The Value of Advice

For service providers, client billing is perhaps the biggest managerial headache. This isn’t because time tracking itself is particularly onerous, every hourly employee tracks time, but rather because of the strategy questions implicit in effective time management. The questions run deeper than simply figuring out what to do next throughout the day. Service providers must ensure that time equals value. Clients are not, per-se, interested in buying a provider’s time. Most people don’t pay massage therapists or shop mechanics to just hang-out; clients expect results. The whole concept of billing by the hour is actually a short-hand method of calculating the value of results which are not well suited to productization. A lawyer’s skill, for example, has value whether or not a case is won.

Billing by the hour

The problems with the hourly billing strategy stem from the short-hand nature of the practice. If it could be known from the outset, precisely how long it would take to complete a website, draft a commercial contract, or diagnose a faulty engine, providers would often rather provide a fixed estimate to clients. In such cases, services turn into products for which a cost can be calculated and a price fixed. Unfortunately, precise time-scales frequently aren’t known with any reliability until a project is complete, or at least in progress. This is particularly true of custom or specialized work such as personal legal advice. This type of work is necessarily flexible and may change as the scope of the project develops.

The primary merit of the hourly-billing structure is flexibility. From the perspective of the service provider, estimating the value of a prospective job can be challenging. There’s much more to the task than simply calculating how long we expect a job to take; providers must consider the relationship between client expectations and product quality. It is this qualitative factor that motivates many clients to seek the services of a provider rather than using a template or building a project in-house. Quality requires experience; expertise. And expertise has a cost.

The value of skill

Combine the valuation of skill with the issue of estimating the scope of a project, and the complexities of the hourly billing structure begin to emerge. Service providers start with an economic question. How much must I earn per hour in order to be better off than if I took that job at Costco or Bank of America?  This provides a baseline figure; the hourly rate. But as I mentioned in the opening paragraph, there is more to client billing than simply tracking time. Clients don’t want to pay an attorney $600 an hour to fill the office water cooler, even if doing so is a necessary part of the attorney’s work day. But while that task may only take two minutes so no one will ever know about it, what do you do about the 20 minute phone call to discuss project direction with the client, or the half an hour it took to adjust the settings on the printing press so that the client’s custom colors come out just right? Both scenarios might seem routine, but consider some additional facts.

Let’s say, for example, that the idea to tweak the settings on the press was a novel concept just hit upon by the printer and that someone with less experience would never have thought to try. Maybe the printer had to call a colleague to consult about color pallets in order to implement the adjustment.  Does the printer now bill double time to cover the effort of the colleague? What is the value of the special tid-bit of knowledge that lead to the idea to even try to make an adjustment to the press in the first place?

It would be easy to fill the page with an increasingly complex series of what-ifs, but the point is, figuring out how to equitably bill for a project can become a matter of strategy; a question of marketing. Bill a client for too many mundane tasks, and they’ll take their business elsewhere. Spend too much time “off the clock” and the business won’t make any money.

Lawyers have it down

Law students actually take classes which, in part, discuss effective client billing strategies; cynical, perhaps, but a necessary skill nonetheless. This strategy appears to be working for lawyers. Most people inherently understand the hourly nature of traditional legal services and respect (or fear) the billing process. For other industries, communication can make up the expectation gap. Providing reliable estimates, with a clear billing breakdown, is a good place to start. Ultimately, it’s important to convey to clients that skill has a value. Great end-products go a long way towards accomplishing this understanding, but so do consistent billing strategies upon which clients can rely.

This call will cost…

Help your clients to understand that you’re not charging them just to chat on the phone, but instead for the advice you give during the chat; using the hourly billing shorthand. Explain during the quoting phase of a project why weekly water cooler changes are critical to making the client’s project a success (call me if you figure that one out, I want to add it to my bills). Effectively conveying to clients why a bill came out the way it did, will go a long way to earning their respect for the system you have in place. And, it’ll help to avoid that unpleasant conversation about how you’ll really need to charge them for those 15 minutes next time they call to ask about how to help their cousin’s friend fix an unrelated problem.

Editor

Kjeld Lindsted Kjeld Lindsted
Content Architecture, Copywriting, and Editing
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