Friday, May 30, 2008

Services as Products

John Jantsch of Duct Tape Marketing blogged today about something that was essentially the reason my partner and I started Stonefield: we wanted to stop trading hours for dollars. Given that we have a limited inventory of hours, doing consulting work at an hourly rate automatically caps your revenue. Also, hours you don't spend billing (sick, vacation, etc.) are lost from inventory. Instead, we wanted to focus on products.

Of course, when we got started, we didn't have any products, so we had to pay for the development of products by doing fee-for-service consulting and development. We did that for several years while we developed product after product: Pharmacy Partner, a retail pharmacy program; Stonefield Data Dictionary, Stonefield AppMaker, Stonefield Database Toolkit, Stonefield Query, and Stonefield Reports, all tools for Visual FoxPro developers; and currently Stonefield Query, our flagship award-winning query and report writing software, which is actually a whole family of products. We haven't done any custom development projects for about eight years and couldn't be happier.

That's not to say that we do no fee-for-service work. We do a lot of consulting for Stonefield Query end-users (creating very complex reports, for example) and Stonefield Query SDK developers (helping them polish their data dictionary, develop complex scripts, or even do the entire work of creating a customized version for them). However, that really is more of a sideline than our core work.

Of course, when you have actual products for sale, that's the market you're in. One thing that's more difficult to do is what John discusses: turning a service into a product. On our Accpac consulting side (Stonefield Systems Group Inc.), we've struggled to convert services like Accpac installation, report creation, and disaster recovery into fixed-fee projects. Interestingly, the struggle hasn't been from the client side. Most clients prefer you to quote a fixed fee for work, and in fact expect it in one form or another (even if you quote an hourly rate, they still want an estimate of the total bill). No, the struggle has been our own mindset: convincing our staff this is the way to go. We've gone a long way to achieving that, but still are doing lots of work on a fee-for-service basis.

But it's worth the struggle. As I pointed out to our staff a couple of years ago, we have a strange paradox: the more experienced we become, the faster we can do a particular job, and therefore the LESS money we make if we're billing by the hour. We'd be better off giving jobs to junior consultants because although their billing rate is less, it takes them WAY longer to do a job. (Just for the record, we have no junior consultants. They've all been working with Accpac for years and are considered among the best in the business). But if we get out of the mindset of billing by the hour and instead look at the value we deliver to the client, that means our experience becomes of value. Say we charge $500 to do a job. A junior person might take five hours to do it (the equivalent of $100 per hour) but a senior consultant may be able to do it in one hour ($500 per hour). It'd be pretty hard to convince the client to pay us $500 per hour but to charge $500 to do something that will save them (or better, make them) thousands of dollars per year seems like a good deal to most people.

As I said, we're still working on this, but we are getting better and hopefully one day, all but the simplest technical support will be packaged and priced as a product.

1 comment:

Anonymous said...

Doug, Welcome to the world of pricing with purpose.

Please join us and sign the Declaration of Independence from the Almighty Billable Hour.

Take care,
Ed Kless
ed.kless * at *