Fable
Two fishmongers, one who only takes what is caught on the hook, and one who takes a rod fee plus fish
By the river there were two fish sellers who specialized in sending people to fish for out-of-town traders. Old Kang only charged for fish—however many were caught, that was what was paid, and returning empty-handed cost nothing. Old Mu charged a rod fee—each boat paid two hundred wen per day up front to reserve a spot, and then fifty wen more per fish caught. At first, the out-of-town traders all went to Old Kang—zero risk, no cost if nothing was caught.
In spring there were plenty of fish, and Old Kang had a good harvest. He sent out ten boats a day, each boat caught forty jin, and he took a cut per jin, so life went smoothly. Old Mu's fixed fee looked more expensive than Old Kang's—he was already spending money before seeing any fish. But in summer, the weather was muggy and the fish would not bite. Old Kang sent out his ten boats for two days, three days with nothing to show. You charge by results, the result is zero, the income is zero—but the boatmen's daily wages and boat rental still have to be paid.
Old Mu's summer stayed steady as usual. He still collected the rod fee; though his share of the catch dropped, the fixed fee of two hundred wen covered the bottom line, and the boatmen's daily wages and boat rental were barely covered. The traders began asking both sides: Old Kang's zero-risk offer sounded good, but if Old Kang couldn't hold on and shut down one day, there'd be no one to fish. Old Mu's quote was a bit pricier, but he wasn't likely to disappear.
A long-time traveling merchant did the accounts. Hiring Old Kang to catch five hundred catties of fish a month cost fifty thousand wen by weight. Hiring Old Mu to catch the same five hundred catties cost fifty-six thousand wen in rod fees plus a share—six thousand more. But because of that six thousand wen, Old Mu earned a higher profit, hired two apprentices to repair boats, and increased fishing days by ten percent. The merchant said the extra six thousand bought supply stability, not a few more fish.
Old Kang also considered adding a fixed fee line. He changed some customers to a rod fee plus revenue share, and found that collection volatility was compressed from about seventy percent up and down to around thirty percent. But the original group of customers who only looked at the zero-risk label left—they felt that whether it was called a rod fee or a base fee, paying first was a step backward. The pricing structure determined who stayed.
What troubled the new traveling merchant most was, "What if I spend it all and get no result?" Old Kang bore the entire outcome risk for him, and 10% of the fee was a risk premium. Old Mu bore half the risk for him, with the other half spread across a fixed fee. Whether it is expensive depends not only on the price number, but also on who carries the part of the outcome that is uncertain.
The rationale for having both pricing models at once is clearest when settling accounts at year end. Old Kang's customers spend less but switch quickly — whichever month the fish are scarce, they run to another shop that month. Old Mu's customers spend more but stay longer — they know Old Mu has the money to run stably and will not shut down just because of two months of zero results. Pricing is not just about splitting money; it is about splitting who loses sleep.