“I never realized how bad hourly billing was for our company until one day we got a complaint. A long-time client said to me “Jim, I can’t believe after all this time that I have to pay for every $!#$# phone call.”
That made me really see hourly billing from the client’s point of view. Here was a great client who was steaming mad. Right then and there, I decided to switch to value based pricing.” Jim Y. Founder and Managing Partner, CPA firm
Jim heard this warning signal and acted quickly to retain this client.
Clients Give Their Providers Warnings
Complaints about invoices from services firms are not about the money per se. They’re about other issues and the invoice prompts these complaints.
You may have clients who have not commented or complained for months or years and all of a sudden, they do. What’s that all about?
What do complaints about invoices mean?
- Doubts about what they’re getting for the money.
- No connection in their minds between the invoiced hours and the value they’ve received.
- Wondering why the work “took so long.”
- They’ve heard that other people pay less for “the same work.”
- They can get a long list of things for a fixed fee from another firm.
Jim, the CPA, and many other clients, get a sinking feeling when their clients complain about invoices. They search high and low for justifications for the invoices. They’ll go back and reduce the hours billed. Sometimes they urge their staff to work faster. Creating more tension, they remind their staff what’s billable and what’s not. The most sensitive among them stop and wonder if it’s their fault that they pushed their staff to bill as many hours as possible.
When you think deeply about the complaints however, there’s one underlying reason for all of them.
Clients are questioning the value they’re receiving for the amount of money they’re paying.
There are Two Reasons
One: Your firm hasn’t articulated, again and again, the value you deliver to clients. Your marketing, your sales, your discovery, your social media, and every conversation focuses on the inputs. We do this and that. You get this and that. The list goes on. The more someone hesitates, the more you increase the list of things they get.
The huge problem with ignoring value is that you haven’t turned the client’s attention to how their lives change after you’ve delivered. It’s like buying a cart full of groceries and never talking about the meals, the nourishment, and the enjoyment the diners will leave with once they’ve eaten.
Two: Your internal management is based on hours billed. Every decision, from costs to the number of people to benefits, to revenue and profit goals, customer service and services development is predicated on hourly billing.
A CEO I know recently offered a bonus–a big one–to his associates who increase billable hours by 15% or more. He looks at the company and its associates as producers of billable hours. Not value, not deep expertise, not delivering high quality in the shortest time possible commensurate with that quality. Just hours, hours, hours.
If I were a client of that firm and heard about this bonus for more billable hours, I’d run the other direction! I would always be questioning if I really needed the work, or did they make it up so they could invoice for more hours?
IMPACT Based Pricing is the Best Response
IMPACT based pricing—that is, pricing that reflects the life changing value the firm delivers, is the only meaningful response to complaints about hourly billing. If you reduce hourly rates, speed up work, or give bonuses for more billable hours, you are not hearing what these complaints are all about.
They are not really about the dollars; they are questions about value.
If You Don’t Know Your Value, Ask Your Clients!
The craziest thing I encounter with knowledge services firms is their insecurity about the value they deliver.
Overcome the insecurity by asking your clients what value they’ve received. They’re happy to tell you. If they’re not, you learn that you’ve got work to do to improve that client relationship.
We have designed a process for calculating the fee-to-value ratio of the work your firm does. Study it and apply it. The only way to start is to start!
Speaking of STARTING
You’re invited to schedule a STARTER Call with me in the next couple of weeks. And for those who are wary of this being a 45 minute sales call—well, the only way to know it is not is to book one.
Why a STARTER CALL? To give you 1, 2, or 3 steps you can take to start making improvements to your billing model. That’s it. Take these steps and get started.
Don’t wait until another client complains about an invoice. START now to see hourly billing from the client’s point of view.
Email or text STARTER to 703-801-0345.