[This post was written by VeraSage Institute Senior Fellow Ed Kless, who is the Senior Director, Partner Development and Strategy, at Sage].
"Would you want to buy from you?" I asked this somewhat rhetorical question at a recent Sage ECE (Extraordinary Customer Experience) Workshop I delivered to Sage business partners.
I continued, "Would you want Sage to bill you by the hour for support regardless of the outcome of the call?" The reaction was clear. "HELL NO!" one participant shouted.
Yet, the majority of Sage partners (and all professionals for that matter) that I encounter still bill their customers by the hour. Some have even twisted the idea into thinking it is the right thing for a customer. "You will only pay for what you need," they claim.
I am here to tell you using the ABH (almighty billable hour) is not an ECE (extraordinary customer experience).
Sage partner, Sonia Gray, once told me that after she switch to fixed price agreements, one customer told her, "I am so glad you price this way now. I always thought the billable hour was a license to steal." Wow!
Here is a list of just the customer experience reasons to abandon the ABH, based on Chapter 7 of Ron Baker's first treatise Professional's Guide to Value Pricing [This book is no longer in print. It's been replaced by: Implementing Value Pricing: A Radical Business Model for Professional Firms].
- It creates a conflict of interest between the consultant and the customer (the very person you are trying to help). It is the customer's best interest to reduce the number of hours; it is the consultant's best interest to increase the number of hours. Hmmm.
- It focuses on the efforts, not the results. Your hours are the inputs, not the output. The output is the solution to the customer's problem. Focusing on hours would be like counting the number of swings a batter takes in baseball and ignoring the hits or lack thereof.
- It puts the risk of the engagement back onto the customer. This is lunacy because the customer is paying you to reduce the risk, billing by the hour transfers this risk back to the customer, no wonder they don't want to pay your bill. When you reduce your risk, you also reduce you potential reward, meaning your potential profitability. Being in business is a risk, embrace it.
- It creates a corporate welfare system. Often times it is the C and D customers who complain most and are granted relief of, at least part of their payment. In order to make up for this in the aggregate your company must do something in order to remain profitable. The something is, ultimately, charging more to the A and B customers who complain least and rarely do not pay. You are, in effect, subsidizing your C and D customers, by taking more from your A and B customers. You are giving to the have nots at the expense of the haves.
- It makes you a lazy project manager. Because the customer is "paying for what they need," scoping and change requests become a non issue. Why bother? They are not paying for a scope of work, they are paying for your hours. This allows you to a) not scope the work properly in the first place and b) assume every change requested by the customer to be in the "new" scope. Partners then complain about scope creep. This is nonsense because, in my opinion, you never really had scope in the first place.
- Lastly, it does not set your price upfront. An hourly rate is not a price unless you are only selling one hour. A range-of-hours proposal (always couched with "this is an estimate") is a guess. Worse still the customer will only look at the low number, whereas, you will only look the high (plus 10 percent). Customers, like you when you buy stuff, want a price. It is a rational request, honor it.
Have I missed any? I am sure I have.