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Value-Based Billing

Page history last edited by Kirk Bowman 11 years, 4 months ago

Host: Kirk Bowman, MightyData

Room: Navarre's Suite

Day: Thursday

Time: 1pm

 

Title changed to: Value Pricing

 

At DevCon 2009 I participated in a business panel discussion as an advocate for hourly billing. Since then I researched value pricing and found it to be superior in several ways. Would you like happier clients? More profitable projects? Less administrative burden? I'll explain why I have adopted this model for my company and what the advantages are. Also, I'll address the different challenges implementing value billing for a sole proprietor vs. a company. I'll show how I have adapted it to our company including an overview of the sales and proposal process. One thing I have learned and am anxious to discuss with the group, is whether you use value based billing or not, thinking about it will improve how you do business.

Comments (13)

Kirk Bowman said

at 12:21 am on Feb 19, 2010

Bob Patin said

at 5:38 pm on Jan 24, 2010

Here are some books that were mentioned, along with Amazon links:

Value-Based Fees: How to Charge and Get What You're Worth - Alan Weiss - Amazon: http://www.amazon.com/Value-Based-Fees-Chargeand-Ultimate-Consultant/dp/0787955116/ref=sr_1_2?ie=UTF8&s=books&qid=1264368972&sr=1-2

Pricing On Purpose - Ron Baker - Amazon: http://www.amazon.com/Ronald-J.-Baker/e/B001H6QE7E/ref=sr_ntt_srch_lnk_1?_encoding=UTF8&qid=1264368842&sr=8-1

The Answer is Yes: Acting on What Matters - Peter Block - Amazon: http://www.amazon.com/gp/product/1576752712/ref=oss_T15_product

Bob Patin said

at 5:33 pm on Jan 24, 2010

Jonathan, I'm sorry you couldn't be at the value pricing sessions; they were both excellent and you were certainly there in spirit and mentioned [favorably!] several times. I've been giving this a lot of thought these past few months, and have committed to Kirk that I'm going to use value pricing on my next project--speaking to the client tomorrow morning.

IMO, one of the biggest points that was made yesterday was Colleen's point that (and Colleen, forgive me if I paraphrase you incorrectly), "If you consider yourself a programmer and not a consultant, you're making a big mistake." More and more, I see the wisdom in this and am going to embrace this going forward; as a result, this also reinforces the logic of taking a value-pricing approach rather than an hourly one.

I'm hopeful that the dialogue on this particular topic will continue, as I think it's extremely important for FileMaker developers.

Jesse Barnum said

at 3:01 pm on Jan 24, 2010

Oreste, there were three mentioned - the one I remember was calling 'pricing on purpose'. Don't remember the author.

Oreste Schiavone said

at 4:49 pm on Jan 23, 2010

Hi, What are the books that were mentioned? I want to kindle them

Jonathan Stark said

at 11:24 am on Jan 23, 2010

Hi Bob (and everyone) -

I believe that my exact Tweet was "Hourly billing is unethical". It was an inflammatory statement that did exactly what I'd hoped, which was to get people talking about this issue. Unfortunately, it also alienated some people and obscured the message.

As I'm sure you recall from our exchange on Twitter, I agreed that it would be wise to tone down the shock rhetoric, which I've done. Furthermore, I've blogged at length about my specific thoughts on the topic, and the details of my approach. If anyone is interested, please visit:

http://jonathanstark.com/blog/tag/value-pricing/

Cheers,
j

Kirk Bowman said

at 12:11 am on Jan 19, 2010

Value pricing is a shift from what this will cost the developer (hours) to what ROI this will generate for the customer (value). By starting with a conversation of "why do this" rather than "how to do this", you change the basis for the definition of scope, not eliminate it.

Colleen Hammersley said

at 1:23 pm on Jan 18, 2010

Corn - If you're unable to attend Kirk's session, please consider joining the 'part 2' discussion on Friday afternoon where I'd like to focus the discussion on the concept of Value-- from both sides of the equation.

I would agree that the 'value based billing' approach forces the client to think deeper about what they want the subsequent impact.... I agree with your T&M billing comments & would further state that in the T&M billing model it's in the developer's best interest to understand as little as possible about the client's business (and what may or may not provide value, in the developer's opinion, to the client). Based on that premise I assert that the developer very quickly hits a 'cap on earnings' (rate * hrs) ... for the developer who is interested in breaking this ceiling the 'value based billing' approach provides business model in which 'developer' earnings can be vastly increased, and the rate * hours approach instead becomes the floor.

Regarding your 'build a CRM system' comment ;-) ... we'll be discussing the issue of 'project definition' and 'scope' as well. I do not believe a developer would agree to 'build a CRM system' for a given value any more than a builder would agree to 'build you a house' for a given value without first engaging the client in a lengthy conversation regarding expectations.

Value based billing is less a billing methodology and more a business philosophy which enables developers/development companies to more fully and appropriately define and market their range of skills and expertise. If you have skills or expertise beyond a technical proficiency with a product this approach will enable you to leverage these in the marketplace.

corn walker said

at 10:22 pm on Jan 17, 2010

This is an interesting topic and one I hope to be able to attend.
The question about scope is a little scary, to be certain, but not one I think the developer need shy away from. In essence, you must be able to describe what work you intend to perform. The developer who agrees to "build a CRM system" is either going to have a very dissatisfied client or a billable rate of $2.38/hr. A large part of the billing methodology is interviewing the client to determine what system to build, how that system will benefit the organization, and what value the organization places on the system. As always, there will be organizations that can't afford the system they want you to build. The smart developer helps that client rein in their expectations or moves on.

As for the T&M vs. value approach, I've been thinking about this and what I've come up with is that they describe two different things. The "value" approach forces the client to think deeper about what they want and how it will impact them. The system becomes part of their overall investment in their business and they determine what that's worth. T&M, on the other hand, is about valuing the developer. Rather than being about the client, the hourly developer is saying, "our time is worth $x/hr" and in doing so they differentiate themselves from their competitors and market themselves to their clients. Their has been a lot written about pricing psychology and how different prices convey different things about your product.

Ernest Y. Koe said

at 11:04 am on Jan 17, 2010

Planning on being there, Kirk.

Dwayne Wright said

at 12:43 am on Jan 17, 2010

I wish I could attend this as well but interested in the Project Mgmt session at the same time. I tend to look the topic more objectively such as Value Billing = Fixed Price with a glorified name and Hourly Billing = Time & Materials with a demeaning name. All PMI related books tell customers to take Fixed Price whenever they can get it because the greatest burden of risk is upon the seller (in this case, the FileMaker developer). In their mindset, the seller / developer has the burden of any additional costs from undetermined or unclassified scope. Saying we don't recognize the word "scope" in a value billing mindset does not necessarily remove the concept from any legally binding contract (written or verbal) with a customer.

Bob Patin said

at 3:09 pm on Dec 4, 2009

I look forward to being part of this discussion. While I'm not a believer in this billing approach, I'm interested in it, am reading Alan Weiss' book "Value Based Fees" right now (just started it). J. Stark holds a rather dramatic stance on this issue; on Twitter, he called anyone doing hourly-based billing "unethical." Hah... :)

Eric Yap said

at 3:36 am on Dec 4, 2009

I was there at DevCon 2009 listening to the panel discussion. How I wished to be there for this talk!

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