I haven't had the time to really follow (let alone participate in) the "service" conversation but one of Terry's comments brings up an interesting product/service conundrum for designers:

> a significant step where a small business
> transitions its value offering from $/hour
> to $/thing. Usually this step is associated
> with strong increase in profit, improvement
> in customer relations  and improvement in
> operational efficiency.

Designers spend a fair amount of time and energy talking about how we do more than produce a thing so there is a tendency to try to distance ourselves from the "thing" thing. I've had clients that understand that they get more value from an hour spent talking to me than from an hour of me "designing." They are still happier with an invoice that raises the price of the "design" and eliminates any charge for consultation even if the thing is not particularly related to the conversation. Many people who choke at my hourly rate seem to be fine with my overall job prices. As so many of the "things" we buy dematerialize, I wonder how/if that attitude will change. 

The one instance I can think of where billing by the hour has worked out well for me is in being an expert witness. Lawyers don't seem to worry about wasting your time at full billing rate so that can be nicely profitable. Attorneys are one group that has defied Terry's pattern of abandoning hourly charges but I read something recently that said that many top law firms are starting to estimate and charge by the case or task as recession-era corporations refuse to enter into open-ended hourly billing situations.

Ken:
> American president once said of Lord Keynes, 
> "We are all Australians now.")

Ich bin ein Melbourner

Gunnar
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Terence Love [[log in to unmask]] Sent: Saturday, April 11, 2009 8:05 PM:
[snip]
One dimension I've found gives useful insights is looking at services and
products in terms of $/hour vs. $/thing.  In the literature on organisation
development, there is a significant step where a small business transitions
its value offering from $/hour to $/thing. Usually this step is associated
with strong increase in profit, improvement in customer relations  and
improvement in operational efficiency. Not for profit organisations appear
to have a similar step change. It is an indicator that the organisation now
deeply understands all the dimensions of a particular specific service they
offer to the point they can offer the service competitively at fixed price.
For example,  a surgeon charging by the hour or by the procedure. Where
organisations are not fully on top of a services issue they must price by
the hour to be competitive otherwise they must add such large margins to a
fixed price to ensure they do not make a loss. . This makes them
uncompetitive to those pricing on a cost-plus basis.