Consultants / Service Firms: Why Hourly Billing Isn’t Best

 

One of the first lessons I learned in business-performance consulting was to sell results, not my time.

During the tail end of the 1990 recession, I had purchased a five-year-old print-marketing firm. Quickly, I realized I was overlooking opportunities for growth. My newly acquired company soon evolved into a full-service management consulting firm, which I incorporated into a vision plan.

Technically, it didn’t become a pure consulting firm, it was more of a hybrid – consulting and management services. Some clients required more than my advice and information. They needed some heavy lifting.

Here’s a case study:

One of my early clients was a big office-furniture retailer, which grew too big without proper planning. We did the retailer’s print-marketing projects, but in client meetings after the owner complained bitterly to me about his sales staff, I offered to set up a sales-management program.

It was an highly chaotic situation. The whole sales and customer-service culture had to be fixed.

Initially, my outsourcing services were labor intensive as the sales staff was dysfunctional, and it got away with a lot of nonsense, which was hurting profits.

For example, salespeople were desperate to make sales to indecisive customers. Often, a salesperson arranged for free delivery of an eight-foot mahogany conference-room table to the customer’s business for a 30-day trial look-see – without payment or any safeguards for the retailer. Half the time, the table was returned – with a big scratch. The sales-opportunity costs were enormous.

Therefore, in addition to showing the client how to conduct meetings, I literally had to provide ethics, communication, sales and management training.

Valuable lessons

But I quickly learned I hadn’t initially set boundaries with the client.

After solving the major issues – getting his staff to work better – I was anxious to turn my attention to other clients. But my client was so accustomed to my being there every day, he expected it indefinitely.

He also didn’t understand why I only trained and advised him so he didn’t have to fire anybody, which would have increased his payroll even higher. He didn’t get why I didn’t have legal authority and why I always used my own materials.

So, the lessons prompted me to use a different upfront process – to sell results with benchmarks, to train the client about how I deliver results, and to explain how I’m paid and the timeline to expect.

It’s a relationship that requires trust by both parties.

To facilitate the relationship-building process, I changed my focus with strategies to build trust with clients.

Businesspeople want strong results that include:

• Efficiency
• Information
• Innovation
• Objectivity
• Productivity

This means projects are completed on schedule, within budget, and with measurable results.

To be able to accomplish such objectives, I had decided against hourly billing – I had to charge enough for my time to cover my business expenses, but some prospective clients had sticker shock from hourly rates.

Sometimes, the prospective client didn’t value some services as others. They thought I should provide them with a multi-tiered billing depending on the services. I had to get it ingrained in my mind that my time, consideration and energy were just as valuable whether I was training a class, mentoring one-on-one or writing advertising copy. All services had the same value.

Value pricing

So unless it was a big prospect who insisted on hourly billing, I began to talk to each prospect about investing in projects for strong results. I saved a ton of grief and time by charging retainers. I began to work off the retainer without nickel-and-diming clients for miscellaneous charges. Only on occasion would I bill for miscellaneous expenses, after getting approval in advance.

In contrast, professional service firms like hourly billing. They use software to track time. Candidly, if I hired a CPA or attorney, I insisted on knowing in advance what their total charges would be. I had heard horror stories. For example, the timer wouldn’t be stopped when the professional ducked into the lunchroom for a cup of coffee or took a phone call – or the hourly increments would be rounded up.

Further, whether I was hiring a professional-service firm or quoting a project fee, I wanted the focus to be on the work at-hand. I didn’t want to hire someone to get paid for tracking their time. As a consultant, most businesses have never hired me unless they had challenges they couldn’t solve. So I wanted to spend my time on providing results, not watching the clock.

In other words, my reputation depended on my ability to prevent negative surprises, so I’ve always offered value-pricing based on a retainer. Oh, and I stopped spending my valuable hours on penning proposals. The prospect and I will chat about the situation, and I’ll present a short letter of agreement, but I won’t incur any sales-opportunity costs to write proposals.

Remember, clients don’t want to pay for your time.

From the Coach’s Corner, here are 60 ground rules for effective client service.

“Hiring consultants to conduct studies can be an excellent means of turning problems into gold; your problems into their gold.”

-Norman R. Augustine

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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.