To Bill, Or Not To Bill (by the hour): That is the Question.

Alternate Title: If you meet the Buddha on the road, kill him!

Last week, I published a post about Alan Weiss’ new book, The Consulting Bible (link goes to that post). The reaction I got, wasn’t necessarily what I anticipated.

I took some poetic license in that post. See, I’ve worked with quite a few consultants, particularly in the areas of construction, law, and technology. I have many friends (and even family) that work as consultants. I have a personal interest in seeing those people succeed. Most consultants that I’ve known struggle, however, at least financially. Reading Alan Weiss’ books has offered an insight into the business of consulting for me. A lot of what Weiss advocates directly conflicts with the standards of practice that many consultants I know operate under. There is a reason that Weiss refers to himself as the “contrarian consultant.”

I’d like to stage an intervention for some of the consultants I know. The Consulting Bible would be the basis for that intervention. But not everyone responds well to the idea that the way they’ve been doing things is wrong. I know – I’ve offended a LOT of people for speaking my mind and offering suggestions for improvement. For that reason, I decided to take a more indirect approach in writing about the new book that Mr. Weiss wrote.

So let’s just clear some things up. When it comes to hourly-based fees vs. value-based fees, here is exactly what I wrote:

The person billing by the hour gets paid more, the longer they take. What motivation is there to improve processes, increase efficiency, save the client time, if you’re charging by the hour? The irony here is that many consultants are hired precisely to improve processes, increase efficiency and save time – yet to do so in their own business would reduce billable hours.

Fees based on value mean that your income as a consultant isn’t tied to the number of hours you work, or by the rates you charge per unit of time. The more value you provide, through improving your clients’ situations, the more you command for your fees. This means you can take vacations and spend time the way you choose, rather than viewing non-working time as lost revenue, as so many consultants and small business owners do.

I’m sorry if you disagree with that statement. Most of the people I work with bill by the hour. I think that from a business perspective, it makes better sense for a consultant to bill based on results, value, or some other tangible factor that is directly related to the benefit to the client. In other words, charging for your time puts the focus on you (and your time). Charging based on value or results puts the focus on the client, and the ultimate outcome for them. Which do you think your client would prefer?

So there you have it. If your consulting practice provides real value to your clients (i.e., proven track record of successful outcomes), focus on that. If you are looking to become “the low price leader” in your niche, go for it. But in my opinion, that is just a race to the bottom.

7 thoughts on “To Bill, Or Not To Bill (by the hour): That is the Question.

  1. Brian,
    I also read that book and it's true that the customer is best served when the consultant works fast, while the consultant is best served when they work slow. I am not a big fan of hourly billing and I've seen it abused by other individuals/companies in CD consulting field. I would love to move to a value based fee, but still have not figured out how to go about it. I'd love to hear from some other consultants who have implemented this strategy in their business.

    1. Thanks for the comment!

      Regarding fixed-price/flat-fee billing in construction defect litigation, I have seen it implemented effectively. As I mentioned, it may not work in all situations, or with all clients. The real challenge for consultants in CD is that the client is typically a law firm, and lawyers tend to love hourly billing! Without getting into too much detail, I think that the easiest way to implement a value-based fee would be for the investigative portion of a case, up through (and including) mediation. The work is fairly straightforward and is largely dependent upon site factors, access, project size, scope, etc. This gives the client full control over the expert's costs, and gives the expert a performance based incentive.

      Once a case moves past the mediation phase, I think that the attorney and expert need to discuss how the case should move forward and negotiate fees that are appropriate based upon the expert's contribution to the overall outcome of the case.

      Patrick Lamb, of Valorem Law Group, wrote an excellent book on value-based pricing for the legal industry, and the Valorem firm has blazed trails with their value-based fee model. Check them out at ValoremLaw.com.

      Brian

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