Scale To Your Customer's Budget - The Opposite Approach to Charging by the Hour

A while back, Reflect7 needed to consult with a Lawyer for advice on a possible funding option. The Lawyer we had in mind knew technology and acquisitions so we wanted him in our corner. The same lawyer also didn’t operate on hourly fees, but on a entire project fee. One where we would have to figure out the scope first.

We ran into a small snag before the meeting trying to figure out the scope and price. We’re so used to quoting and being quoted an hourly rate for software projects that the idea of scaling the scope of the project didn’t make sense. We wanted an hourly price that was just for the meeting. If the scope went beyond the meeting, then we would negotiate a new price from there.

We spent a lot of time and effort trying to figure what we should fit in the project. Would it be the meeting with us, the legal docs for the funding operation, and any further consults we needed for this project? Or should we just throw in the preliminary meeting? We mistakenly decided to put everything into the scope suspecting that we would be getting a lower price than if we were to do one thing at a time, progressively.

I don’t what to think about this pricing model. Sure, it has flexibility, but it puts the onus of project scope on the client. That’s more friction that the client must take on before even agreeing to the service. Scope isn’t always clear cut. I think that you should eliminate as much friction as possible for your customers. I like picking from short and concise pricing lists for the same reason I like ordering from concise menus, I don’t get overwhelmed by choice.

\ Advantages of the Project Scope model:

It’s harder to lose a customer over price. You can always scale the project back according to their budget.
You won’t price yourself out of the job before talking with your customer. If you are experienced and list your price ahead of time, it may be too high when compared to your competitors. Waiting to get a project scope from your customer opens a channel of communication. A channel where you can let them know of your qualities before listing a price.

Disadvantages:

Not having the prices upfront can discourage customers from shopping with you in the first place. I don’t shop at car lots that don’t have the price because I don’t want to have to haggle at what that should be, and then haggle the price down. Too much friction. One haggling is enough.
Clients don’t always know the scope of their project ahead of time. Clients may feel cheated if they don’t feel they misjudged the scope because they were forced to communicate something that was still pliable.

In terms of consulting, I’m leaning a little more towards the Project Scope Model. This way, you open a line of communication. You can also negate any of the disadvantages by asking your clients the right questions and, if necessary, bringing the scope down to as minimal as possible.