There’s an interesting blog series at Brad Farris’ blog about different pricing strategies for service providers. There is probably no other topic that lights a fire or starts a debate amongst service providers than the questions about charging by the hour, retainers or hybrids.
This is a question of increasing importance as more and more “product” providers are “moving up the value chain” by providing services.
Here’s my thought – I think it’s the wrong question. The question is steeped in industrial age thinking, and by looking at it that way, you’re forced to choose the least bad approach.
The winners of tomorrow will be the businesses that gain access to the best capabilities. Going forward, the lines between employees, consultants, outside providers, outsourcing, and insourcing will continue to blur, until for all practical purposes, they no longer exist.
It’s interesting, the very same service providers who lament over how they should charge for their services, don’t seem to struggle with the question when they hire executive talent (ie executive capabilities). They typically pay the executive a salary commensurate with the executive’s abilities and some form of rewards/incentive program for delivering results. In enlightened companies, this approach seems to make everyone happy.
The service providers that gain disproportionate rewards in the future will be the ones that position their services as capabilities and charge accordingly.