we're going to briefly talk about a way that consultants could price for
better effects. Hi Mikey, how are you doing?
Michael: I'm good, thank you.
Ben: Cool, cool. So, this is assuming that we're talking about a fairly
repetitive job. Something that you're going to do more than once and that
you have some idea of how long it's going to take.
Ben: The idea is to get away from charging by time and the reason I want to
get away from charging by time is this simple equation. If you charge
pounds per say hour for example, the next question a person tends to ask
you is how many hours is the job going to take, right?
Michael: Yeah. That happens a lot.
Ben: Because that happens a lot, the math is actually quite simple. What was
happening is that the hours bit should cancel out. It does cancel out which
means why don't we just cut to the chase and just go straight to pounds per
job. If we do that, we don't have to get into this discussion about it and
we assume the risk from the client as to how long the job's going to take.
Michael: Of course.
Ben: Which because of risk reward in the long run means we should make more
Michael: Hopefully so.
Ben: It would be nice, but we need to do it carefully because of this. So,
I'm going to just draw a couple of little axes here and just spend a moment
to explain what they are. This is the job time let's say in hours, okay,
over here. What I'm going to draw you is something called a probability
distribution. Now, I'll label the other axis; what's going on up here is
it's the probability that a given job takes that amount of time, okay so,
or the proportion of the jobs that take that time more accurately.
What it is is that no jobs take no time now or it's not jobs in general
it's a particular type of job. So let's take an example. Let's say that we
are going to go and service somebody's computer and it's a fixed checklist
that we go through and it could take Mikey, how long does it take you as a
Michael: Maybe 40 minutes.
Ben: Okay and then the worst case that's ever happened?
Michael: A very slow computer, very slow to respond or heavily laden with
viruses or something along those lines could take two hours.
Ben: Okay, so a bad one's two hours and a calamitous one could be longer than
Michael: A calamitous one I'd probably draw the line under the computer way
before that if I've got that feeling.
Ben: Okay and you could end up needing to go back, etc.
Ben: How long do you think it takes you on average to do the job?
Michael: Probably around 50 minutes after I've answered people's questions
along with that.
Ben: Can I just for the diagram say, okay, I'll put 50 minutes. So, I'll just
call it an hour.
Michael: You can yup.
Ben: With all the preamble and everything?
Ben: Just to make the diagram clear. All right, so we've got a few facts of
ideas here, okay? We're saying that it's never going to take realistically
much less than .75 of an hour. So, no jobs or maybe very few are less than
that. The average I asked you is an hour and then what happens is something
like that, right? In terms of the distribution. So we need to be careful
what this thing actually means. What it means, old jobs are contained or
they're into this curve if you go to a long enough time.
Ben: I could actually demonstrate that by just quickly locking off the button
here. You said you would cap the event, so at this point you're just going
to say if I've sunk five hours into this thing that's it, it's game over,
but all jobs take somewhere between no time and five hours. Pretty self
explanatory, but when you in your mind think about how long a job takes you
save one hour on average. What we actually meant and that's I think your
brain's thinking of that point, right, the most common or the modal point.
Ben: Yeah, so if we were to charge based on the mode, i.e. the most popular
time that it takes, we are causing our self a problem because the mean
amount of time it takes actually isn't there. I don't know where it is and
it depends on the shape of this curve, but I know with this type of curve,
it's definitely over here somewhere. It's to the right. So, let's just
imagine that the mean is say there. The mean amount of time and that's the
normal average that people would think of. It's the arithmetic mean, it's
the total amount of time it's taken me today say do 100 jobs if that's 100
hours or 150 hours let's say to do 100 jobs. Then if you took your 150
hours to do 100 jobs the mean is 1.5 not one.
Ben: So, by taking the risk for the client, what we're saying is let's charge
the mean amount of time but not talk about the amount of time. So if your
hourly rate just to keep it really simple is 100 pounds then at this point
at 1.5 hours mean time, we should be charging 1.5 or 150 pounds not the 100
pounds over here that you would be tempted based on the mode to charge.
Does that make sense?
Michael: Yes, it does.
Ben: That's what you're getting for charging based on, that's not a vertical
line but we get the idea, that's what you're getting for charging based on
the fixed price based on the mean amount of time it takes you. Never
mention the time. The client's say it's going to cost me 150 pounds
regardless of how much time it takes. Let's just get rid of that thing.
This by the way, anybody looking that's coming at my screen is a useful app
just as a side because I can't stop it at this moment and that is just
something to remind me to have a break and look away from screen,
but I'm not going to do that in the middle of the screen cast so there you
So, charge the mean amount, charge a fixed price, and assume the risk for
the client make more money in the long run. If the job takes much less time
then you're in a good place because as long as the client understands that
it might be quicker than they expect and don't get upset about how quick it
is then you're in a good place. If the job takes absolutely ages, well in a
way you're still in a good place because if you said to the client, look
you know, this typically takes I would probably say the mean. It typically
takes an hour and half, right? Then they're generally happy with how quick
it was and if it takes a lot longer the moment you go over the hour and a
half they're also happy because they know that you are not charging them
anymore but that you're still busting a gut to get the job done for them
and . . .
Ben: . . . the further you go there, the better. So, that's my thoughts on
Michael: Quick question though. You just ran a . . . you basically equated
it to pounds per hour again. So, if you said to someone it's going to . . .
let's say we aim for the mean here and said 150 pounds.
Michael: They say, well, how long is it going to take, if we're going for
an hour and a half . . .?
Michael: . . . or an hour they're immediately going to do the simple math
and go straight back to pounds per hour.
Ben: Okay, good, very good question. So, when they say how long is it going
to take say it takes as long as it takes to get the job done to the
standard that I do it to because whatever standard it is, it's a high
Ben: So it takes us as long as it takes to get the job done. Typically that
takes an hour and a half let's say. Choose the hour and a half not the hour
because obviously if they're saying 150 pounds if they do, do that division
it makes your hourly rate look lower. So, typically it takes an hour and a
half. You know in your mind actually the most likely is that it's going to
take an hour and you could say look, it could take as little as half an
hour. I have to tell you that if it goes really well and I've had some jobs
go really badly and they've taken a few hours and if necessary that's what
it takes, but it's going to be a fixed price for you; does that make sense?
Michael: Yes, definitely.
Ben: Fantastic, so that's my thoughts on fixed price charging and that's it.
Thank you for listening. I hope you find it useful.