Dennis Howlett, who blogs at AccMan, recently sent me this Value Pricing success story. Once again, this proves that focusing on value is far more important than focusing on costs. This is also exactly why timesheet are not necessary. Does Dennis need a timesheet to know whether or not this job is profitable?
I thought you’d like to know. I just completed a section of an ongoing ‘open’ consulting gig where the client doubled my expected fee for the latest part. It was odd. I had to react very quickly to events and there was no real time to stop and sort out a change order. It was all done on the fly.
When we got done I called the client and said: “So what do you think that was worth seeing as we didn’t have time to sort anything out?” Client says: “I don’t really know.” (Hint: Client is a lousy negotiator.) I then suggested a figure knowing I had no real clue about time spent. client says: “Oh no, it’s worth much more than that, tell you what, let’s double it.”
There’s 2 PS’s to that: 1) We’re on to the next phase now where we’ll be talking serious money. 2) I wrote up my idea of an ideal client out of that experience which David Maister picked up on.
Value pricing works—but it helps to have the right client!!
And here’s a follow-up to the story from Dennis:
So here’s the kicker for the next stage of the project. We know there will be a huge commitment, it will be complex and there will be significant risks. We’ve found a way of underwriting the entire project so that the client has zero financial risk. We will partner with 3rd party sponsors who are invested in the project’s success for “their” long term benefit. We can do this because the project’s outcome provides a natural environment for 3rd parties to take an interest. (Sorry if I’m being vague but the details are under wraps.)
In other words, we’re recognising that this project (and it won’t apply to all) impacts the client’s wider business partner ecosystem on completion. We’re saying in effect, look beyond the immediate outcomes to accelerate monetization. So why not engage with those folk now as a way to ensure that everyone is a winner?
That creates some interesting issues around project management but we believe that because we have extended the ‘interest’ in the project, everyone will be incentivized to make it happen.
As consultants on the project, we are effectively creating a ‘business within a business’ for the project so that no-one gets hurt and everyone gets fairly rewarded for their efforts.
We think that’s a recipe for success and if my memory serves me correctly, it plays back to things you’ve said in the past.
This example proves that professional knowledge firms sell and leverage intellectual capital. Why in the world do we keep a timesheet, which is a completely different yardstick? It’s like plunging a ruler into your oven to determine its temperature.
Thanks for sharing Dennis!