Usually, when we base pricing on something, we either start from the “time and materials” approach (inputs) or the “value” approach (outcome). But there’s also a third option that usually doesn’t readily come to mind unless you are a translator: the “per item” (output).
I mention translators because their default unit of measure for billing is often “per word” or “per card”, but that can also look like:
– Per Report
– Per Project
– Per Feature
– Per Line of Code
– Per Design Element
– Per Photo
– Per Document
and so on…
In short, people use it over the other methods because it’s more transparent and flexible than outcome pricing, but it’s also more predictable and rewards efficiency more than input pricing.
People who stay away from it do so because it focuses on quantity rather than the value delivered, so the client has a chance of feeling they were overcharged for something they didn’t need. Many services are also difficult to quantify into discrete units – anything creative, connected to healthcare, or with an advice-when-you-need-it approach is a good example.
My take on it is that it’s usually best used for “spillovers” or scope increases over the initial scope.
1. Fix the price to the initial scope
2. Anything above that is charged “per item.”
It’s easy enough to get that into the initial agreement, and it will help you deal with scope creep nightmares.