In ancient Rome, during the Punic Wars, Cato the Elder is said to have ended every speech he delivered before the Roman Senate with the phrase, “ET CARTHAGO DELENDA EST” (and Carthage must be destroyed!). He did this without regard to the subject of his speech.
It is in this spirit that I will begin to close all my post with the phrase, ET HORA LIBELLUM DELENDA EST which, loosely translated, means, “and the billable hour must be destroyed!”
“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 isthe right thing for a customer. “You will only pay for what you need,” they claim.
I 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!
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.
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.
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.
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.
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.
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.
I am sesquipedalian. So when a new word that I had not ever heard comes my way, I am very excited. This one comes courtesy an exchange between Ron Baker and Jim Caruso, Partner in charge of Financial Management Outsourcing for Fesnak and Associates LLP.
Jim send the following email to Ron a few days ago and Ron passed in along to me.
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.
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!