Folks, just to point out that there are many ways to invoice or bill. As
one who has designed numerous such systems over the years, the ideal
billing system is one in which the customer can control costs through
changes in behavior. Ie, if I decide to do less of "a", my costs will be
reduced.

The kinds of billing structures being described in this thread are
factored billing structures. In a factored billing structure, individual
customer actions (ie the actions you can control) are broken into
factors. The theoretical advantage of a factored billing structure is it
offers the possibility of benefiting the customer because it takes into
account the customer's actions relative to other customer actions on any
given day. For example, on one day, you may pay 50% less for a delivery
charge because the truck that day was full with other customer orders,
therefore reducing everybody's relative costs for that day. The more
over all demand, the less everyone has to pay. Such billing structures
are not uncommon in services involving shipping, or in such services as
mail pre-sort contracts. Common to all of these are the need for a
fairly substantial investment in infrastructure/equipment. The factoring
allows the vendor to maintain that infrastructure/equipment consistently
over time, in spite of changes in demand during any given period,
thereby enabling consistent responsive customer service. The problem,
however, is such systems don't offer any ability to the customer of
controlling many costs - you have no control over which truck the vendor
decides to use, for example.

When looking at any agreement, ask yourself to what extent you could
control costs by your own actions. The issue is not necessarily whether
the contract fixed a given factor price; the issue is to what extent do
factors play a role, and to what extent do you have control over them,
not the vendor. Many in this conversation are expressing expectations
common to a fixed unit price contract in which the unit prices have a
direct link to customer actions, when in fact the contracts being
described are factored pricing structures, in which many of the factors
are out of the customers control. Beware of vendors who promote factored
billing systems as if they are not factored billing systems at all,
usually with a vague clause about prices subject to demand, overhead,
administrative fees, etc.... Again, how many of the factors do you
control? If the answer is not a lot, be prepared to be surprised.

Dwight Wallis, CRM
Records Administrator
Multnomah County Fleet, Records, Electronics, Distribution and Stores
(FREDS)
1620 S.E. 190th Avenue
Portland, OR 97233
Phone: (503)988-3741
Fax: (503)988-3754
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