Burying the Billable Hour
VeraSage - 04/02/2006
You are what you charge for. A business is defined by little else.
We seem to believe that we are defined by our “hourly rates.” It is as if we took our (and our firms’) collective intelligence, experience, judgment, training, wisdom and knowledge, and commoditized them into a one-dimensional hourly rate. From a marketing standpoint, this is a mistake. Once you understand that customers emphatically, do not buy hours, it becomes self-evident that pricing by the hour is precisely the wrong measurement to use to ascertain the value created for the customer.
One of the main reasons professionals undervalue their services is because they are operating under the wrong theory of value. Value, like beauty, is in the eye of the beholder. What counts is what your customer is willing and able to pay for your services. The subjective theory of value explains how transactions occur in the marketplace. No customer buys hours, and time is not money. Hourly billing measures the wrong things.
Customers only buy one thing: expectations. In today’s world, it is not enough to meet the customer’s expectations; you must exceed them. No two customers are alike, nor do customers want to be treated equally; they want to be treated individually. Always ask what the customer expects up front.
Successful professional firms of today are pricing their services according to external value created—as perceived and determined by the customer—rather than internal costs incurred in generating those services.
Changing the pricing culture in your firm will not be easy. It takes work, commitment and a dedication of resources to training, education, and constantly confronting the inherent challenges involved with pricing. But it’s worth it.
It’s time to bury the billable hour.