VeraSage

Burying the Billable Hour

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.

Hourly Billing is the Opium of the Profession

by Ronald J. Baker, Founder VeraSage Institute

We arrive, therefore, at this conclusion. A commodity has a value, because it is a crystallisation of social labour. The greatness of its value, or its relative value, depends upon the greater or less amount of that social substance contained in it; that is to say, on the relative mass of labour necessary for its production. The relative values of commodities are, therefore, determined by the respective quantities or amounts of labour, worked up, realised, fixed in them. The correlative quantities of commodities which can be produced in the same time of labour are equal. Or the value of one commodity is to the value of another commodity as the quantity of labour fixed in the one is to the quantity of labour fixed in the other
–Karl Marx, Value, Price and Profit, 1865

Workers of the world...forgive me
Karl Marx
–Graffiti on a statute, Moscow 1991

The only place where Marxism has not been discredited––outside of American niversities––is the professional service firm
–Ronald J. Baker

Ideas have consequences.  Indeed, man is ruled by little else.  Some individuals recently celebrated the 150th anniversary of an idea that changed the history of civilization––and affected the lives of billions of people––in the nineteenth and twentieth centuries.  For decades, it was the leading intellectual paradigm on several continents and commanded an enormous amount of
influence on the destiny of nations.  The Communist Manifesto, the famous revolutionary treatise, published in 1848, by Karl Marx and Frederick Engels, still wields considerable power over the world’s political systems, American universities, and yes, even professional’s pricing strategies.