beyond that. Try to name anything, other than professional services, where you are not given a fixed price. There are a few, but it is not the norm. We are the anomaly.

  8. Pingback:Thanks for the Mention

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