Mark Richman (Blog – Twitter) wrote a thought-provoking post about why he never bills by the hour. He uses a fixed-rate, value-based billing system; he works with the client to build an exact estimate first, comes to an agreement on the price, and then starts work. I do like that approach, but I haven’t been able to make it work for my own side work (performance tuning).
I like Mark, and I subscribe to his blog because he makes me think about my stances. I’ll quote each of his points, and then explain why I disagree.
“1. There is a cap on your investment. You know exactly what is to be spent and there are no surprises.”
When you take your car to the mechanic, there’s two reasons why they ask for your phone number: to call you when the car’s done, and to call you if they found more things the estimate didn’t cover. It’s up to you, the customer, to decide whether or not you want to put the car back together without fixing it, or whether you want to eat the costs for the other things they found.
The only times I’ve seen a perfectly estimated IT project was when the project manager swept all surprises under the rug:
“We won’t tell them about that emerging problem – we’ll just wait until it actually jumps out on its own and bites them in the rear, and then it’ll clearly be unrelated to the work we’re doing here. Otherwise, they’re going to say we found it and we need to fix it even though it’s out of spec.”
Fixed billing means that every new problem turns into a blame game – with hourly billing, the politics are completely removed. Decide if you want to fix the problem, and decide what it’ll cost – rather than padding the initial bill with wildcard numbers for potential problems that might pop up down the road. In the comments on the original post, Mark and others suggest that the answer to new problems is to submit a new proposal – but wait, I thought there was a cap on the investment and there wouldn’t be surprises? Hmm….
“2. There is never a meter running. You do not have to worry each time my help is requested that I might be here for an hour, a day, or a week.”
As a consultant, my worst nightmare is a client who expects to snap their fingers and have me show up instantly – and permanently. I’m no genie, and you don’t get unlimited rubs on my lamp.
There’s a word to describe people that you can call on for unlimited help at any time: employee.
“3. It is unfair to you to place you in the position of making an investment decision every time you may need my help. Otherwise, you’re trying to determine the impossible: Is this an issue that justifies a $2,000 visit or a $500 phone call. No client should ever be in that position.”
I feel the exact opposite: there is nobody better than the client to determine how painful an issue is. If you don’t feel that the issue is worth paying me for a few hours, then let it wait until our next scheduled meeting. If the issue is causing your business a ton of pain and you see value in paying me to fix it, then pick up the phone and let’s make the magic happen faster.
“4. Your people should feel free to use my assistance and to ask for my help without feeling they have to go to someone for budgetary approval. This only makes them more resistant to sharing their views, and at best delays the flow of important information.”
I like my clients. If I’ve got a relationship with a client, I genuinely care about their team and what they’re trying to accomplish. However, even my best friends have to respect my time. The best way to illustrate this is with internal meetings. How many times have you been sucked into time-wasting meetings that don’t have an agenda and don’t accomplish anything? This is what happens when nobody values time. If each person in the meeting had an hourly price, and that price floated over their head in a bubble, you’d better believe meetings would finish a lot faster.
I encourage my clients to email me anytime, no matter how small the problem. If it’s something I can fix over email, I do it without charge. Like Mark, I want to encourage the flow of important information, but time-consuming meetings and phone calls aren’t the only way to get information across. They’re the most expensive ways, and I want to cost you less.
“5. If I find additional work that was unanticipated but must be performed, I can do it without having to come to you for additional funds. In those instances, legitimate, additional work would otherwise be viewed as self-aggrandizing and an attempt to generate addition hours or days.”
If the client trusts the consultant, then they won’t see it as self-aggrandizing or a push for more billable time.
If the client doesn’t trust the consultant, then it doesn’t matter what billing system is used – the client’s going to suspect the bill is padded.
“6. If you find additional, related work that must be done, you can freely request it without worry about increased costs.”
Under fixed billing, it’s up to the client to *prove* that the work is related and that it must be done. Fixed billing creates this conflict between client and consultant, and this review process never ends.
Under hourly billing, you can bring me any work you’d like – related or unrelated. If your project changes scope midstream, it’s not a problem. Whatever you want me to do, I can do without arguing about whether it’s related. I find this relationship works better both as a consultant and as an employee – I just want to deliver satisfaction, not a set of fixed deliverables, because nothing’s fixed.
“7. The overall, set fee, in relation to the project outcomes to be delivered, is inevitably less of a proportional investment than hourly billing.”
I’m not quite sure what this is saying. If it’s saying set fees are inevitably lower than hourly, I just don’t agree. The word “inevitably” needs evidence.
“8. If conditions change in your organization, you wonít be in the difficult situation of having to request that the project be completed in less time. The quality approach is assured, since the fee is set and paid.”
Translation: all sales are final.
With hourly billing, if the client’s conditions change, their options are always open. If you decide you’d rather have internal staff complete the project, you can do that. If you’d like to bring in more consultants, you can. If you just want to pull the plug, you can.
“9. If I decide that additional resources are necessary, there is no cost to you and I can employ additional help as I see fit.”
If a consultant wants to work more without getting paid more, then it doesn’t matter whether they’re using fixed billing or hourly. They can just do it.
On the flip side, if I find out that LESS resources are necessary, the client is screwed under fixed billing. Or is Mark saying he’d refund some of the price? In which case, that’s not fixed billing….
“10. This is the most uncomplicated way to work together. There will never be a debate about what is billable time (e.g., travel, report writing) or what should be done on site or off site.”
The key to successful fixed billing projects is building a perfect spec before the work starts – and who pays for that? Before the consultant and the client can agree on a set of deliverables and a price, they have to build that set of deliverables. Building the list of deliverables takes time and effort – but who pays? It’s complicated. What if a consulting company helps you build your set of deliverables, but then you shop those deliverables around to other companies – and decide to go with another company? Do you pay them? Do you have to renegotiate the deliverables with the new company, especially if they disagree about related work?
Under hourly billing, it’s simple:
- If I’m doing something for you at your request, you’re paying me.
- When I’m not, you’re not.
What could be simpler than that?