Here’s A Fairy Story For You

Are you sitting comfortably? Then I’ll begin.

Once upon a time, long long ago, the Time-Based Chargers and the Value-Based Pricers co-existed happily.

The VBPs preached that Professional Service Providers should discover, by talking to their Clients, how valuable each Client would find their proposed package of services. Furthermore, the VBPs told the PSPs (of which TBPs were a subset) to estimate their cost of delivering that package of services. With this information, the PSPs could set their price such that both parties received a similar Return on Investment ratio.

In fact the VBPs suggested that the perceived value and cost of delivery should be so far apart that both parties made ‘multiples of’ (quite likely double digit ‘multiples of’) RoIs. This worked well, even though the TBCs were using their estimates of time (because that was the easiest thing to measure accurately) multiplied by their charge-out rates, plus their other costs to come up with cost of delivery.

When the VBPs pointed out that, if the RoI multiples were large enough, even an error of two or three times in the estimates of both perceived value and cost of delivery, working against each other, would still mean a handsome RoI for both parties at the original price.

The Clients loved this insight because it meant they really did only need an ‘estimate’ of the value to be derived and this wouldn’t be particularly onerous as long as the PSPs helped them think their way through to an answer. But the TBCs, in part driven by their Bean Counting Departments, insisted that their costs of delivery benefitted from being accurate, and they were very accurate because they could measure their time to the nearest second. Boy do BCDs love accuracy because they know it exposes them to fewer claims of malpractice!

But, as I told you at the beginning, the VBPs and the TBDs co-existed happily.

That is until the TBCs had a wicked thought. If the Client’s RoI is that huge to start with, they would still think it was brilliant even if it was a smaller multiple. So the TBCs decided to move the price point further from cost of delivery towards perceived value. It turned out they were right in one respect. The Clients were happy with smaller multiple RoIs – after all, even a doubling of their investment (100% RoI) was far better than they’d get putting their money in a savings account at the bank where 10% was huge and 20% astronomical.

One day, a clever Client – who happened to be the brother of a VBP – challenged one of the TBCs. “How can you justify increasing your mark-up many-fold?” “But you’re still satisfied with our price,” retorted the TBC. The Client had to admit this was true but it didn’t stop him telling this story to others at the Clients’ tavern. Neither did it stop him telling his sister, the VBP, and she told all her colleagues at the VBP bar.

Eventually, word got back to the TBPs at their watering-hole and they decided they’d have to do something about it. The next day they announced they’d increased their charge-out rates many fold so their mark-up wasn't nearly so huge, but the good news for the Clients was the prices they paid wouldn’t change.

Having done this once, some time later the TBPs did the same again, and a third time a while after that. This resulted in both parties once again getting similar RoI multiples (even though they were by now not much greater than the savings account interest rates) so any rumblings of unfairness from the Clients (who were still paying the same prices) were pacified by the TBPs being ‘transparent’ about how their prices were calculated.

As you can easily guess, the TBPs were now costed at astronomical charge-out rates, and even though their practices had overheads to pay and dividends to pay to the partners, their salaries were pretty astronomical too. Unsurprisingly, becoming a PSP who was also a TBC was a highly desirable career move.

Many years later, the VBPs who had been quietly getting on with delighting their own Clients by getting better and better at their jobs and delivering more and more value, quicker and quicker in win-win deals, decided enough was enough. At the VBP bar they resolved to spread the gospel of Value-Based Pricing and the folly of Time-Based Charging far and wide among the PSPs.

Some PSPs listened and made the change to being VBP PSPs, but a great many TBCs feared the loss of their vast salaries if the apple-cart was upset, and resisted vigorously. They lobbied their Professional Body to mandate ‘transparent’ billing, not that their Clients demanded it. The Clients couldn't give a damn about how the price was arrived at as long as it appeared to give them good value for money.

But no! Such was the pressure from the riders on the gravy-train, the Professional Body not only mandated ‘transparent’ billing, they mandated the inclusion of ‘minutes worked’ and ‘charge-out rate’ for every member of staff involved in providing the service, right down to the tea-lady and the chap who cleaned the toilets. They even spread the false claims, “Time is money” and “This is what the Clients are demanding!”

The VBPs had a conclave in the VBP bar and decided to launch a ‘pincer movement’. They would continue to chip away at the TBCs, but now they would also target the Clients in a completely non-aggressive way.

They launched a campaign to educate as many of the Clients as possible as to the multitude of downsides, the unfairness to them of the TBCs pricing their services based on the time they put in. They also made sure the Clients were aware of the detrimental effects to the PSPs of Time-Based Charging.

They sought to have the Clients demanding fixed fees for fixed scope, fixed delivery-time pieces of work, defined purely by value-outcomes and not tasks, time or any other measure of input. They sought to have the Clients demanding knowledge of what they were and weren’t going to get, no surprises once the agreement had been signed, and that all possible facets of working together be brought into the open, discussed if necessary, and agreed during the Sales Conversation.

Furthermore, they wanted to educate the Clients to publicly declare no interest whatsoever in how the work is done or who does it; that, so long as the agreed value is derived within the agreed time-frame, nothing else matters.

The VBPs are currently still doing this, some TBCs are changing over, and many Clients are more delighted than ever. But many more Clients are just as fed up and frustrated as they ever were.

There is still a long way to go but we must not give up the effort to rid the world of Time-Based Charging.

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