pricing on websites
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@mike-davis said in pricing on websites:
Why does paying as you go force higher prices?
Because you have to assume that they are going to just work for an hour, and deal with continuous billing as you go, it creates a lot of overhead and friction and you have to bill with the assumption that you are context switching on and off. It costs more to provide, it costs more to consume.
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@mike-davis said in pricing on websites:
@scottalanmiller said in pricing on websites:
Nope, it's the best possible thing for them. Let's them determine their needs, get the best pricing, and not get burned by bad estimates or scope changes. From a customer side, it's literally the best thing I could imagine. Without it, they'd be stuck either paying as they go (which would force everyone into higher prices) or into the scoping disaster. It's the best form of customer protection we could think of.
Don't you have to estimate the hours to figure out how many hours they need to buy?
Why does paying as you go force higher prices?
Think of it like a retainer.
Also by purchasing time upfront, that they don't know when they will use it, is like you giving the bank your money.. the money can then re-invest your money to make money themselves..
so in this case, the business can afford to give you that time for a discount, and they'll make up for it by having your money longer to do what they need to do.
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@dashrender said in pricing on websites:
@mike-davis said in pricing on websites:
@scottalanmiller said in pricing on websites:
Nope, it's the best possible thing for them. Let's them determine their needs, get the best pricing, and not get burned by bad estimates or scope changes. From a customer side, it's literally the best thing I could imagine. Without it, they'd be stuck either paying as they go (which would force everyone into higher prices) or into the scoping disaster. It's the best form of customer protection we could think of.
Don't you have to estimate the hours to figure out how many hours they need to buy?
Why does paying as you go force higher prices?
Think of it like a retainer.
Also by purchasing time upfront, that they don't know when they will use it, is like you giving the bank your money.. the money can then re-invest your money to make money themselves..
so in this case, the business can afford to give you that time for a discount, and they'll make up for it by having your money longer to do what they need to do.
Plus the company knows that you've paid and they don't have to overcharge to cover the cost of chasing down payments.
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So I'm looking at having a pole barn built. I call a couple of contractors and the first one tells me exactly what I have to pay him and when.
The second one says he really doesn't know how long it's going to take, but to trust him that he won't overbill me and he's going to do the best job he can. He tells me that if I pay for hours up front I'll get a better rate, but he can't really tell me how many hours he anticipates using.
I'm going with the first guy.
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@mike-davis said in pricing on websites:
So I'm looking at having a pole barn built. I call a couple of contractors and the first one tells me exactly what I have to pay him and when.
The second one says he really doesn't know how long it's going to take, but to trust him that he won't overbill me and he's going to do the best job he can. He tells me that if I pay for hours up front I'll get a better rate, but he can't really tell me how many hours he anticipates using.
I'm going with the first guy.
And you think that building a barn is like IT work?
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A barn is predictable. You look at the ground, you know the dimensions, you know what materials are needed, you know the cost of materials. There are no surprises. This is like civil engineering, and building a building requires BDUF, because it's a building.
IT is the opposite. Nothing is known, there is no way to scope it out and be certain what it will take, there are surprises along the way almost always.
Anyone that tells you IT is predictable is just out to make a quick buck, IT doesn't work that way. But building a barn is. Sure a barn COULD have a surprise, like you find that you are on an Indian burial ground, but they just stop and walk away when that happens. In IT, you have to work around countless unknowns AND deal with changes on the fly, like systems being down, the customer not having the access or licenses needed, the customer changing their mind half way, etc.
These are polar opposite things. And why we commonly use things like building projects to demonstrate why this thinking is not applicable to IT and software. In building a buiding all the "work" is labor, the design is trivial. In IT, all the "work" is design, there is no labor. With the barn, you are paying for parts and labor. With IT, you are paying for the design.
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If you think about it, nothing we do in IT is predictable. The moment our work can be predicted we aren't doing IT any more, we are doing bench. Projects like "placing desktops onto desks and plugging them in", that's predictable. That's because it is mechanical labour, like building a barn. It's just people lifting pieces into place.
Real IT isn't a manual labour job. So it can't be scoped like manual labour.
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@mike-davis said in pricing on websites:
So I'm looking at having a pole barn built. I call a couple of contractors and the first one tells me exactly what I have to pay him and when.
The second one says he really doesn't know how long it's going to take, but to trust him that he won't overbill me and he's going to do the best job he can. He tells me that if I pay for hours up front I'll get a better rate, but he can't really tell me how many hours he anticipates using.
I'm going with the first guy.
Even in this case with the barn, you are applying something here that isn't really healthy... you are saying you'd go with the first guy, why? He's not trying to do a good job, he's overcharging. The second guy is going to do the job possible.
The issue is you distrust the second guy. You aren't stating it, but that's the issue. If you trusted him, it would be insane to go with the first guy. Why would you pay the higher price and not go for the person doing the best job he can?
Your reaction here, even in the barn scenario, only makes sense if the underlying problem is that you assume that people working by the hour are cheating you. If you assumed that the second person wasn't trying to cheat you, then he's obviously the better choice.
I'm not sure how to read into this. Do you feel that all companies that charge by the work that they actually do are dishonest? Does that extend to employees and other people paid by the hour? If so, well okay. But if not, why do you apply that to a barn building trying to give you the best possible deal?
To me, the first barn builder is going to build in plenty of buffer and you'll pay the higher premium for the flat rate. I wouldn't want to pay more. I prefer the unpredictable lowest cost rather than the predictable higher cost.
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Barns are also repeatable. A 20x12' pole barn is generally just pumping out the same one you did last week again. This doesn't happen in IT, we don't have repeatable work. So the barn builders get to learn what the labour is for doing it once and just repeat that, there is no cost in the assessment. In IT, there is a huge amount of scope work.
Of course, as an ITSP or MSP, the best scenario is customers that demand project pricing because you earn so much more profits. Because as the MSP we know how to scope well, and we are the ones that bill for the scope effort, it's all win. So sure, I prefer if customers want that, but I can't recommend it to them. But I'm certainly not going to complain when they demand it against my better judgement. It's always a nice windfall to be able to price with the higher margins. Doing work only by the hour is so lean.
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I can make a business decision on the first one because the costs are known.
How can you make a business case for a project if you don't know the cost? For the client at a certain cost the project makes sense. If it goes over that, they can't make a business case for the project.
Let's say I want a FreePBX system. If Jared tells me he'll stand up a PBX for a fixed price, and you tell me you'll build one and you don't really know how many hours it will take, why would I pick you? Because I trust you? Because I might save money? I don't really care that Jared has scripted it out and it only takes him a few minutes. You could be building a one off by hand. You are honest with your hours, but at the end of the day it cost me way more. It has nothing to do with trust or saving money.
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@mike-davis said in pricing on websites:
I can make a business decision on the first one because the costs are known.
But it's higher cost. Which is better... making a decision but overspending? Or just spending less?
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@mike-davis said in pricing on websites:
How can you make a business case for a project if you don't know the cost? For the client at a certain cost the project makes sense. If it goes over that, they can't make a business case for the project.
If you need a barn, do you care about how much it is? Or that it is as little as possible?
For me, I want maximum profits.
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@mike-davis said in pricing on websites:
.... It has nothing to do with trust or saving money.
So you don't care about trust OR money but only... predictability?
That's not wrong, but.... what makes predictability more important than profits? What's the value in predictability?
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If I want a barn, I can't afford to run out of money. If the second guy will do it at an hourly rate, with a not to exceed the first guys rate, then great, I know I'll save money. If he won't agree to a not to exceed, he has no incentive to be efficient.
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@mike-davis said in pricing on websites:
If I want a barn, I can't afford to run out of money. If the second guy will do it at an hourly rate, with a not to exceed the first guys rate, then great, I know I'll save money. If he won't agree to a not to exceed, he has no incentive to be efficient.
Ah, so it IS about trust. Which is fine, but you have to be open about the logic. It's only trust that matters. If you trusted him, obviously the lower cost makes more sense.
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@mike-davis said in pricing on websites:
If I want a barn, I can't afford to run out of money.
If you need a barn and are going to build it, do you want it as cheap as possible, or predictable? That's the bottom line. When are you most likely to run out of money... when it is cheaper, or more expensive?
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Go back to the PBX, If Jared quoted me a fixed price, would you do the job for an hourly rate, with a not to exceed his price?
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@mike-davis said in pricing on websites:
Go back to the PBX, If Jared quoted me a fixed price, would you do the job for an hourly rate, with a not to exceed his price?
No, because I wouldn't trust you in that scenario, right? I don't know if he'd actually deliver at the quoted price. You are playing pricing games. You can't know that he was going to deliver for real, only that he quoted you a price. Once you are dealing without trust, you have to apply it evenly.
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And it would be completely dishonest to Jared, to get him to do the work of quoting, and use that to get a lower cost from someone else. That system doesn't work.
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On a related note, don’t bother to call me if you want the cheapest. I don’t do cheap.
I do quality.
I will quote a person an estimate of a number of hours to do a job. I also tell them our hourly rate is set and flat.
Your barn analogy was stupid. No one quotes an hourly rate and just says it will be done when it is done.
Your hourly guy should say “I charge hours @ $90/hour and it should take about 30 hours.”
That is not a flat quote like the first guy.
