Innovation in Engineering Billing
The way engineering services are billed is rarely discussed – yet it plays a part in determining how good the result turns out to be. Anyone paid by time earns from effort, not from outcome; the more efficiently they work, the less they earn. Where the gain from an innovation can be quantified, we resolve this contradiction: our fee is a pre-agreed share of the measured gain.
Engineering services are usually billed by effort, typically at hourly or daily rates. This is honest and simple – yet it still puts the wrong question at the centre. Anyone paid by time earns from effort, not from results. The longer something takes, the better it is for the service provider. The economic risk that the effort ultimately exceeds the benefit lies almost entirely with the customer – and the more efficiently the service provider works, the less they earn from it. This is the contradiction at stake here. For development projects whose outcome cannot be measured, billing by effort remains the honest approach; where the gain can be quantified, there is a better option.
On top of that: the use of AI is changing the relationship between time and outcome. If a tool condenses five days of work into one, the hourly bill would have to shrink, even though the result is at least equivalent and delivered sooner. This penalises exactly the efficiency that actually matters to the customer.
“A fee based on the gain can ultimately be higher than a fixed price – but it is paid from money that wouldn't exist without the innovation."
Sharing in the success
We are so convinced of the impact of our work that we make the fee wholly or partly dependent on the success of the innovation. The approach is as follows:
- Jointly define one or more monetisable KPIs to be improved – directly or indirectly linked to the innovation.
- Develop, implement, and roll out the innovation.
- Monitor the KPI: if the improvement occurs, it is quantified as a monetary value.
- A previously agreed percentage of this gain is the fee.
A KPI can be many things – as long as it can be measured and monetised:
- Reduced workload – time savings
- Faster completion – schedule advantage
- Financial savings
- Elimination of external services
It is possible that you end up paying more than if you had commissioned the innovation upfront. In return, your risk is lower, and paying from the gain comes easily. If success doesn't materialise, the success-based portion doesn't apply either. Because our fee results from the measured gain, both sides work towards the same outcome.
Who this isn't for
Not every project is suited to this. Where no outcome can be cleanly measured, classic billing remains more honest than a made-up metric. And where the task is pure execution, there is nothing to share. This model is the option for projects where the outcome matters and can be named. Hybrid forms are also possible.
Sources
- Keränen, Kienzler, Salonen, Terho, Totzek – Gain-sharing in performance-based contracting (Industrial Marketing Management, Vol. 115, 2023) – on the principle of sharing measurable added value between provider and customer.
IDEA e.U. · Determined Innovation