In response to a question posed by one of the participants at a recent Project Management Boot Camp I conducted, Organizational Provocateur, Tom “Bald Dog” Varjan of Dynamic Innovations Squad wrote what I think is a great response.
First here is the original question:
Have pitched one of our first value billing non-hour engagements. We have done a very detailed scope document and the customer is looking for a time and cost break down for each task. Suggestions on dealing with this one.
And now Tom’s terrific response:
I understand that you may have never faced this situation of paying for value. The reason we’re doing pricing this way is that by focusing on hours and costs, we are forced to shift our sights off the results.
We pride ourselves on managing our projects with the precision of brain surgery. In any project there can be only so many variables to focus on. We’ve chosen this pricing model because we are on the same side of the table as you and want to focus on the results you’re seeking.
People don’t go to brain surgery for five hours of fiddling with their gray matter. They want to get healthy.
Similarly, no one wakes up in the morning saying, “Let’s hire an IT firm for 10 hours of server tweaking.” They have specific problems.
Unfortunately, we believe the hourly pricing model you’re requesting is unethical to clients. Basically, the longer I can prolong your problems, the more you’ll pay me. We’re proud to operate as trusted advisors to our clients who seek us out for care, protection and guidance on their IT issues.
There is a key distinction. Professionals who set value-based fees focus on the outcome of the project, that is, the improvement in the client’s condition. Professionals who set time-based fees focus merely on selling more hours, which may or may not contribute to the end result. Value-based fees are client and outcome-centered, hourly fees are self-centered.
I know this approach may be new to you, and sadly ignored by our industry, but from the ethical standpoint, this is the only way we can sing the same song.
With hourly pricing you and your IT firm not only struggling to sing the same, they are not even on the same page of the song sheet.
In your lifetime, you’ll meet many people who try to sell you “time” and expect you to pay them, but you’ll find only a handful of people who can help you to achieve specific business objectives.
At the end of the day, clients buy results not time chunks. Working on a value-pricing basis is an investment. Working on a per hour basis is just another cost.
Hope it helps a bit.
As they say on the Guinness commercial — Brilliant!