[thelist] pricing for reused elements

Robert Goodyear rob_goodyear at yahoo.com
Sat Nov 3 19:42:41 CST 2001

Right on! I wholeheartedly agree with Andy. 

Your value is a cumulative aggregation of skills and experience. THink of your fees as
amortizing those skills and experience. What happens over time is that you become more
efficient and make better decisions for you clients and their needs. 

This is strictly an analogy, but think of the costs comprising...

10% actual cost of (developing) the widget
90% for knowing how, when and why to use the widget, and; retiring the debt of your
opportunity cost in becoming so incredibly efficient at the widget that you can debug,
modify or retrofit the widget that much better when in the future your client's
requirements change a bit.

Take a more macroeconomic viewpoint when thinking about your consulting as a business and
you'll see that 9 times out of 10 -- if you're good at what you do -- the client gets an
extremely good product for their investment.

My. $.02


--- Andy Warwick <mailing.lists at creed.co.uk> wrote:
> On 2001-11-03 at 20:45, seyon at delime.com (Marc Seyon) wrote:
> > Greetings all,
> > 
> > Consider this hypothetical scenario. I develop a widget for Client A. 
> > Development takes 10 hours. Setting it up takes 1 hour. Client A is billed 
> > for 11 hours work.
> > 
> > Now a situation comes about where I can reuse this widget for Client B. 
> > I've already done the development time, so it only takes 1 hour to set up.
> > 
> > What should I bill Client B? 11 hours' work - value of developing & 
> > deploying the widget? 1 hour's work - deployment time only? Or somewhere in 
> > between?
> > 
> > Comments? Thoughts?
> Consider this hypothetical scenario.
> I bake an apple pie. Growing the apples takes 2 years. Baking it takes 45
> minutes. Customer A is billed market rate for 1 apple pie - ingredients, my
> skills as chef and baking time.
> Another customer wants an apple pie. I've already grown the apples, my skills
> are the same, and it only takes 45 minutes to make. I therefore bill the second
> customer a very small percentage of the pie's value, as I only charge him baking
> time.
> ...
> Okay, it's a flippant comment, but it has grains of truth.
> You have to remember that you'd still have had to do the development work for
> client B if client A hadn't had the widget first. Why should B get it cheaper
> than A just because he is second.
> A key mindset to get into when costing stuff up and billing clients is to work
> out what the benefits are to them, not what it costs to you. So, for instance,
> if you have spent years learning HTML and use those skills to create a website
> in 2 days that will save your client £100,000 over 2 years, you should feel no
> shame about charging them £50,000 for 2 days work; he is still ahead £50,000 and
> is therefore getting a good deal. Of course, that is a fairly rare example (if
> ever!) but it comes back to the old story about the engineer...
> A big manufacturer is getting ready to ship a large order for his latest widget,
> and a key machine goes down. Panicked he gets on the phone to the machine's
> engineer and gets him to come out. The engineer looks at the machine for a
> couple of minutes, then hits one side of it with a spanner; the machine springs
> back into life and the manufacturer gets his order out on time. The engineer
> puts in his invoice - £500. The manufacturer goes mental. "£500 for 2 minutes
> work - how can you justify that!!! I want to see that invoice itemised." So the
> engineer writes another invoice: call out fee and hitting of machine with hammer
> - £20, experience and years of training to the point where I know where to hit
> machine - £480. He also points out that for £500 the manufacturer didn't default
> on the order which alone was worth £250,000. The manufacturer pays up thinking
> how cheap the fix was and what a great deal he got.
> So, in your case, I'd look at what the benefit is to client B in providing your
> solution. If you feel that he can save money if you charge him for 11 hours
> work, and that he is honestly getting a good deal on that, charge him the full
> 11 hours. He is not just paying for the development and deployment, he is paying
> for your skill, experience, knowledge and the benefit to him.
> After all, if you went in to a department store and bought a can of soda, you'd
> still expect to pay the same as the guy in front of you in the queue, because
> the benefit of that drink in quenching your thirst is worth the money you pay
> for it, regardless of how many other people on the planet have ever had a soft
> drink.
> Don't count your value as only what you produce, but every aspect of producing
> it, and what it is worth to your customers.
> It is a fatal mistake to compete on price; the skill in business is finding
> something that is cheap for you to produce, but worth a great deal more to your
> buyer. That is exactly the reason I pay someone to cut my lawn. I hate doing it,
> and in the 2 hours I save I can earn 2 x the cost to me of paying someone to cut
> my lawn. I win becasue I get a tidy garden and the guy cutting my lawn gets paid
> for doing what he loves at a good price in that market.
> Andy W

Do You Yahoo!?
Find a job, post your resume.

More information about the thelist mailing list