 Hookers, Cotton Gin Workers and Other Professionals By Michael WILLARD |
I bill my time at $10,000 per hour. What? You don't believe me?
Back a few years ago, I suggested to my oldest daughter, then recently out of university, that she should start thinking about repaying the loans I had made to her over the years. I wasn't really serious.
Kelly immediately took out her checkbook, the one with Kelly Dawn Willard written officially on the cover, scribbled off a check and handed it to me. It was for $1 million. She wasn't really serious.
At $10,000 an hour, no, I am not really serious, either, but I might as well be. As a crisis consultant, I can save a client millions, or at least they think I should be able to accomplish this. As an experienced media consultant, I can keep a high-profile client from stepping into every pile of dog muck on the media sidewalk. As a senior consultant on marketing issues, I can help bring a worthy product to market. As a relatively creative guy, I can script a commercial that will sell millions of better mousetraps.
The reason I can do all this is because I am a professional at what I do. I am certainly not the only one, merely one player in a cast of hundreds of thousands around the globe. At times that fictional $10,000 per hour is not nearly adequate for advice given, a crucial meeting set up, a silver bullet strategy put forward, a brief written.
At other times, if one were to reduce that amount by two zeros - making it a grand total of $100 - it might be excessively high, and I should even return change. It all has to do with value offered, and, in this regard, none of us bat .1000.
This is why the hourly billing rate for business professionals is the looniest scheme ever conceived in the corporate world, even more nonsensical than the overdressed annual report, big human resources departments, and five-week vacations.
Hourly rates should apply to ladies of the evening and cotton gin workers, not service professionals. The billable hour is a standard - perhaps only one standard - by which people who actually get dirt beneath their fingers should be paid, people like automobile assewmbly plant workers and hired field laborers. For people like you and me, it is an outdated concept that encourages fraud and discourages value.
Yet, it is the universal standard for judging worth. A lawyer, an accountant, a management consultant, a PR specialist - you name it - most often will quote an hourly rate, as if it were really relevant to a client's situation or problem. It is not. It is merely dumbing down value.
Value is where the rubber meets the road. One is not creative in hourly increments. One manufactures widgets in hourly increments. One rents bowling shoes in hourly increments. One pays babysitters in hourly increments. One rarely thinks - unless that person is indeed a slow thinker - in hourly increments. It's impossible. Try it sometime.
I take a daily walk of about 45 minutes, and to entertain myself on these sojourns I tackle either a creative assignment for The Ukrainian Observer magazine, of which I am publisher, or a client problem. Generally, I am not that far into the jaunt when I come upon an idea, and flesh it out within the next couple of moments. Do I bill for 45 minutes? An hour? No, I bill by the value of the idea.
When those thunderbolts strike from the shower nozzle while you're lathering your hair with Irish Breeze, do you reach for a pencil and write down two minutes on behalf of the client? By putting an hourly value on ideas, those same ideas are cheapened, because they are based on a form of institutionalized fraud. It is benevolent fraud - one that most certainly could not be proven - but fraud just the same, no matter the profession.
There is no exacting formula for measuring value, but there is what I would like to refer to as partnership billing. This is not a touchy-feely sort of relationship, but hard-nosed reality regarding worth. It is the recognition on both sides that there was value given and value received. There is often a general feeling that money will be made because of this counsel, or a crisis avoided.
Even when specifically requested to bill by the hour, I mentally and later physically mark down the number of hours if they did not result in one of the value paradigms. On the other hand, I have not hesitated to boost the value of an hour when the result was spectacular. In the latter case, an agreement needs to be signed in blood beforehand, lest the client's definition of spectacular is Fourth of July fireworks, while yours is a string of firecrackers.
So, the magic formula: Fee = Perceived value + Real value + Potential value. Now you're probably going to ask me the square root of 349,292, right?
Some time ago, I introduced into our office/client relationships what I call the Value Contract, even writing about it in one of my books. It is a semi-official paper, and I introduce it at the beginning of a client relationship. Do you mind if I plagiarize myself?
Before joining an international organization, I had never billed by the hour, but this was simply due to the nature of the clients in the portfolio of a relatively small advertising and PR agency. Then, I spent one year in the pressure cooker of time billing, a situation that, among other things, generated unneeded anxiety, the benign but semi-fraudulent exaggeration of time sheets, low morale and, in some cases, a "manager's tax" on each account. I think it also caused smallpox, but I haven't been able to prove it.
As director of a department in this agency, I began to ask myself, does the billable hour system encourage or discourage debate and confrontation between the service provider and the client when the bill lands on the client's desk, even if a detailed billing letter is attached?
This is where the rubber meets the road, quite often resulting in a fender bender, or, in some cases, a full-scale head-on collision with multiple fatalities. It all didn't seem to make sense, primarily because basic communication was nearly non-existent. Hours upon hours stacked up. The billing letter attempted, sometimes creatively, to justify the time. There were massive internal controls put into place to track, what else, billable time against administration time against new business time, the latter two were important, but paled in comparison to chargeable hours. The result was nearly always client sticker shock. People thought of the agency as very good, but very, very expensive. They should have thought of the agency as very good, and giving value for money. The priorities were skewed.
When I have had the opportunity to eschew time sheets for anything other than keeping charge of certain legal requirements on federal contracts, I have seen morale, productivity, and billings go up. Take it from papa, billing by the hour is Disney World masquerading as Finance World. It simply isn't - and shouldn't be - the real world.
The Value Contract
Some say, quite justifiably, that the Value Contract I devised is simply another public relations tool, and really isn't all that new. They can point back to the ancients, a tribe to which I probably belong. But, what of it? That's the business I am in, and where else is good PR needed more than with client relationships? It is a tool to promote comity, and comity in business is what this column is all about.
The Value Contract is a formal compact between our company and clients whereby compensation is not based on time - not even a hint of it - but on quantitative and qualitative benchmarks built into the front end of an agreement. In my view this encourages evaluation upon task completion, as well as consultation throughout the process. It helps build a closer relationship between client and company. If this doesn't happen, then what can I say? Maybe you have bad breath and should go to extra-strength mouthwash.
In that earlier book, I suggested, rather naively, that "time, of course, can never be totally banned from the process. It should be an internal and secondary starting point on which to build fees. The key word here is 'internal'."
Horse manure. I was obviously toadying to somebody. Time is really not that relevant to the client. He or she just wants the job done, and done well. If the client doesn't want to pay for value - and primarily is interested in checking off a list or pushing down hourly rates - then seek another client.
But billable hours are not always the problem of the professional service provider. Quite often it is the client that first asks what billing rates are of a particular company, as if they actually mean something. This is sort of like asking for a hammer, when you haven't the foggiest idea what a nail is. It makes the Flat Earth Society seem altogether sane and reasonable.
One important aspect of value billing is that it presupposes an attitude. It suggests to the client that the professional firm is not merely going through the motions, but is going to charge San Juan Hill screaming like a banshee.
Have you ever been on a conference call and wondered why 20 people were sitting around speakerphones in five different cities, almost as if it were a Rugby scrum? It's an hour's billing, and it's stealth billing at that.
Have you ever been called into a meeting, and heard the team leader say from the outset that each of you only have an hour to devote to this client's problem? What if the silver bullet idea presents itself in the first five minutes? What if it runs over into three hours? Does the guy in the corner dreaming about blue-eyed Cameron Diaz in a bikini and who doesn't contribute a glimmer of an idea to the conversation also collect on his hour?
Have you ever been given an assignment which could take either one hour or eight hours, depending on motivation and whether you had reached your billing target that week? In the professional world, quickness is a solid attribute, but rarely do you see it rewarded.
A common occurrence is when a professional service provider attends a meeting or an event for several clients, and bills each one of them an hour's time, thus a two-hour meeting could result in eight hours of billing time for this Houdini. Wouldn't you feel less like a backstreet hooker if you tied that time to the value each of those clients received?
Over the years, I have seen fairly competent people given the axe because their billability fell below 70 per cent for a certain number of weeks. Shouldn't these people be judged on the ideas they put forth, rather then their ability to shop around for billable hours like scavengers?
Billable hours in the 21st century are vacuum tubes compared to silicon chips, or the Wright Brothers' first flight to the Voyager space probe. For Heaven's sake, it is the intellectual equivalent of factory piecework. Let's park that jalopy in a museum.
In summary, let's put a few nails in this coffin:
The client of a professional service company shouldn't be insulted by the mathematical weirdness of the billable hour. The worth of an idea simply can't be lassoed and kept in that corral. It would make more sense to lasso and corral butterflies
There are three types of value: Real value. Perceived value. And potential or future value. Together they should make up the cost of professional services. It's called common sense. Don't make it out to be calculus.
There is one immutable fact of life in the professional services business. Clients do not buy these services on price, or at least the smart ones don't. Would you go to a neurosurgeon because he advertised bargain basement prices? Would you trust the financial aspects of your business to an accounting firm that had a sign in the door that said: Cheap, Cheap, Cheap? This analogy extends to all the professions - that is why they are called professions.
The Gorilla Manager recommends the Value Contract, an agreement that says we are going to do great work, and you are going to pay us for it. That we will reach certain goals upon which we have agreed. That we are going to consult often and measure progress in intervals. That if you pay us a lot extra we will walk your dog and take out your garbage.
Speaking of garbage, we recommend you go into the office tomorrow with the enlightened, evangelical look of Saul (or was it Paul?) struck down on the road to Damascus, and that you take all those 19th century ideas on billing and toss them in the wastebasket. Your professional employees will all bow down and think you are the Dalai Lama; and who knows? You might be.
Finally (and this should be obvious), give a rip-roaring speech about how your business is about ideas, about intellectual curiosity, about ingenuity, about enthusiasm - none of which can be measured in hourly increments.
Forget the Dalai Lama. They'll think you're Elvis.
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Read also previous issue' articles:
"ASK THE LAWYER!"
The Achilles Heal of Management: Employee Communication
Ukraine Gets Image Makeover
Lateness, and Other Crimes
The Invisible Bond
Dial M for Mobile
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