So we've looked at "cost-plus" pricing where we're effectively selling time for money. We've looked at "value-based" pricing where we're pricing based on the outcomes.
Now let's look at productised pricing.
The advantage of cost-plus pricing is that it allows for variable scope in a project. If the client changes their mind and wants something different half way through, you just extend the project, they pay extra and you still make your cut. If something unexpected happens and you hit a roadblock, they pay extra and you still make your cut. In both cases, the client cannot know, in advance, how much they are going to be paying.
The advantage of value-based pricing is that you are charging based on the outcomes you give to the client, so if there is a roadblock or a change of mind, that should all already be covered within the fee you are charging (and if it isn't, the outcome you are delivering is too small to be viable for your business). And the client is safe in the knowledge that the fee they are paying is fixed. However, that fee has to be large to reduce the risk to you. And asking for a large fee is very daunting.
Productised pricing sits between the two.
The fee is fixed. And, as it's not tied to the outcomes, it's small.
But to make it work, the scope has to be fixed.
For some businesses this is easy. For some, where scope creep is a fact of life, this is really hard. I work in software and it's impossible to specify a software project up-front, simply because clients can't describe what they want till they see the first version in front of them.
So my productised offering is a "software prototype". I will build a web-based, no-frills software system that incorporates eight pre-agreed features (with one revision per feature). I will deliver this in exactly 12 weeks. And you will pay exactly £8000.
The disadvantage of productised pricing is you need to specify what the client is going to get in advance. And that takes some real expertise and experience. Real-world experience, that comes from distilling the requirements from many actual projects. In my case, I know how long it takes me to build eight features and I know that eight features is enough for my clients to get a feel for what they are asking for. But it's taken years of failed projects to learn that.
The advantage of productised pricing is that it makes it easy for you to ask for the money - it's £8000, take it or leave it. And it's easy for the client to decide - they read your web-page or your brochure, see what's included, see what's not included, see the price and say yes or no.
It does mean that you're leaving money on the table though. If that multi-national, from yesterday, came to me, I would still charge them £8000, even if my product was going to help them make £20,000 per day. They're getting an absolute bargain. But for me, personally, that's better than tying myself in knots over value and asking for a big number.
Of the three models, productised is definitely my favourite. It feels fair to both parties and it removes a lot of the uncertainty around the sales process.
And if you'd like to know if my software prototype process could work for you, I'm happy to have a free 15 minute consultation with you.