I read this article in A List Apart with interest. Value based pricing vs. time and materials billing a topic that sparked a passionate conversation at OwnerCamp a few months back, and it’s one that I’ve been thinking a good deal about on my own as well.

At a certain budget size, I think the way you bill a client starts to matter less. Value-based pricing is ultimately reflective of an hourly rate somewhere in the calculations and if you bill hourly you still need to provide overall project estimates. The client is signing off on a large chunk of money for what you are going to design/build/maintain for them. The important thing is how the billing approach affects the relationship that you have with the client.

At Crowd Favorite we believe it’s important to take an active role as a development partner in the projects we undertake with our clients. We bring up new ideas, propose approaches, etc. – all things that tend to make a project better, but also often result in changes to priorities, scope and yes, fees.

I like our approach. I think it works well for our clients as they benefit from the combined experience of people that make the web on a daily basis. I think it works well for our team as they are fully engaged on our projects; not simply implementing someone else’s ideas/design/etc. The question I struggle with is “what is the best way to make the necessary business/contract part of the project complementary to this approach?”

If you go with value based pricing (a fixed rate for a fixed set of features) each new idea results in a change order/contract addendum that often has to go through legal sign-off, etc. on top of the stakeholders approval. The other approach is a time & materials project (billed hourly, weekly, etc.) with estimates and (hopefully) loosely defined project goals within the legal documents.

I feel the T&M approach provides more flexibility to make course adjustments for new ideas, new priorities and new approaches as the project progresses. That said, you still need to be proactive and update the client with revised estimates whenever things change that would impact the overall cost of the project.

With any approach you take, you still have to have direct conversations with your client about costs. The cost of doing something is part of their decision making process, and there is no way to avoid that.