Today marks the day we are completely moving away from the “hourly” billing model. In other words, we are no longer billing clients “by the hour”.
Secondly we are fully exposing our pricing to our staff.
Why?
Because client do not care how long it takes for you to do something. Whether it takes 10 hours vs 12 hours is irrelevant to them: all the client cares about is cost, and quality, and value.
Client do not pay for hours. They pay for solutions.
Clients want solutions NOW, rather than 10 hours later. So if you can give them something valuable NOW, then charge for it!
And the ironic thing? We always quoted fixed prices
We never billed by hours. We always quoted fixed prices, but the problem was that we rationalised those prices in terms of hours. I felt that clients often got confused when they saw “hours” on the “approval emails” versus rationalising them as fixed costs. I also felt that they may have gotten them confused with those prices as being estimates. Our latest policy change makes everything explicit.
Occasionally, some clients argued that the “hours” were “too expensive”………. Most clients, initially did not appreciate the value of this model. All of our clients now do. There were two who did not – they are no longer our clients. We amicably parted.
e.g. if we charged our client $1000 and then reasoned to the client: “but we took 10 hours” then that would average out to be “$100 / hour” which might be acceptable to the client. However, if it took us 5 minutes, because we had a special tool to speed up the process, then how should we charge our client? For 5 minutes? No we should perhaps charge at least $1000 plus a premium for delivering it super fast. Clients value speed, especially if an entire workforce is sitting on the factory floor, twiddling their thumbs.
It prevents arguments. I have wasted so much time with clients arguing and haggling endlessly about $100. No more. Once we put the price, then that is the price. There are no hours to haggle over anymore.
Exposing Prices
Our leadership always felt apprehensive about exposing pricing to staff. Why? Because staff may not appreciate the huge costs associated with running a going concern operation. For example, $100 entails: taxes, exchange rates, licenses, cloud services, and significant administration costs. Staff do not see that cost. But they may think that “they are getting ripped off”. Nothing could be further from the truth.
We’re going Fixed Pricing All the Way
….and we’re completely getting out of the business of mentioning hours.
Is it a risk? Yes.
Is it a big risk? No.
What should you do?
Normally you would quote your hours on the “cost justifications” field:
Break down of hours: why so many?
Time required for model amendment: 3 Hour
Time required for GA drawings: 1.5 Hour
Time required for assembly drawings: 1.5 Hour
Total Variation Claim: 6 Hours
We are not going to be doing this any more. So do exactly what you did above, but remove the hours quoted:
Cost Justification
model amendment.
GA drawings amendment.
assembly drawings amendment.
Checking of everything.
Notice how we do not mention hours anymore?
Lastly, you must still enter the hours you take. But note – we are no longer exposing this to clients:
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