Yes I totally agree, agencies need to be more creative when it come's to pricing however their business models only really focus on fixed cost pricing, time and materials or cost per story point, which is similar to time and materials as you pay for effort.
In fairness, the client could also productise what they buy from agencies, though this is very much to the disadvantage of the agencies.
As John points out, creating commodities can have its challenges as lazy comparisons can happen. The key is to evolve your offer, packaging and pricing so you are clearly focused on models that the client feels encourages the right behaviours and outcomes, whilst also giving you cost control.
Fantastic breakdown of the time-based pricing trap! The restaurant analogy is brillant becuase it makes the absurdity obvious: nobody expects a Thai place to serve pizza, yet agencies act like infinite flexibility equals value. I've worked in environments where our automation tools literally reduced project time by 60% and we celebrated internally while revenue tanked externally. The shift from billability metrics to revenue-per-head is key for incentivizing actual efficiency rather than hour-hoarding.
You made a great point, just because you are smart enough to use tools to reduce your delivery time you should not really reduce your project cost, you are being smart by using the tools available in the right way.
Changing the pricing alone is actually quite dangerous.
The risk distribution, commercial model and internal incentives also have to change at the same time to ensure you don’t leap from the frying pan into the fire!
Really useful advice for focusing on value, not hours, It can make agencies more profitable and creative.
Yes I totally agree, agencies need to be more creative when it come's to pricing however their business models only really focus on fixed cost pricing, time and materials or cost per story point, which is similar to time and materials as you pay for effort.
In fairness, the client could also productise what they buy from agencies, though this is very much to the disadvantage of the agencies.
As John points out, creating commodities can have its challenges as lazy comparisons can happen. The key is to evolve your offer, packaging and pricing so you are clearly focused on models that the client feels encourages the right behaviours and outcomes, whilst also giving you cost control.
Fantastic breakdown of the time-based pricing trap! The restaurant analogy is brillant becuase it makes the absurdity obvious: nobody expects a Thai place to serve pizza, yet agencies act like infinite flexibility equals value. I've worked in environments where our automation tools literally reduced project time by 60% and we celebrated internally while revenue tanked externally. The shift from billability metrics to revenue-per-head is key for incentivizing actual efficiency rather than hour-hoarding.
You made a great point, just because you are smart enough to use tools to reduce your delivery time you should not really reduce your project cost, you are being smart by using the tools available in the right way.
Yes, you are right.
Changing the pricing alone is actually quite dangerous.
The risk distribution, commercial model and internal incentives also have to change at the same time to ensure you don’t leap from the frying pan into the fire!