Less than a five-minute read
Hourly fee billing is tough on the people on both sides of the billing process. For those charging hourly fees there’s the tyranny of the clock and the unhappy chore of doing your billing each day (or week or month, depending on how you do it), while for those receiving the bill there’s the big reveal as, with heart racing and a decidedly Doc, how bad is it? mentality, they search for the one number among the many numbers they most care about.
So I stay away from hourly fee billing as much as I can. Most of the time I can stay away from it entirely, such as when I do a comprehensive financial planning project and charge a flat fee for the entire project. In that context I can charge a flat fee because, after a few conversations with a prospect, I know within a pretty close approximation the amount of work that’ll be involved (setting the floor price) and how much value I am likely to be able to deliver to the client (setting a ceiling price) and, within that range, I can come up with a flat fee that I am confident has a good chance of reaching what I call The Goldilocksian Ideal — being neither too high nor too low, but just right and capable of fostering a good long-term commercial relationship between the client and me.
But when I do consulting work, which by its nature is much more ad hoc than a comprehensive financial planning project, I can’t predict how much work is involved and how much value I can deliver, so I fall back on billing at an hourly rate. Lawyers, CPAs and others — please welcome financial heath advisors (me, anyway) into your hourly-fee world!
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Last fall I started using cloud-based software in my business (for those curious: I went with Google Suite, because I thought that, after three and a half decades of captivity in the Microsoft world, from MS-DOS to Windows 10, I’d give something new a try; plus, my tech clients and their employers tend to be somewhere well north of 80/20 — GOOG to MSFT — and that always seemed like a great datapoint to keep in mind).
Once I got far enough up the Google Sheets learning curve (not an easy task after all those years of doing things the MSFT way), I immediately knew that, except for a few clients who prefer the traditional approach, I was going to stop sending pdf’ed hourly-rate bills at month- or quarter-end, and was instead going to start using real-time billing, with the client’s up-to-date hourly bill accessible to the client any time s/he wants to see “where the bill is.”
What I didn’t initially envision is that I would end most meetings writing up the entry for that meeting with the client present, watching me type it up and listening to the main topics from the meeting (and sometimes the main decisions from the meeting as well). This is the step that puts the “radical” into the concept of “radical real-time” hourly billing. It’s also the natural way to do it if you’re aiming for true real-time billing — and the full-tilt transparency that it enables.
I’m about three months into this new process, and so far so good.
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When I first went into financial planning I worked for a financial planning firm that was part of a life insurance company. The people there had a lot to teach me and others about selling generally, and about selling fixed-price life insurance products and mostly fixed-price investment services specifically. There is, after all, that truism that preaches if you can sell life insurance, you can sell anything.
That firm had no experience, however, with pricing professional services and they had very little experience with pricing financial plans, so they mostly didn’t know what to make of me when I came in with clients who wanted to pay me for financial plans and weren’t so interested in buying insurance products or investment services (this is the main reason I went out on my own after working there less than two years).
One day, though, they had someone talk with us about pricing in contexts in which there was some pricing leeway. The thing I recall this fellow saying was that we should price $1k-and-up offerings at $1.7k, $2.7k, $3.7k, etc., and never ever never-ever at $2k, $3k, $4k, etc. According to this fellow, there was something magical about ending a price with “$700” because (a) that’s far enough below the next thousand-dollar upward increment that the prospect wouldn’t round up, and (b) that anything lower would mean you’re leaving money on the table, which is his single-play, single-play, make-the-sale-and-move-on mentality was a tragic outcome.
In short, he advised that people didn’t perceive that $700 increment accurately, and that we could use that to our advantage.
I followed that advice for a couple of years, until the day it dawned on me that I didn’t want to start off my client relationships by pricing my services in a way intended to foster mis-perceiving. After all, I’m trying to build long term trusted relationships, so I have a repeat-play, make-the-bond-and-continue-building-trust-every-chance-I-get mentality. So now my pricing is the very memorable and easy-to-perceive-accurately $2k, $3k, $4k, etc. No rounding needed!
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I close this piece out with a quick, somewhat related story.
The first time I took a personality test aimed at finding natural-born salespeople, the sales manager from the company having me take the test sat me down with the results and told me I needed to re-take the test, and that this time I should answer the questions the exact opposite of how I had answered them the first time through — and, by golly, I passed that salesperson test with flying colors the next time.
Well, it does make a lot of sense to be honest and upfront if you want to build long term relationships, right?
Nice to see you blogging again...