So a lot of people ask me why we have fixed fee pricing at Ripple. After all, we come from an industry that bills for time. And bills a lot. Like $150 per hour.
But what is the value of time? How can I put a price on the time it takes to fix a computer? And do you, the client, give a rip? Not really.
You want computers that work, and computers that are fixed fast (damn fast!) when they don’t. Time, in fact, is the biggest negative. The longer you are down, the worse off you are. The longer it takes us to fix the problem the less valuable we are, because you can’t work. Yet paying for time rewards just the opposite – the longer the duration of downtime, the more it is valued financially.
Here’s the thing: There is an insidious conflict of interest when one bills for time. And it becomes the axis of the relationship.
Now, I’m not saying that everyone who bills time is bad, or that they are trying to rip you off. I know that because we used to bill for time – and we worked hard to do it fairly. But it is counterproductive. The system is broken, not necessarily the people.
Here was the case we discovered against paying for time:
- It is hard to quantify. Why does something take no time one day, but hours and hours the next? Did you send the wrong guy? And am I paying you for it?
- It’s hard to compare. Would someone else have gotten me the same result in less time and at less cost?
- It is uncertain. How much will it take this month? How much next month? How the hell can I budget for this???
- It has no guarantees. There is no guaranteed outcome for any given amount of time. If there is, then it’s a fixed fee.
- It stifles investment. If one is charging for time, there is little incentive to find ways to do things faster/more effectively.
- It is vendor centric. Rather than finding the set of deliverables that suit/help the client, billing for time only considers the cost to the vendor.
Here’s a more common scenario. You have a leaking radiator. You can either:
Pay $75 an hour until it is fixed.
Pay $195 to get it fixed. Guaranteed.
Pay a little extra in your car payment each month that includes all repairs for free.
The first option is just scary. You’ve all been there. I don’t need to elaborate.
The second is OK, maybe if the car is out of warranty. At least you can decide if it is worth the price to you, and you can compare it with another dealers price.
But the third option is the one most of of us choose. Just sell me something that I don’t have to worry about and build it into the price.
And which scenario makes it more likely that the manufacturer will work hard to make a better car that breaks down less often? Isn’t that the scenario you want anyways? Do you feel like you’ve "gotten something" when you take your car into get it fixed and it takes 2 days? Does that represent value?
Paying for time is the exact opposite of paying for value, and the incentive to the vendor is the exact opposite of what you want it to be.
And that, my friends, is why we only bill at a fixed fee at Ripple.
Har and I have been talking about this for the past two weeks. Boffo! I’ll be stealing this for my own nefarious purposes sometime soon…
Professional coaches have billed this way for years. I encourage all my professional clients to adopt it whenever it’s possible. It tends to put all the incentives working in the customer’s favor rather than against.