The answer to the question above is pretty obvious when we ask it like that. But in practice, almost everyone is busy buying work! That work may or may not get you the results you’re are after.
Here is an example to illustrate this issue.
Say John hires Maria to code a website for him.
After the initial discussion, Maria estimates that she will need 100 hours priced at $100/hour for a total of $10,000.
As she thinks deeper and some research, Maria finds a ready-made plugin that costs $1,000 and takes care of half the project scope.
What should Maria do next?
1. Buy the plugin for $1,000 and charge for the rest of 50 hours. So Maria is left with $4,000 in her pocket and a plugin she now owns. The client will love her.
2. Have the client buy the plugin and charge for the rest of the work. She now has $5,000 in her pocket, and the customer owns the plugin. The client will love her.
3. Buy the plugin for $1,000, work 50 hours, and wait for another 40 to charge 90 hours. Maria puts $8,000 in her pocket. The client will be happy; he paid less and got it faster.
4. Maria ignores the plugin, starts coding, hopefully, be done in 100 hours, and charge at least $10,000. The client will be satisfied if finished on time and angry for any extra hours over the estimate.
We can all agree that (3) is dis-ingenious. But in truth, all four options suck.
With option (1) and (2), Maria feels cheated. She had agreed to do much more work than she would get paid for. She has no incentive to choose less work for her. Still, if she chooses option (1) or (2) out of moral obligation, in the back of her mind, she will resent ever having done any research!
With option (3), she will have to live with the lie.
And if she ignores the plugin and does the work agreed for the money agreed, she is also cheating.
She is cheating herself out of the growth opportunity. Why work better or faster when that means less billable “working hours.” Best be slow and friendly as you plow along.
And she’s also cheating the client because you are not free to do your best job. She will do the regular “fast enough” kind.
It amazes me, especially in the IT industry, where performance metrics are easier to measure, that people are still buying work instead of results.
Whenever discussing a new project, I almost always hear this question: “How long will this take?” because the next question is, “What is your hourly rate?”
And the answers to those questions are: “I don’t know how long it will take. This project is a collaboration, with lots of variables out of my and your control. It will take at least three months, but it could take 6 months or one year… nobody really knows.” And “I don’t have an hourly rate.”
My favorite alternative is to focus on results and not care about how long it will take.
With the initial example, Maria would ask John why does he want a website. How will that generate value for him to justify the expense of creating one? And John might say, it would help him sell his handmade products to a larger audience, and it would make it much easier for customers to place an order. Maria continues to ask what is a realistic revenue goal for one year from the website sales. John thinks for a bit and says that based on his audience and some estimates, it should be around $80,000. Maria says she is confident she can help John reach his goal of $8,000.
Now, if John has spent $8,000 to make $80,000, do you think he would care if Maria used a plugin or not, or how many hours she worked on the website? Of course not! He did not buy Maria’s time; he purchased a result.
And what about Maria? She is free from the moral dilemma from before. She can now employ her full experience and work as fast as possible, using any tools she sees fit to help John accomplish his goals.
It does not matter if she can do it in a day because she has done the same thing before or takes her two months to put everything together. John will pay a fixed price. He will not be taxed for a “poor estimate,” and Mary is free to work as fast as she can and be rewarded for getting better at her craft and working less. All interests are aligned.
I challenge you to buy results and not work. You will pay more upfront, yes! But you will get much better returns in the long run. If you still choose to buy work, there is no guarantee that “the work” will get you any closer to your goals. And the conflict of interests will make it almost sure that you will run over the initial estimate by a large factor, even if everyone is super honest and fair.
Super informativ articolul, multumesc Ilie🙂
Am o dilema legata de estimarea pretului si sunt curios care este metodologia ta cand vine vorba de estimarea pretului tau pentru serviciu/produs?
In short I do value based pricing.
I try do determine what kind of value I can create for my client and then take a percentage of that. If I cannot create value for the client, or they are reluctant to discuss that with me, then I don’t take the job.