Six Reasons to Abandon the Billable Hour

Source: VeraSage Institute

The following includes excerpts, reproduced with permission, from a blog post by Ed Kless.

The majority of professionals 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 switched 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 treatise Professional's Guide to Value Pricing:

1. It creates a conflict of interest between the consultant and the customer.
2. It focuses on efforts, not on results.
3. It shifts the risk of the engagement back to the customer.
4. It creates a corporate welfare system (subsidizing your C and D customers by taking more from your A and B customers).
5. It makes you a lazy project manager. (The customer is “paying for what it needs,” so scoping and change requests become non-issues).
6. It does not set your price up front.

For the complete post, read “The ABH is not an ECE.”

From VeraSage Institute, http://www.verasage.com/index.php/community, April 1, 2011.