Death of the Billable Hour #2


A couple of days ago I commented on a WSJ article on how the recession was forcing companies to examine new ways to manage their professional services. The article in question was focused on legal fees.

My post has prompted my good friend Steve Swann to comment on the issue as well. Steve has looked at this from the aspect of the need to provide value.

If a better understanding of value results between client and provider that is a good thing.

I think though that we all need to look at what outcomes we are seeking and clarify these. The question of value becomes very subjective at times. In some circumstances and from some perspectives value billing may be seen as profiteering, though the question of risk needs to be weighed in the balnce as well.

Fixed fees/cappd fees may sometimes disadvantage both provider and client. Especially where client buying power has been used to drive down costs.

I think we will see a greater trend away from the ‘pure’ billable hour, but whether in a few years people are ‘happier’ with alternatives remains to be seen.

One of Steve’s points and with which I am fully in accord is the need to clearly articulate a value proposition.

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5 responses to “Death of the Billable Hour #2

  1. Peter, Steve, hi. I’ve been a fan of value pricing for a number of years. That’s not to say, of course, that I’ve necessarily been successful at convincing consultants to declare the value they bring to bear, and fix or negotiate a fee for success. I had some success during my time at Unisys in negotiating something closer to value pricing with our PR consultancies, including additional reward for over-achievement on the targets set. But there was always a reluctance, and the intended effect – the encourage, promote and reward new and creative thinking – didn’t happen. We’ve edged back towards value pricing a bit in the current round of agreements with the consultancies I use now I’m at Altium. But again, you can still hear the clock ticking in the background. Ronald Baker’s book “The Professional Guide to Value Pricing”, published as long ago as 2000, is pretty good practical handbook on where the value is in value pricing, and how to negotiate such an agreement.

  2. Alan

    I think Baker has a very good take on the issue.

    Part of the problem is the question of what is value.

    I would be very interested to discuss this in more detail.

    Perhaps next time I am in Sydney.

    I think many still mis-understan the ? of value

  3. I haven’t seen very much of the negativity you speak of at all when it comes to implementing value-based billing – within the entire ‘sales conversation’.

    I’m a huge fan of Ron Baker, and Alan Weiss, and I find it hard to see how value-based billing could DISadvantage both parties! If clients have grown accustomed to underpaying, it will be because consultants have become accustomed to appearing to be under-delighting!

    My experience is that ‘profiteering’ is the last thing that would happen when you implement value-based billing. Clients are willing to make bargain investments for huge returns, and consultants are happy to accept these fees if they are highly profitable. This is the definition of Win-Win!

    The first time I used these techniques myself, the client’s reaction changed from “I’ll have to think about it” to “That’s a bargain! How soon can you start?” as I was simultaneously increasing my previously quoted fee by between 2½ and 5 times!

    Value-based billing is not just a way of setting your prices! It is an incoporation of many new ideas within an entire ‘Sales Conversation’.

    The ‘value conversation’ is where the consultant’s skill in helping the client articulate for themselves the full value of having their problem fixed is crucial. That is the foundation of this process.

    But there are three other essential ‘conversations’ that eventually lead to agreement and engagement.

    I teach Consultants to use this technique in my UK based Workshops. See http://www.davidwinch.co.uk/workshop.htm

    I do have a DVD of the course which I am in the process of getting produced in internationally compatible formats.

    • I too am a fan of Baker and Weiss. Intrinsically I like the concept of value billing, the point I was making is that in some situations some people might see a value bill as an over recovery.

  4. I sort of realised you would be a fan of both authors, Peter!

    My point (and theirs I believe) is that it is the implementation of value based billing within the entire sales conversation that makes the difference. This is the skill ‘set’ that has to be mastered.

    I would agree that value based pricing on its own, without going through the whole process, might sometimes appear to be over-pricing.

    Maybe we ‘believers’ have an educational job to do here, to get across that ‘value based billing’ is not merely a way of setting your prices but is a highly effective (for both parties) way of conducting sales conversations.

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