The most common strategies to bill customers for services are Turnkey and Time and Material. Turnkey means all services have a set cost that can only adjust if services are requested outside of agreed upon scope of work. Typically, modifications to a Turnkey engagement require a separate request for change that the customer must accept prior to including additional billing.

Turnkey services put the risk of losing profitability on the service provider, because cost does not adjust regardless the amount of labor required to meet the scope of work. This means the service provider has an opportunity to complete tasks under proposed time equaling additional profit. This could also backfire when services exceed the cost of labor. This is why it is absolutely critical to define an achievable scope of work for proposed services with some additional padding hours used for unforeseen incidents.

Customers tend to lean towards Turnkey services based on the ability to plan for expected costs. Customers can focus on achieving the results expected from requested services and hold service providers responsible when tasks are not completed without incurring additional labor costs. Large organizations like the US federal government are known to request for Turnkey services in formal Requests for Pricing (RFP) public postings. In most situations, there are guidelines written by the procurement office to determine who will be awarded the engagement based on factors such as best value, price, and meeting required items. We have seen RFPs backfire when the procurement office selects services based solely on best price. In some cases, the bad services cause more problems and cost multiple times higher to remediate than the previous best value offering. To help customers avoid this situation, we recommend working with customers on how to request specific terms and conditions that only qualified candidates could meet, to force a balance of best value and cost as an awarding metric.

The other common billing method for services is Time and Materials. Time and Materials proposals charge for hours used. Typically, service providers will list different hourly rates for billing categories, such as Project Manager could be 100 dollars an hour, but a Senior Engineer is 200 dollars an hour. It is common for services to be broken into task orders with expected hours to help the customer prepare for expected charges as the project proceeds.

Time and Materials puts the risk of high cost services on the customer, because services that exceed task orders continue to be billed. The benefit for customers is they may be able to spend less if they can own part of the work, as well as avoid the common extra padding hours charged with a Turnkey proposal. The downside for customers is the service provider is not incentivized to finish the project and could delay completion.

As a professional service provider, it is recommended to aim for developing a Turnkey services offering as you build a practice. Well-defined practices can set proper expectations with clients to avoid under scoping expected services. In our experience, customers do not have blank checkbooks for services, and desire a set cost prior to requesting for budget.