Beyond Repair: The Fixed-price Model
Don't get me wrong. I certainly don't think the majority of vendors who use a fixed-price model are trying to rip you off. In fact, when I started my business that's the way we worked-which is why we have such great insight into the flaws in the system. But there needs to be a transparency to the work. You need to know exactly what you're getting, how long it takes, and how much it costs. You need to know that you're only paying for time actually spent on your account. And you need to know that no risk will ever be taken with your system just to maintain your contractor's profitability. The inherent structure of fixed pricing makes this kind of transparency an impossibility. Here's why:
1. Fixed pricing is designed to function with the absolute minimum amount of human attention. The more the company does not work for the client, the higher the profit. This creates an adversarial system where the caretakers fight to do as little work as possible no matter how much they are being paid.
2. Fixed pricing encourages wastage. Since a fixed price contractor has an hourly rate in mind - say $120/hr - then when they quote $12,000 per month, that really means that they intend to spend no more than 100 hours per month on your account. But if near the end of the month they have only done 20 hours, for example, then what happens to the other 80 hours? Nothing. You would have received inferior services for an astronomical hourly rate and have no recourse to approach the contractor and ask that they put in a little TLC.
3. Fixed pricing encourages increased risk. This one has a little math behind it: If a problem can be corrected in 1 hour but has a 10% chance of reoccurring in 2 months, or can be corrected in 5 hours and will never happen again, the fixed price contractor will always pick the 1 hour solution. Why? Imagine that they have 10 different clients with the same problem. They can spend 50 hours fixing it the right way for everyone, or spend 10 hours fixing them all the wrong way knowing that only 1 in the 10 (10%) will have a problem in 2 months (incurring another 1 hour then). Therefore, the total time saved by doing it the wrong way is 39 hours. A huge savings to the contractor.
Now imagine if that problem has downtime or data loss associated to it. This will never factor into their profitability equation.
4. Fixed pricing can be deceptive as far as measure of quality. Take database administration, for example, since that's what I know best. The measure of the DBA job in a fixed price model is to ensure that the database is up. Performance improvement or dealing with performance decline is not even in the contract. Also missing is any diagnosis of complex performance or network issues which may involve more than one piece of the architecture puzzle.
As soon as the fixed price DBA determines that "it is not the DB", the client is on their own trying to correct an issue where a DBA could be invaluable in diagnosis and building a plan for corrective action.
5. Fixed pricing estimates are high. They are high on a per hour basis and on an hours spent basis. This is because fixed-price contractors have to back their estimate for a year. You are paying for the risk that they have estimated another account improperly and need to make it up on yours. You are also paying for the risk that you may develop chronic problems-and so they charge for that in advance whether it happens or not.
Once the year is out, the best case scenario is that you have managed to be a "problem account" for them and have actually received some bang for your buck. Now that they know what kind of hours it takes to manage your account, you will receive a new estimate that will be calculated as follows: (yearly hours)*(markup for risk)*(200/hr)/12=(monthly rate). You will most likely not be told this formula but I guarantee that it exists. You can never beat it. You will always pay premium rates, even if you make it through the first year fighting for attention.
6. Fixed pricing never goes down, and it usually goes substantially up after the first year. Whatever the price is, the fixed price contractor always has an hourly rate in mind, like $200/hour. Ask. If you have already hired a fixed rate contractor, ask for a monthly report of how many hours they spend on you. Ask. You will most likely be denied since the hourly rate can be astronomical if they have successfully avoided doing work, but definitely ask.
And what happens if your technical needs are much greater than anticipated? At the end of the year, your fixed rate will be increased based on your hourly usage in the previous year so that you are back at their target profitability level (which they will still not share with you). Since you can never know how many hours they are really spending, you will never know what you are buying.
No matter how good it might seem at the outset, fixed pricing never adds up. You can never truly get the best deal-and you may be putting valuable data at risk. Because with a fixed-price model, if it ain't broke, they won't fix it.
Steve Pickard
CEO, Founder
Working actively with Oracle since the early '90s, Steve has architected and developed everything from large data-warehouses and decision-support solutions to award-winning instant Web applications. Steve has degrees in Mathematics and in Management of Information Systems from Ottawa University. Before founding Pythian, Steve worked as a consultant for numerous companies as well as the Canadian government. He remains the key architect of Pythian's highly sophisticated internal applications and business process systems.
 Google News Updated : Sat, 30 Aug 2008 00:25:40 GMT US Economy: Spending Slows, Inflation Accelerates (Update1) - Bloomberg
Bloomberg - By Shobhana Chandra Aug. 29 (Bloomberg) -- US consumer spending grew at a slower pace in July as the impact of the tax rebates faded and a pickup in inflation eroded Americans' buying power. Bonds fall on mixed economic reports Consumer spending flags, but confidence rises Publ.Date : Fri, 29 Aug 2008 18:25:06 GMT Obama’s Plane Palin Problem - FOXNews
FOXNews - by Major Garrett Reporters covering Barack Obama heard the news aboard Obama 1 (the campaign for the first time chartered a second plane for the swelling press corps), just before takeoff. Video: Raw Video: Schwarzenegger Praises Palin “Tougher in Alaska” host Geo Beach discusses Sarah Palin Publ.Date : Fri, 29 Aug 2008 22:07:29 GMT Aid agencies scramble to help flood victims - CNN
CNN - (CNN) -- The grinding misery triggered by the massive floods in a downtrodden part of northeastern India and across the border in Nepal persisted Friday, with government and aid agencies swinging into action to help the 2 million-plus people fleeing ... India: Up to 2000 feared dead in Bihar floods Millions displaced in Bihar floods Publ.Date : Fri, 29 Aug 2008 23:45:57 GMT Microwave baby killer convicted - BBC News
BBC News - A US court in Dayton, Ohio, has convicted a mother of murdering her one-month-old daughter by burning her to death in a microwave oven. Video: Prosecutor: Ohio Mom Killed Baby in Microwave US jury convicts mom in microwaved-baby case Publ.Date : Fri, 29 Aug 2008 20:30:22 GMT Protests Rise in Thailand In Challenge to Regime - Wall Street Journal
Wall Street Journal - By JAMES HOOKWAY and STEPHEN WRIGHT BANGKOK -- Waves of antigovernment protests spread beyond Thailand's capital Friday as clashes between police and demonstrators intensified, forcing the closure of several regional airports and disrupting rail ... Thai protest alliance not so happy with democracy US asks Thailand to end crisis through democratic means Publ.Date : Fri, 29 Aug 2008 22:33:23 GMT Boeing union leaders recommend strike - MarketWatch
MarketWatch - By MarketWatch Leaders of the International Machinists and Aerospace Workers on Friday rejected Boeing's third and final contract proposal and recommended its workers vote to go on strike. Union Leaders Reject Boeing Contract Offer Boeing Union Urges Workers to Reject Offer, Setting Up Strike Publ.Date : Fri, 29 Aug 2008 23:15:15 GMT Earwax: Too Much of a Good Thing? - WebMD
WebMD - By Kelley Colihan Aug. 29, 2008 -- The body is a miraculous mechanism. Consider the once-lowly earwax. People used to try to remove it. Leave That Ear Wax Alone National Guideline Against Ear Poking Publ.Date : Fri, 29 Aug 2008 18:32:14 GMT Increase Website Traffic |
PARLOT::Ebooks, Scripts,
Websites, and more... Direct Mail CampaignsDespite the proliferation of communication facilitators--mobile phones, faxes,... Read More Everything you do - or don't do sends a message... Read More If there is one thing I can't say enough it... Read More There are many ways to promote your website for free... Read More I attended a "Sales Focus" seminar a few years back... Read More What's black and white and read all over? A newsletter... Read More Interpersonal Communications is the transmission of information from one person... Read More 60+ hour workweeks, cash flows that constantly keep you up... Read More According to Dough McCormick, Chariman and CEO of iVillage, Inc,... Read More First of all - keep in touch with your customers!... Read More When studying the demographics of an area for a business... Read More With the Internet opening up the doorway to the global... Read More For centuries and most of the decades in the 20th... Read More This article is meant to be a brief review and... Read More Candy, squeeze balls, pens, and key chains -- these provide... Read More "Both the market and the distributive channel are often more... Read More Every direct mail package you drop in the mail should... Read More Regardless how small or large your budget is, there are... Read More Skilful business writing involves getting your message across simply and... Read More Before you create your postcard, do a little planning. Ask... Read More Promotions are everything you do to let your customers know... Read More Personal contact with customers is a crucial element in the... Read More I have always enjoyed talking to a Realtor friend of... Read More An important part of planning your business is to know... Read More Some people are happy with just a business card. For... Read More
Adsense
websites
Direct Mail Still Works!
You Cannot - Not Market
Specialized Mailing Lists Make All the Difference
How to Promote your business website using free online resources.
Marketing Strategy - Spell Out Your Unique Value
Out of Sight, But Not Out of Mind
The Importance of Interpersonal Communcation Skills
Marketing Flat? Is It Your Plan or Your Vision?
Supply And Demand And Marketing
Unique Marketing Ideas That Generate Cash!
Census Data Mapping for Small Business
Global Market in the Cyber world?Go and Get It !
E-commerce : The Bottom of Pyramid Approach
Overview on Qualitative Data Collection Techniques in International Marketing Research
The Magic of Using Booklets for Tradeshow Giveaways
Non Products Exist in this World
Direct Mail Offers: Eight Steps to Making them Effective
My Marketing Budget Is Small - How Can I Make The Most Of It?
The Secret to Good Writing
Planning Your Postcard Marketing Campaign
Promotions That Build Profit
Customer Retention with a Personal Touch
Testing Your Way To Prosperity
Who Is Your Market and Where Are They?
Promotional Magnets: Promotion that Sticks
Affordable and Reliable Web Hosting Starting at $4.49/Month
Produce More Sales from your Email Promotions Five Ways - Part 1
Do sales come from your ezine regularly? How many well-written... Read More
10 Packaging Tips That Will Make Consumers Buy Your Product
The customer is king/queen. We have all heard this mantra.... Read More
What The Heck Is An Eponym, And What Does It Mean For Your Brand?
Today I've decided to share with you a new word... Read More
Preventive Marketing Offers Small-Mid Sized Business Owners An Ideal Way To Maximize Their Results
As the owner of a creative services boutique - I... Read More
Meaning and Marketing -- The Links
You know who you are and what you want and... Read More
No One Gives A Damn About Your Business. Unless You Give em A Reason To
The good news is that there are thousands of people... Read More
The Power of because...
"Do it!", "Do it now!", or "Do it because..."Which of... Read More
Chill Out With A Summer Time Marketing Plan
Is your business experiencing a summer time slump? Traditionally only... Read More
Increase Repeat Business and Referrals with Direct Mail
So you have been writing mortgages like crazy now for... Read More
Marketing: Are You Focused?
In early 1992, President George H.W. Bush was riding high.... Read More
Dont Let Your Business Cards End Up in the Trash
Business cards are such wonderfully creative little marketing products. Most... Read More
How To Start A Mail Order Business
The Mail Order business is not a business of itself,... Read More
Marketing Strategy - Shift the Focus
Most of the service providers I've worked for or with... Read More
Your Marketing Plan - Prerequisite to Success
Marketing is a vital aspect of a business' operations. It... Read More
Top 5 Design Tips to Create Eye-Catching Marketing Materials
Great graphic design looks effortless, but it requires lots of... Read More
Your Ideal Client
A lot of small businesses make the mistake of thinking... Read More
The Seven Deadly Sins of Ineffective Nametags
Your nametag can be your best friend. It can be... Read More
Five Joint Venture Marketing Skills A Small Business Owner Must Have
Joint venture marketing is a lucrative way of leveraging the... Read More
Neuromarketing: Smart Marketing Or Jedi Mind Control Trick?
In the international bestseller "Blink," Malcolm Gladwell explains why our... Read More
Marketing Plans... A Simple Approach To Get Off The Marketing Roller Coaster
Are You Riding The Marketing Roller Coaster?If you're like many... Read More
Networking Basics Turn Yourself Into A Profit Making Giant
I would like to introduce you to one of my... Read More
High Response Marketing With Low-Cost Postcards
Postcards can drive a huge amount of traffic to your... Read More
Print Marketing Campaign, Whats Important and Whats Not!
Every company searches to lure customers to their product. Unless... Read More
Where to Look for New Donors for Your Fundraising Letter Appeals
Have you ever studied your best donors and wished you... Read More
An Example of Understanding Consumer Thinking
A church in my community provided me with one of... Read More
Marketing |