Hourly Billing Gone Wrong
Flaws in hourly billing don’t always cheat the client; they often cheat the professional sending out the bill. A story on hourly billing gone wrong from Simon Sinek’s book, The Infinite Game. The Price and Value Journey is presented by John Ray and produced by the North Fulton studio of Business RadioX®.
John Ray: [00:00:00] I’m John Ray on The Price and Value Journey. Here’s a story of hourly billing gone wrong from a book I strongly recommend, The Infinite Game by Simon Sinek.
John Ray: [00:00:12] Sinek writes, “I used to work for a large advertising agency. After my first year at the company, leadership decided to implement time sheets. Unlike a law firm where a lawyer may be billing their clients for the actual number of hours of work, this was a way for the company to keep track of – well, actually, no one really had any idea of the utility of the timesheets. It was just something we were told to do. I managed to get away with not filling out mine for months. If they were tracking how I spent my time, I saw no point in telling the company I worked 100 percent on the one client to which I was assigned.”
John Ray: [00:00:53] “Of course, I got into trouble for not turning in my timesheets. And so, from then on, at the end of every month, I sat down with all my timesheets and filled them out in one go, in at 9:30 a.m., out at 5:30 p.m. In reality, I often came in earlier and left later. But who cares? I recall taking my timesheets to my boss for his signature. He looked them over and commented sarcastically, ‘You’re certainly a very consistent worker, aren’t you?’ And then, he signed them.”
John Ray: [00:01:25] “I have to believe that the timesheets were implemented because something went wrong in accounting. Perhaps a client was over billed for work done and demanded that the agency prove that the senior people who were promised to spend time on their account actually were the ones who spent time on the account or something like that.”
John Ray: [00:01:48] Interesting story from Simon Sinek. The question is, was the problem really in the accounting department? No. Because the problem arose because of a billing method which invites inaccuracies, abuse, and worse. Note that Sinek says his timesheets were fiction because he under billed, not over billed. The flaws in hourly billing don’t always cheat the client. They often cheat the professional sending out the bill.
John Ray: [00:02:21] This is one reason I tell professional services providers that if they are billing by the hour, by definition, they are underpricing their services. You might ask, though, how does under billing with a time based billing method shortchange the client? The problem is simple. When the client gets that bill, they don’t necessarily know that all the hours aren’t billed. An invoice based on time invites questions like, Did this work really take that much time? Why does this person think they’re so special they get to charge this much per hour?
John Ray: [00:02:56] And then, even after being told hours have been shaved off the bill, the client says, “Hmm. Can I trust that the previous bills I paid were right? What about the future ones? Will they try to make it back on me?” All these questions are misdirected. None of them address the most central point, “Did I, as the client, receive more value than what I paid in fees?”
John Ray: [00:03:24] Sometimes clients may start questioning a services provider who’s actually providing great value because the bill focuses attention on inputs which have nothing to do with value received. Hourly billing is nuts because it cheats both the client and the service provider, often, simultaneously.
John Ray: [00:03:48] I’m John Ray on The Price and Value Journey. If you’d like to know more, go to johnray.co or send me an email, firstname.lastname@example.org.
About The Price and Value Journey
The title of this show describes the journey all professional services providers are on: building a services practice by seeking to convince the world of the value we offer, helping clients achieve the outcomes they desire, and trying to do all that at pricing which reflects the value we deliver.
If you feel like you’re working too hard for too little money in your solo or small firm practice, this show is for you. Even if you’re reasonably happy with your practice, you’ll hear ways to improve both your bottom line as well as the mindset you bring to your business.
John Ray, Host of The Price and Value Journey
John Ray is the host of The Price and Value Journey.
John owns Ray Business Advisors, a business advisory practice. John’s services include advising solopreneur and small professional services firms on their pricing. John is passionate about the power of pricing for business owners, as changing pricing is the fastest way to change the profitability of a business. His clients are professionals who are selling their “grey matter,” such as attorneys, CPAs, accountants and bookkeepers, consultants, marketing professionals, and other professional services practitioners.
In his other business, John a Studio Owner, Producer, and Show Host with Business RadioX®, and works with business owners who want to do their own podcast. As a veteran B2B services provider, John’s special sauce is coaching B2B professionals to use a podcast to build relationships in a non-salesy way which translate into revenue.
John is the host of North Fulton Business Radio, Minneapolis-St. Paul Business Radio, Nashville Business Radio, Alpharetta Tech Talk, and Business Leaders Radio. house shows which feature a wide range of business leaders and companies. John has hosted and/or produced over 1,100 podcast episodes.