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.

Ga-doing! Ga-doing! Ga-doing!

Hear the sledges with the bells –
Silver bells!
What a world of merriment their melody foretells!
How they tinkle, tinkle, tinkle,
In the icy air of night!
While the stars that oversprinkle
All the heavens, seem to twinkle
With a crystalline delight;
Keeping time, time, time,
In a sort of Runic rhyme,
To the tintinnabulation that so musically wells
From the bells, bells, bells, bells,
Bells, bells, bells –
From the jingling and the tinkling of the bells.

– Edgar Allen Poe

There it was on page 64 of the January 23, 2010 issue of The Economist! Another death knell for the billable hour has sounded.

In a recent paper, ‘The Death of Big Law,’ Larry Ribstein, a law professor at the University of Illinois, argued that after decades without changing, law firms are likely to have an outburst of experimentation with different business models: even the venerable and lucrative “billable hour” method of charging clients is in doubt.

It reads like an obituary doesn’t it. I anxiously await the wake!