Questioning the Billable Hour
Situation A: Is Faster Service Worth More?
Your computer is not working properly. You have tried to understand the problem and find a solution that you can implement yourself. Yet, after trying, you are no closer to a solution. You find the situation aggravating and you decide that there’s no point in continuing to attempt fixing the problem yourself. Your time and attention are better spent on productive activities and should not be wasted on this computer problem any more.
The computer technician that you call asks a few questions then says to bring the computer in to his shop. He charges $60 per hour and predicts the computer ready in two business days. Once he has the computer, he will diagnose the problem then call you with an estimate.
Q1 As you consider not having your computer on hand for two business days, and the opportunities to use it productively that you must forego, would you be willing to pay more to have it fixed and back in use much sooner?
Q2 If the computer technician offered to fix your computer within 24 hours, satisfaction guaranteed, for a fixed fee agreed in advance, how attractive would that be to you?
Situation B: Evaluating Your Next Car
You and your spouse are shopping for a new car. Having visited a few car dealers, conducted research on the web, and spoken to a trusted person at your usual auto-service shop, you and your spouse have narrowed your search to two cars, both of which you have taken on a test drive together.
Q1 As you consider the value of each car, do you care how quickly or slowly either car was built, or how much time the manufacturer put into design & engineering?
Q2 As you consider the asking prices of the cars, does it matter to you how much time the car salesperson has spent on the sales process with you?
Situation C: the Value of a Salad
At a restaurant, you order a supper salad. The menu says that the salad costs $7.99. As usual, you expect the salad to be served to you in a few minutes.
When your order reaches the kitchen, the manager finds that the supply of tomatoes has gone too low. She sends somebody out to buy tomatoes for your salad. The errand runner breaks a sweat to get the tomatoes to the kitchen in time for your salad to be served with the rest of the meal.
Your salad is served with the rest of the meal, and it is billed at $7.99.
Q1 As you sit at your table waiting for your meal to be served (unaware of the restaurant’s tomato supply) does it matter to you if the kitchen’s supply of tomatoes has gone too low, causing the manager to send somebody out to buy more?
Q2 If you knew about the low tomato supply and the decision to send somebody out to buy tomatoes, how would that affect your expectations about the timing of the meal being served or the amount billed?
Situation D: How Much Trust When the Meter is Running?
Jacquie has been self-employed as a graphic designer for four years. Her prospective clients (for example to design new logos and use those logos in designing stationery) often start the buying process by asking, “How much?”
In her first year, Jacquie found this frustrating because she could not answer right away. She needed to learn each client’s needs and expectations before she could provide a reasonable estimate, and her estimates were based on how much of her time would be needed.
Eventually, she learned to redirect that question to gauge the scope of each new project. Still, from that first question until the client signed her estimate, there was always discomfort, uncertainty, and risk.
There seemed to be a problem of trust intrinsic to the pricing aspect of the sales process. For example, one prospective client said, “I understand that you’ll show me three logo options with samples of how they’ll look on stationery. I am then supposed to choose and you’ll proceed from there. But what if I don’t like any of them as-is and want you to adjust or mix-and-match before I approve one? Would your fees stay the same?”
Jacquie dreaded this. If the client was not satisfied with her initial work, then she would have to charge more or make less money for her time and effort. Under the circumstances, neither possibility was welcome.
She longed for a way to make buying from her easier – especially if she could avoid the tension involved in estimating and hoping to make a decent profit when working for clients whose need for her billable time could exceed their budget.
Q1 What if Jacquie reviews her process for each type of project to establish a range of cost? This way, somebody interested in a new logo and stationery, for example, could ask, “How much?” and Jacquie could reply, “It would cost between X and Y dollars. Let’s discuss what you’d get.”
Q2 What if, in addition to replying as above when asked, “How much?” Jacquie would say, “If we can discuss how important it is to you, then we can fix the fees in advance with a satisfaction guarantee”?
Situation E: Paying for the Solution – Not the Time It Takes
Dexter is a management consultant with an accounting firm. He has been advising the owners, directors, and senior managers of various companies long enough that he typically begins formulating solutions to their problems during the initial stage of discovering the problem. Understanding that each situation is unique, Dexter still pays close attention throughout the discovery stage.
Because he always brings to bear his years of experience, and because he has the expertise to “sometimes come up with a $10,000 solution in 10 minutes,” Dexter eschews the billable hour as unfair. Rather, his firm charges fixed fees, established up-front based on the client’s gauge of importance, and includes a satisfaction guarantee. When the scope of any project changes while underway, the fee is adjusted on the same basis – all in writing.
Q1 Would it still be more fair for Dexter’s firm to charge according to his time spent, with his rate per hour linked to his seniority?
Q2 Should any other professions that apply experience and expertise to solve client problems also consider value-based fees, fixed up-front with a satisfaction guarantee, and accommodate any changes in scope by adjusting the fees?
Situation F: Fixing the Cost of a Pizza
In Canada, there is a great number of pizzerias. Even small towns typically have more than one pizza place. Though there are pizza chains, there is also a variety of independent pizzerias across the country. Despite the number and variety, the industry has certain standards for ordering and pricing, anywhere you go, based on size of pizza and number of toppings.
As Emile considered opening a pizzeria in Morocco, he had the opportunity to consider the Canadian model: standard sizes of pizza, each with its own basic price, then standard pricing for toppings, plus free delivery within a certain radius.
Emile analyzed the pizza business and found that toppings do vary in cost to the pizzeria. He also found that, with the overhead to keep a pizza oven at operating temperature, the cost to bake a pizza would vary with the size and number of pizzas each day. The cost of any one ingredient could also vary over time, as would the price of fuel for a delivery car. These all factored into Emile’s business plan.
Q1 How important is it to you to know how much a pizza will cost when you order it?
Q2 If your pizza order today matches your pizza order from a month ago, do you consider it reasonable for the price to be the same, even if the pizzeria’s costs might have varied?
Situation G: Original, Custom Newsletters for Standard Prices
Robert was a professional writer, not of screenplays or magazine articles, but of original custom newsletters. Despite his ability as a wordsmith in a range of contexts, the market consistently regarded him as a newsletter specialist and brought that business to him. Robert decided to embrace this. The rationale behind his business model was simple: Give people what they want.
In keeping with that rationale, he developed a business model that would always create original, authentic newsletters for standard fees.
Robert's writing for any client always retained a degree of original authenticity that made his third-party authorship invisible. He also trained and managed a small cohort of writers in his techniques, so that readers would always assume the writing to be that of the newsletter issuer’s.
Robert ensured that each newsletter would have a look unique to the issuer, as well. Then, each issue would be laid out with client-approved text and images by the same person who designed the original template.
Robert paid his writers and designers fixed fees. Likewise, he charged his clients fixed fees under a purchase agreement that encouraged decisive collaboration on newsletter content. The purchase agreement even included a pay-upon-approval satisfaction guarantee.
Q1 If you could have original, custom work performed for you by a small team of creative people with the security of fixed fees and a satisfaction guarantee, would you bypass low-cost, off-the-shelf alternatives?
Q2 If you were to read a newsletter that seemed to be a generic product with the name, photo, and contact information of the issuer simply pasted in, would Robert's custom newsletters for fixed fees seem a higher value to you, even if the total dollar cost were higher?
- Glenn R Harrington, Articulate Consultants Inc.
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