This post was written by the folks at Aries. it tells an amazing story.
Aries Technology Group LLC has been looking for ways to engage our customers on a fixed/value priced model since summer 2006. In order to do this, we had to break our old, comfortable habit of viewing the value of our business and embrace our customers’ view of the value of our business. We finally made the jump to fixed/value pricing earlier this year.
One of the obvious truths in invoicing customers based upon billable hours is that the value of the invoice is arrogantly determined solely by the invoice-er, and not determined by the solution to the invoice-ee. Once this fact was understood and digested, we became increasingly uncomfortable with the billable hour model.
But before taking the plunge, we wanted to know what our customers wanted. One of the tenets of this value pricing model is to offer the customer what they want and discard what the customer does not want. So we asked them, face to face, what they wanted when engaging our services and tapping into our expertise. We told the owners and major decision makers that we wished to move away from billable hours to fixed pricing. The response we received the most: relief!
Among our biggest supporters were our oldest clients: in some cases, clients we have maintained relationships with for over a decade. One owner in particular, a manufacturer of PVC pipe, told us in our meeting that he had actively instructed his staff not to engage our expertise in solving problems. His reason: not only would he not know up front how much time the solution would take, but he would also have no idea how much our invoice was going to be. He didn’t want to risk the invoice coming in greater than the value in solving the issue. Now he can budget our services and understand what he is spending his money on (value to him).
In addition, we made the decision to trash our timesheets. Here is what our staff had to say about this experience:
Amy Shaver, sales and administration: From the administration side of things: it has been great for me as the company administrator not to have to spend any time harassing our consultants to give me their time sheets. And, I don’t have to spend time with them determining the actual amount of time they spent on a support case, project, etc. Back in the billable days, we spent a tremendous amount of time going over all of the time entries, making sure not only that we were charging the customers correctly, but making sure we were capturing all of the time that was spent on projects. I can now focus on making sales and follow up calls to our customers, and not worry about having to explain our bills when I get the customer on the phone!
Tammie Slagle, consultant: As for me, being on the technical support side, I love it! I now don’t have to worry if a client is going to be upset when they see a bill from my company. It always seemed that the client would question the time we billed them for. And also, I don’t feel I am keeping them on the phone too long when I may need some extra time finding answers. It also helps me because I am not hurrying myself along and I now know they are getting my full and as long as needed attention.
Mark Boyd, consultant: Two bullets sum up my favorite things about trashing billable time.
- Spending less time at a client, yet creating more value that they are willing to pay for.
- Not having to keep track of anything but your progress on the project you’re working on. Rather than having to worry if you billed enough hours to make the “boss” happy, you can concentrate more on the job at hand which, results in a faster, more accurate project.
Michael Boyd, consultant: My entire career has been spent in the consulting industry; each company had used billable time. Of course we all now agree that tossing billable time is a good thing. I’ve got a few very specific issues which arose under that model that I’m pretty excited to be rid of. These items range from inconveniences to downright shady business practices.
The first was, shall we say, shifty time reporting. If you tell a client you’ll charge them 40 hours a week, but in reality you work 70 hours a week, what time do you record? The Management team only wants to bill 40, the consultants then can only record 40. Employee Paid Time Off is calculated on billable time, this means the consultants will lose 30 hours a week. Not fair to the consultant. On the other hand, clients agreeing to 40 hours a week, there may not be that much work to do, so we could actually work on 2 projects. In this case the client was overcharged for time. Many consultants I have known felt very morally challenged in these situations, many of those had quit over such concerns. It’s hard to sit in front of a client every day knowing full well what you’re doing.
Secondly, the more complex your assignments are (especially when working on multiple projects at multiple clients) time management and expense reporting becomes increasingly time consuming. At one point it took roughly 4 hours every week to record all my time on every project, then print in triplicate (office, client, personal) copies of every document and route those appropriately. In addition the introduction of time reporting systems such as SAP simply make the process that much more challenging as they have to track an even greater amount of information, and may not always be available while on the road.
Third, in some situations the client could use an improperly recorded time and expense sheet to withhold payments to a vendor. In these cases one overworked employee out of a 20-person team, could accidentally give the client the ability to withhold payment for months at a time. This situation, while great for the client, is not so good for the company.
Moving away from billable time, to me, means that you can create a better relationship with your clients as everyone knows from the beginning what the financial terms of the relationship will be. This allows you to do business without being concerned about price. Secondly the time spent by both the consultants and the clients in writing, reviewing, and tracking time, can be spent actually working on the project at hand. This to me is a much wiser use of everyone’s time and energy.
John Shaver, Partner: Doing away with billable time means that I can do more of what I enjoy doing: managing people and not managing time. Managing people is much more rewarding than simply checking metrics from last month’s time sheets.
Company morale has increased exponentially after getting rid of the timesheets since all of our team recognizes that everything is built on trust. Everyone in our company reminds me regularly that they actually enjoy coming in to work now!
Our customers are happy because they are actually in control of their budgets. They spend more and are happy to do it because they know the value of everything up front.
We have been able to do away with something that was a totally negative experience for everyone involved (customers, employees and owners) and turn it into a totally positive experience for everyone.