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What’s A Service Worth
There’s an interesting blog series at Brad Farris’ blog about different pricing strategies for service providers. There is probably no other topic that lights a fire or starts a debate amongst service providers than the questions about charging by the hour, retainers or hybrids.
This is a question of increasing importance as more and more “product” providers are “moving up the value chain” by providing services.
Here’s my thought – I think it’s the wrong question. The question is steeped in industrial age thinking, and by looking at it that way, you’re forced to choose the least bad approach.
The winners of tomorrow will be the businesses that gain access to the best capabilities. Going forward, the lines between employees, consultants, outside providers, outsourcing, and insourcing will continue to blur, until for all practical purposes, they no longer exist.
It’s interesting, the very same service providers who lament over how they should charge for their services, don’t seem to struggle with the question when they hire executive talent (ie executive capabilities). They typically pay the executive a salary commensurate with the executive’s abilities and some form of rewards/incentive program for delivering results. In enlightened companies, this approach seems to make everyone happy.
The service providers that gain disproportionate rewards in the future will be the ones that position their services as capabilities and charge accordingly.
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3 Responses to “What’s A Service Worth”
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Doug's Washington Business Journal Columns- Intelligent Growth Articles
Third Wave Selling Blog
Products to Grow
Doug,
I could not agree with you more! Thank you, for your thoughts and insight!
Justin Brackett
Doug;
You are right on. I think its a failure in courage to ask that may firms are still stuck in the wage slave – hourly billing model. We need to break out of that as service providers and as buyers of services. Though I got there on a different road your suggestion is exactly where I’m headed. Charge a fixed fee, plus a meaningful incentive.
Why don’t more firms do that? They are afraid to ask.
Brad
Thanks Justin – always great to hear from you.
Brad, afraid to ask is only one part of the puzzle. In my experience, the bigger barrier is the mindset of viewing your firm not as a services provider, but a capabilities provider. This requires the firm to more clearly communicate their brand promise and to sell results, rather than merely provide “solutions.” Thanks for stimulating the thoughts.