If you witnessed a tall, muscular person preparing to fight a medium height person of normal muscle tone, you’d think the big guy had all the advantages, right?
That’s what it sometimes feels like when it’s hourly billing vs an alternative pricing model such as IMPACT, value, or fixed fees.
Hourly billing has a long track record. Everyone thinks it’s transparent, meaning the buyer knows what they’re paying for.
Companies think that hourly billing ensures profitability. They think it shows them which employees or professionals are productive and which are not.
What if all that is not true?
Transparency
The ideal time tracking method would track each minute a person works and attribute that minute to a client, or to a non-billable activity.
But this does not actually happen. The individual worker has to enter their time for each client and/or project. In a busy day, this is seen as an annoying task and is often left to the end of the day or the week.
The firm promises to bill by the minute, and we have to ask, how accurate is the record at the end of the week?
What is the dividing line between billable/non-billable work?
The professional reads an article in an industry publication and learns something that helps clients.
Which client gets charged for the reading time?
Or does the professional have to count that as non-billable, which mean the hour they spent getting better at their work costs the firm money?
The false promise of charging only for “your work”
Where do hourly rates come from?
Firms will add up all their expenses and determine how much per hour they need to charge to cover those expenses plus make a profit. While they may “bill” different people at different rates based on the associates’ standing, all rates cover admin, operations, taxes, etc.
In other words, telling clients they are only being charged for the work directly on their project or needs is a lie.
Can a relationship based on a lie really be a healthy and positive one?
The promise of profitability
Those who dig their heels in on hourly billing claim that’s the only way the firm can assess profitability of each client or project.
I agree that with accurate calculations of costs+profit, an hourly rate can be set that guarantees profit per hour.
But profit per hour does not guarantee profit for the firm as a whole.
- Unsold hours reduce profit.
- Faster work for fewer hours reduces profit.
- Cancelled appointments or meetings reduces profit.
- Writing off hours because the client complains reduces profit. Surveys show that as much as 25% of hours billed are written off due to client complaints!
- Delayed Accounts receivable reduce profit.
The Winner is…
Or more importantly, the loser is hourly billing!
Your clients do NOT value your time.
They value how your knowledge and expertise changes their lives. Sometimes it’s a huge change, sometimes a modest one. In any case, the fee they pay is proportional to that life changing difference.
Hourly billing does not reflect anything about the client.
Not their needs, their wants, their desires.
Not the significance to them of the life changing differences you deliver.
Only YOUR time.
Bah humbug!
Embrace the winner
If you are tired of losing the hourly billing game, it’s eminently possible to embrace the winner, an alternative pricing model that prices according to the value to the buyer.
Want to know more?
Text WINNER to 703-801-0345