April 10, 2020

Tack on a zero and try again

One of the classic objections to value pricing for project work is that the seller will get killed by scope creep if they provide a fixed price. Here’s a recent example I came across online (edited lightly for spelling and clarity):

I have to take issue with abolishing hourly rates. Ive been doing this for 30 years and a flat rate = the client WILL take advantage of the situation. When they have to pay by the hour, they have second thoughts about wasting money and time. I have done it both ways. with a flat rate you will get screwed. The job I’m doing right now is a prime example of had I not charged hourly I would have lost thousands of dollars with a firm bid.

There are so many depressing assumptions baked into this poor fellow’s worldview. The fact that he’s been locked in combative relationships with his clients for 30 years is tragic to me.

There is a lot going on in this guy’s comments. We could have discussions about:

But the bottom line is this:

When he set his fixed prices, they were way too low.

I don’t know for sure, but I betcha if he had tacked a zero onto the end of his fixed prices, he wouldn’t have felt like he had “gotten screwed” by his fixed priced engagements.

He might argue that the client would not have accepted a price that was 10x higher, but that’s a different problem. It’s a positioning problem, it’s a sales problem, it’s a value problem. It’s not a fixed price problem.

There is no inherent problem with fixed prices. But there IS an epidemic problem of people setting fixed prices way too low. And one great way to set fixed prices appropriately for project work, is to use value pricing. It’s not the only way, but it’s a good one.