Two Tools for Fighting the ABH

This week, two tools for fighting the ABH (almighty billable hour) appeared.

This first is this great video created for Aries Technology Group by Greg Kyte. For those of you who do not know, Greg is a part-time stand up comedian and the G. Robert Newhart Non-Value-Added Fellow at the VeraSage Institute.

I spoke with John Shaver this week and he said the video has already helped him close a deal. Kudos!

imageThe second tool is called Lawyer Clock (although it works equally well for accountants and IT vonsultants).

You simply enter the hourly rate, the number of billers at the meeting and the percent of time spent on topic and the  site will calculate cash burned, time lost and cash spent off-topic.

Enjoy!

The ABH is not an ECE

image“Would you want to buy from you?” I asked this somewhat rhetorical question at a recent Sage ECE (Extraordinary Customer Experience) Workshop I delivered to Sage business partners.

I continued, “Would you want Sage to bill you by the hour for support regardless of the outcome of the call?” The reaction was clear. “HELL NO!” one participant shouted.

Yet, the majority of Sage partners (and all professionals for that matter) that I encounter still bill their customers by the hour. Some have even twisted the idea into thinking it is the right thing for a customer. “You will only pay for what you need,” they claim.

imageI am here to tell you using the ABH (almighty billable hour) is not an ECE (extraordinary customer experience). Sage partner, Sonia Gray, once told me that after she switch to fixed price agreements, one customer told her, “I am so glad you price this way now. I always thought the billable hour was a license to steal.” Wow!

Here is a list of just the customer experience reasons to abandon the ABH, based on Chapter 7 of Ron Baker’s treatise Professional’s Guide to Value Pricing.

  1. It creates a conflict of interest between the consultant and the customer (the very person you are trying to help). It is the customer’s best interest to reduce the number of hours; it is the consultant’s best interest to increase the number of hours. Hmmm.
  2. It focuses on the efforts, not the results. Your hours are the inputs, not the output. The output is the solution to the customer’s problem. Focusing on hours would be like counting the number of swings a batter takes in baseball and ignoring the hits or lack thereof.
  3. It puts the risk of the engagement back onto the customer. This is lunacy because the customer is paying you to reduce the risk, billing by the hour transfers this risk back to the customer, no wonder they don’t want to pay your bill. When you reduce your risk, you also reduce you potential reward, meaning your potential profitability. Being in business is a risk, embrace it.
  4. It creates a corporate welfare system. Often times it is the C and D customers who complain most and are granted relief of, at least part of their payment. In order to make up for this in the aggregate your company must do something in order to remain profitable. The something is, ultimately, charging more to the A and B customers who complain least and rarely do not pay. You are, in effect, subsidizing your C and D customers, by taking more from your A and B customers. You are giving to the have nots at the expense of the haves.
  5. It makes you a lazy project manager. Because the customer is “paying for what they need,” scoping and change requests become a non issue. Why bother? They are not paying for a scope of work, they are paying for your hours. This allows you to a) not scope the work properly in the first place and b) assume every change requested by the customer to be in the “new” scope. Partners then complain about scope creep. This is nonsense because, in my opinion, you never really had scope in the first place.
  6. Lastly, it does not set your price upfront. An hourly rate is not a price unless you are only selling one hour. A range-of-hours proposal (always couched with “this is an estimate”) is a guess. Worse still the customer will only look at the low number, whereas, you will only look the high (plus 10 percent). Customers, like you when you buy stuff, want a price. It is a rational request, honor it.

Have I missed any? I am sure I have.

Legal Intelligence – an oxymoron

imageYesterday, the Wall Street Journal ran what is I believe an annual story on lawyers who bill more than $1,000 per hour.

With the exception of those who list Bankruptcy as their practice area, who I understand are required by the courts to track their time to the tenth of an hour, I submit that this is the list of smartest, but economically ignorant people in the United States.

Here is the “time is money” quote from the article – “Harvey Miller, a bankruptcy partner at New York-based Weil, Gotshal & Manges, said his firm had an ‘artificial constraint’ limiting top partners’ hourly fee because "$1,000 an hour is a lot of money.”

Yeah, the “artificial constraint” is called the almighty billable hour! At least poor Harvey is a bankruptcy attorney, so maybe he knows better.

How NOT to handle customer consultations

Recently, a friend of mine passed along a newsletter she received from her CPA. Most of the content dealt with tips on preparing for tax filing, but one entry stood out.

Consultations versus “Quick Questions”

One of the things my clients have enjoyed over the years is relatively easy access to me for “quick” questions, by email or phone.

I noticed this past year, that sometimes I was overloaded with these “quick question” contacts during my busiest time of the year.  Even though I strongly encourage my clients to contact me for consulting during the other months for planning-type consulting, I was having to dedicate one to two hours a day replying to “quick” questions when I had 3 weeks or more of tax return work to attend to.  Handling all the “quick” questions was not happening quickly enough, and I fell even further behind.  My CPA association professional standards require me to obtain documentation for all advice given, which adds to the time needed to reply to your questions.

To help with the stress, and to be fair to those clients who have brought their tax information in to be worked on, I have decided to handle these email and phone “quick questions” a little differently this coming year.  It is an experiment, and I am open to hearing from you constructive comments on how I can better handle this area.

As announced in an earlier newsletter, starting February 1, 2011, I began handling these consultation requests more formally.  I will provide one “quick” question consultation, by email or phone for free to each returning tax client, per year.  Of course, there are limits to this, based on complexity and time involved, thus the implied definition of “quick” question.

After the one free “quick question” consultation, each additional such consultation will be provided to you for a small fee, depending on the complexity of the consultation and the length of time involved.

The minimum fee for these additional consultations will be $25 and will be due promptly.  If you choose to have me charge this fee to your credit or debit card, I will add $1 to cover part of the fees the card companies charge me for handling the transaction.

Yes, I know this is quite a change from the unlimited access to me you have enjoyed in the past, but I must get better control over my time, especially during tax season.  Your planning ahead on consulting questions, to minimize the fees I charge to you, will enable me to devote more time to tax form preparation during the busy times.

During the less busy times of the year, I will, at my discretion, waive the “quick question” consultation fees.

Please understand the limitations on my time during my busy time of year, which does not end until early May.  I will be working 70 to 80 hours a week during this time, doing my best to get your tax forms back to you as soon as possible.

One thing you might keep in mind, too, is that when you call for that “quick question”, if you talk with my receptionist or my tax assistant, and you will accept an answer from her, and she does not have to ask me the question to give you an answer, I will not consider this a consultation subject to the fee mentioned above.

What I am trying to accomplish is a reduction of the interruptions.  The preparation of your tax forms is tedious work requiring deep concentration.  Each time I have to stop to answer a phone “quick question”, even if it just takes 5 minutes, requires me to then have to regroup my thoughts and get back to the task at hand.  On a typical day in my busy time, I receive 20 to 30 calls a day.  I have a receptionist to take those calls and hopefully handle your requests.

Much is wrong with this, but let me point out a few items:

  1. The use of quotation mark around the word quick indicating that they are so-called by the client (his word) and that in his mind often these are not quick.
  2. Clearly, he uses the term client in all of its patron-benefactor denotation glory. He views my friend and others as the great unwashed, who can never understand the subtleties of his work.
  3. He acknowledges that these have become a problem, but rather that stratifying his clients (customers) and offering options, he decides to limit these connections for all.
  4. By limiting these interactions he is losing potential business. I am sure that some of these calls turn into engagements, now he will not ever get them because customers will be wondering if they should blow their one free call on something they think is insignificant.
  5. He also institutes a penalty of $1 for putting one of these on a credit card. I guess he would rather bill them in arrears and wait to be paid for at least 30 days. Why not just charge everyone $26 and call it even across the board?
  6. He insinuates that the answers giving by his receptionist and tax assistant have no value. If they answer the question then it must be unworthy. This makes them feel valued I am sure.
  7. Ultimately, he is blaming his own mismanagement of his resources on his customers.

Here is the kicker – he does not bill my friend by the hour, he fix prices all his work and as far as I know does not keep a timesheet. He could be a Trailblazer based on this. But the tyranny of time cuts deep, my friends, he is still mired in being a firm of the past.

On Why Specialization Often Fails

My friend, VeraSage Senior Fellow and author of the new and essential Social Media Strategies for Professionals and Their Firms, Michelle Golden, was recently interviewed by CPATrendlines on why it is that specialization in professional firms often fails.

Her solution is simple, but not easy for many firms to do.

So if the choice is specialize and increase price or don’t specialize, what are firms more likely to do?

Your Vote Needed – Best Timesheet Video

Below is a list of videos I found on youtube that are related to the timesheet with a link to a playlist I created if you want to view them consecutively. Please view them and let me know which is your favorite.

  1. Do your timesheet by joebeegnish – This would be funny if it were not serious.
  2. Time Sheet Song by liltam21 – There is even a song about this…
  3. Time After Timesheets – by PaulDesRosiers – …and a cover/parody of a real song…
  4. Time sheet drama by pumpkin1017 – …and a cartoon version…
  • timesheet by manuviora – …and even one en Española!?
  • May Timesheet Reminder by tracywald – Yes, Godfather parody…
  • June Timesheet Reminder by tracywald – …and a Matrix parody. This is a whole series from one person. I wonder what she puts on her timesheet when producing these.
  • Gordon filling out his Timesheet by 94WYSP – An absurdist drama…
  • Saw Timesheets by hordeman70 – …and a horror flick.
  • How to Create Stickies Timesheet Reminders by tsgvids – Funny for its unintentional earnestness.
  • Workamajig Creative Management: Angry Men by workamijig – Because “creatives” love filling out timesheets online.
  • Timesheets by BereaCollegium – Finally, the truth!!!

    So which one is your favorite?

    Bonus question: If you fill out a timesheet, what did you code watching these to?

    A Question on Pricing and Resource Planning

    Some weeks ago I received the following email from Wayne Schulz:

    A random thought on pricing that may be worth a mention because as projects grow in scope and typical staffing numbers shrink – load balancing of work is critical and I’m seeing clients get a quote for work in early summer, then the client delays it, then they want to pick it up in year end.

    We already tell people to add 50% to the project if any part demands night / weekend work. I don’t see why we should not have a similar surcharge for work that gets delayed into our busy season.

    Just a quick thought that came to my mind as I struggle (as I’m sure most of you are) with prospects/clients who you proposed on back in March/April and maybe started some work in June – only to have the client back off because of any number of concerns (not ready, need further data fix-up, etc).

    I have four prospects/clients whom I proposed on back in March/April and maybe started some work in June, only to have the customer back off because of any number of concerns (not ready, need further data fix-up, etc). They suddenly want to become active in what I feel is my prime season — November through January 31.

    Which leads me to my question – why the heck do I allow customers to be quoted on one price for work scheduled for our down time – and then the customer delays and comes back to us in peak season.

    Anyone try booking a cruise in the months of March or May. They’re dirt cheap. Why? It’s off peak. Try booking again when school lets out. Completely different fare structure. Why? It’s peak season.

    Yet, I pretty regularly see this happening with my projects. I have one customer where I scheduled an upgrade for June 2010. They discovered out of balance items and rather than purge data they opted to create an adjusting entry (most of which I provided while I was there in June).

    Fast forward to January 1 and suddenly they want to be live by January 15.

    Ummm – ok so I’m not that fast on the uptake but it hit me this morning. These clients are being quoted during off-season and then moving their engagements into the peak season for no change in fare!

    Just an observation – and I don’t have a good solution other than to work into my options that pricing is only valid for engagement started by X and finished by Y.

    My reply:

    Wayne,

    AMEN!!!

    The price quoted should have a specific completion date associated with it. If the customer wants to change the completion date it is a change request which may or may not include a price change. In the cases you are describing they certainly would.

    Some sample language might be:

    • “I am sorry, but the original quote was for work done during off-peak operations for us. Now that we in our peak season, there is a fee increase. You, of course, have the option to delay this until next summer for the original price.”
    • “I am sorry, but you lost your window. Our company is similar to an airport, we can only land so many planes at once.”
    • “I understand you had to delay, it happens to many of our customer, but…”

    I hope this helps.

    What might you add?

    On Timesheets and Cost Allocation

    Earlier this week I received an email from friend of VeraSage, Kirk Bowman of Mighty Data, who, by the way, his given himself the great title of Visionary of Value in his email signature and on his business card. He writes:

    At the most recent meeting of our FileMaker Business Group this week, I got a question for which I did not have a good answer. The question is, if we are not tracking time, how do I know if a specific project is profitable? They were asking for a metric to measure financial success or failure on a project by project basis. I’m going to review the slides from August but I thought I would ask your input also.

    The short answer is, “If overall profit is up xx percent, who cares?”

    The more detailed answer: You allocate your costs ahead of time, like Toyota does as they do not have a traditional cost accounting system. They use what is called targeted costing.

    Say you plan to do 12 major projects a year and $1.2 million in overall cost. You would start by allocating $100,000 to each. Now some would argue that some projects are bigger than others. OK, fine. Let’s allocate $200,000 to two of them, $50,000 to four of them, and leave the remaining six at $100,000. Of course, you can adjust them based on your judgment, so long as the total remains $1.2 million.

    Project Straight Adjusted
    A 100,000 200,000
    B 100,000 200,000
    C 100,000 100,000
    D 100,000 100,000
    E 100,000 100,000
    F 100,000 100,000
    G 100,000 100,000
    H 100,000 100,000
    I 100,000 50,000
    J 100,000 50,000
    K 100,000 50,000
    L 100,000 50,000
    Total 1,200,000 1,200,000

    Is it perfect? No, but allocating costs based on a time unit is just as flawed as assigning value to the customer based on a time unit. It is the same false premise: value or cost does not equal rate times hours.

    Is an hour billed on a project a good thing or a bad thing? No one knows, some hours might be good others bad. It is a judgment and therefore there is no reason to measure it. Allocating costs as above will make you approximately correct, rather than precisely wrong!

    Tracking time might make you a better cost accountant, but cost accountants make lousy pricers. I would rather be a better pricer.

    Lastly, timesheets are the cancer of the professions. They cause us to focus on the wrong things, the inputs. Professionals should focus on the right things, the outputs to the customer: deliverables, objectives, overcoming risks, solving issues, etc.

    TIMESHEETS DELENDA EST!