Why fixed price beats time and materials for systematised firms.
The hourly model is a tax on systematisation. When agents do the first 60 percent in 30 minutes, the billable hour stops paying you what the work is worth.
For thirty years the time and materials model paid the bills. Hours times rate equalled revenue. Bodies were the unit of value. The bigger the team, the bigger the cheque.
That model is now a tax on the firms doing the work properly. If your agents do the first 60 percent of every deliverable in 30 minutes, why are you billing the client by the hour?
The math the T&M firm refuses to do.
Consider a discovery report that used to take a senior consultant four days. USD 250 per hour, eight hours per day, four days. Sixteen hours billable. USD 8,000.
Now the agent drafts the discovery in 40 minutes. The senior reviews and shapes in two hours. Total billable time, two hours and forty minutes. USD 666.
Same deliverable. Same client. Same outcome. The firm just took a 92 percent revenue cut on the most leveraged work it does. Because it is still pricing the hour, not the outcome.
The buyer does not care about your hours.
The buyer cares about three things. The outcome. The certainty. The speed.
Fixed price priced on outcome wins on all three. The buyer knows the price. The buyer knows the deliverable. The buyer knows the date. Hours are an internal concern of the firm, not the buyer.
T&M is the firm telling the buyer "we do not know how long this takes." That is a confession. Buyers respond accordingly.
The objection from inside the firm.
"But fixed price puts the margin risk on us."
Only if you have not systematised. The systematised firm knows exactly how long the work takes, because the agents and the playbooks make it predictable. Scope creep is caught by the engagement structure. Estimating is fast because the firm has done this work a hundred times.
The unsystematised firm fears fixed price because it is honest about not knowing. The systematised firm prefers fixed price because it pays them what the outcome is worth.
How to move.
Three phase migration over a quarter.
Phase one. Pick three deliverables you sell repeatedly. Discovery report. Roadmap. Phase two SOW. Productise each at fixed price. Anchor at the price of three days of consultant time, not the actual hours the work takes.
Phase two. Move flagship engagements to fixed price by phase. Fixed price per phase. Time and materials only on phases you cannot scope yet.
Phase three. Move retainer revenue to outcome based pricing. Monthly fee for an outcome, not for a bag of hours. Hold the OpEx flat.
The compounding effect.
Firms that move to fixed price plus systematised delivery see margin lift between 15 and 30 percentage points within twelve months. Same headcount. Same revenue. Different shape.
Buyers do not push back. The good buyers ask for fixed price. The buyers who want T&M tend to be the buyers who are not buying outcome anyway. Let them go.
Apply for the founding cohort if you want the system that makes fixed price actually work.
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