Fixed price sandwiches. A bread story.
We pay for products in a few different ways, by subscription, by the hour, by the unit. In consulting, the consultants are the product, and you are leasing that product for a period of time.
This can get complicated as measuring the effectiveness of that time isn’t simple. That person isn’t just an individual, it’s an organisation, network and process behind them. Both the client and the consultant aren’t yet clear on the direction they’re going. It’s setting out on a journey without a map but having confidence that you’ll land up somewhere worthwhile.
Getting from A to B is easy and should only take an hour when you know where B is, or even that you’re at A at the moment.
When a company is assessing consultants, keep in mind the importance of what you’re aiming for, because it’s not actually someone’s time that they want, it’s an outcome, or at the very least, an output.
Are your pre and post-purchase criteria the same?
This is important because our pre-purchase criteria, and our post-purchase evaluation has to be equal or else there will be surprises and disappointment. For instance, if I was purchasing a TV and my pre-purchase criteria was how pretty the remote control is, I’m bound to be disappointed. “I just don’t know where it went wrong, despite all my assessment this TV just turned out terrible, who knew it was black & white. Oh well, at least Schindler’s List will be ok”.
If our pre-purchase criteria is a consultant’s day rate, but our post purchase criteria is whether our customers are using our new product that they haven’t been using for 12 months, we need to somehow equate the value of the outcome with the value of the input. The value of success should be taken into consideration with the value of the investment. Merely looking at day rate here trivialises this. What is the value of success? And what is the cost of failure? Have you thought about this when you’re looking at your options?
Let me illustrate with an example. If I give you a pretty good strategy that has taken 3 months to deliver and charge you 90 days worth of work, at $100 a day, that’s $9,000, you’d be pretty happy. Possibly we think it’s a pretty good rate, a pretty good duration and a pretty good document.
However, if I gave you a brilliant strategy that took 1 day to deliver and charged $9,000, you’d be furious. You’d argue that 1 day is $100 and so at best you’ll give me $120. And I completely understand, I’d also disagree with the price of $9,000. It‘s value is at least $90,000, as you’ve just gained 3 months of execution.
Now this is obviously an exaggerated example, but delivering faster and with higher quality is something we should be incentivised to do.
You’re paying for what we’ve tested, learnt, our network, experience and knowledge. The faster we can get to the right outcome, the more valuable it is for you, therefore the more time we should spend improving being able to deliver that value. And often, the fastest way to finding out what works is trying a whole lot of things and seeing what doesn’t.
But that’s not how we’re judged, we’re judged on the amount of visible sweat, first time success, and a day rate. We’re priced as commodities as if we we’re cotton, it’s the market rate times volume, not as the merino jacket we end up as.
A bread story
Whilst we were making sandwiches for the kids this morning, my wife asked me what I was writing about, and I explained this concept using this analogy.
I’m going to pay you for a sandwich, I have 3 ways I can pay you.
- Time: I pay you for how long it takes you to make the sandwich. We’ll be doing it in my kitchen, with my ingredients and my recipe.
If I help you, I pay you less, but if I interrupt you, I pay you more because it takes longer. - Output: I pay you for the sandwich. We have a price agreed, and once you give me my tuna mayo delight, I give you the money. You get to use your own kitchen, ingredients and help.
- Outcome: I pay you for how much I enjoy my meal.
To help you, I need a lot of your help. I know a lot about making sandwiches, but I need to make a sandwich for you, which means I need to know your allergies, your preferences and if I’m using your kitchen, what tools you have and how to work them. I’d also like you to try a sample or two along the way.
Paying for time
When you pay me for my time and not output or outcome, when you don’t help me the way you should, you’ll pay more. It’s taken longer because you haven’t given me access to the kitchen soon enough, you told me you had knives, instead you had skewers and whenever I asked for your opinion you were too busy to give me your attention. We got there in the end, but it wasn’t a great experience, and it took a few extra days and disappointments along the way.
This sounds good for me because I’m still paid for things outside of my control. But I’m always punished. Eventually someone says “it took 50 days for that?, we’re not using those guys again, can’t we just get a sandwich from 7/11”. As a sandwich maker, I also hate working this way, it’s no fun and it’s usually a symptom of underlying issues on our client side. Overworked, poor culture, distrust… and why is someone making sandwiches for us anyways? Does this mean we won’t be able to go outside and get our own lunch?
Paying for an output
When you pay me for the sandwich and not the time to make the sandwich, often called a ‘fixed price’ sandwich, I’ll be controlling and providing the equipment, the amount of hours and people. You’ve told me you need a chicken mayonnaise sandwich for 2 people. I control the type of chicken, the type of mayo, the bread, the tools, the kitchen and the process. Sounds easy enough right?
It’s not.
Paying for an output is complex. There is a lot that is outside of our control, but also there is a culture with customers that they need to see sweat. Although we’ve already agreed to the price, say $20, if I give you that sandwich in 30 seconds you’ll question me about why you paid $40 per minute for a sandwich. But if it took me 15 minutes, you might be ok with it, the math checks out in your head. “yup, it was a little expensive, but it took a while”.
There is no financial incentive for me to establish process and quality controls, continuous improvement and a high performing culture as I’ll get paid less for doing better, because you associate the value of my price with time.
If I make the best sandwiches in New York AND I serve them in under a minute, should that make me less expensive or more expensive? Consider the opposite, in your day if you pay more for something, do you expect it to be done better and faster? Would you go to a cheap Chinese place that takes forever, or a expensive place that turns good food around really quickly.
Paying for an outcome
But what if you said you’ll pay me based on how much you like the sandwich? I’d say no, we don’t do that, but what we can do is have you pay us based on how much you like your meal. I don’t even know if you like sandwiches, why would I put my paycheck at risk for a solution I didn’t choose?
You may not get a sandwich at all, it might be a surprise, but you’ll only pay me if the meal has made you happy. Isn’t that what the intention was of the sandwich? If it’s purely to be fed, you could just have a bowl of oats… but you probably want something more.
In summary
In the world of consulting, we’ll work with you and you can pay us just for our time, that’s ok, it’s easy for us, but lets think if there are better ways we could work together.
If you let us deliver you an output, and let us bring our best, our experience, all the IP we’ve built up, we may give you something brilliant in a 10th of the time you expected, and we would expect that to increase our value, because it’s valuable doing things faster and better than expected.
The reality is it’s not that simple, and I don’t expect us to find common ground on this immediately, but please do look at us as more than just rate times days, because we are more than that if you let us be.
And finally, invite us to give you an outcome. An outcome isn’t a revamped website, it’s more customers, less support requests, it’s an increase in your revenue, customer satisfaction score or profit. It’s something your shareholders would get excited about, not what your project manager would.
