In my previous post on value pricing, I opined that billing by the hour creates trust fractures in the relationship between client and consultant. This week, I’ll describe how a lack of trust can contribute to scope creep.
When I talk to a roomful of consultants about value based pricing, one of the first questions I get asked is:
“How do you prevent scope creep if you give clients a fixed bid?”
My answer is simple:
The truth is, I don’t have to. I trust my clients to not take advantage of me. And guess what? They don’t take advantage of me.
Consultants use hourly billing as a baseball bat. When the client asks for something that’s out of scope, the consultant hits the client with the bat. Statements like these probably sound familiar:
“That feature was not part of the original estimate. I’ll build it for you, but it’s going to cost you.”
“I’d be happy to discuss that with you, but it’ll have to be on the clock.”
“You should have told me about that earlier. This is going to blow the estimate.”
When a consultant says that he has to bill by the hour in order to prevent his clients from abusing his time, it tells me that he doesn’t trust his clients. Which raises a key question:
Is it reasonable to expect people to trust you if you don’t trust them back?
Back when I worked hourly, I had this one client who was really chatty on the phone. He’d tell me about his weekend, his kids, etc. I genuinely liked the guy, and we’d often spend 30 minutes or so gloriously gabbing about life, liberty, and the pursuit of happiness.
Unfortunately, this non-work banter created an issue for me. My employer was billing me out by the hour and I was responsible to have a certain number of billable hours per week. So, for every 30 minutes of shooting the breeze with my client, I had to work an 30 extra minutes in the day in order to meet my quota.
I explained this predicament to my client on several occasions. I’d say something like: “I’d love to hear about how you proposed to your wife, but I have to get back to work.” Of course, he would say he understood and things would be strictly business for a little while. But soon enough, he’d start gabbing again.
Eventually, I pulled out the bat. I started tracking the time spent on the phone - regardless of the subject matter - and billed him for it. I’m sure you can imagine the effect this had on our relationship.
When I think back on this situation, I just shake my head. Consultants should jump for joy if clients are willing to share personal details of their lives! It builds trust, which is an essential ingredient to a successful relationship, business or otherwise. Throwing this opportunity away because of 30 “lost” minutes here or there is asinine.
If you are a consultant, value pricing will allow you to build trusting relationships with your clients. This will lead to more successful projects, repeat business, and in many cases, rewarding friendships. However, it does require that you put down the bat.
To be continued...