I have an increasing number of clients for my business consultancy (focused on nonprofit fundraising). As much as I was hoping to develop some economies of scale by securing several clients with the same needs, they all seem to be very different ... and require varying degrees of hours, energy, investment, etc I am struggling with how to best structure my billing in a way that is most appealing to prospects and also the most profitable (and easiest to manage) for me. I have a somewhat visceral reaction to the idea of tracking hours and billing based on time ... my natural inclination is to bill by the project. But this has bitten me in the backside a few times due to scope creep (and my natural tendency to take on too much, as if I were an interim staff member). I recently met a consultant who bills by the week; she focuses full-time on one client's project for a week at a time and bills them accordingly. This sounded appealing, but is untenable for me since I have multiple conflicts (i.e. I teach at a local high school three days per week and also have some standing meetings for other clients, so I can't dedicate a full-time schedule to any client). But I've been wondering if I could bill by the week and just tell the client it's a batch of about 4-5 hours per day? What have you seen to be a good model?Bidding based on projects (my current approach)? Daily or weekly rates? Or should I just grow up and bill by the hour -- and if so, how do you keep the client from feeling afraid of the running clock (or feeling nickel-and-dimed for every time they email or call you)?
I've been a consultant, both independently and through two of the "Big 5" consulting firms, for the majority of my career.
I've recently discovered that I have a serious aversion to time-based billing, that's been buried deep down in my subconscious for a while. Because of this discovery, I've been trying hard to break the direct bond between hours worked and income generated.
The concept of value-based billing can be very appealing in this regard. The co-founder and CEO of FreshBooks, Mike McDerment, wrote a pretty interesting and entertaining eBook on the subject, called Breaking the Time Barrier -
It's worth a quick read, if for no other reason than to experience a different way of thinking when it comes to billing for services.
Here are some of the stumbling blocks I've experienced, when trying to put value-based billing into practice -
1 - Finding the clients who are willing to take the time to hear you out on the approach
2 - Finding the clients who can appreciate the approach, however if you get through #1, #2 seems to be a bit easier, since their minds are already open enough to consider it
3 - Waiting out the time it takes to find and educate the "right" clients, as Mike describes them in the book, when you have bills to pay :)
I do feel that value-based billing makes a lot of sense for both the client and the service provider.
One thing that value-based billing does well is resolve the paradox between the client's goal of having a project delivered at a reasonable price and the service provider's goal of generating revenue, which, by nature, are somewhat at odds from the outset, since the client usually wants to pay for the fewest # of hours possible (whether they admit that or not, that's another story), while the service provider wants to put the time in it takes to get the job done right.
I coach a lot of entrepreneurs who are trying to find balance and monetize their services without going crazy. You are not alone! There is no set way to bill clients for hours and projects and I've seen this issue come up A lot with over-givers. Especially those consultants who are perfectionists and want to make sure something is right for their end user regardless of how long it takes. While I applaud the quality of work, it is incredibly important to not over-extend yourself and your offerings.
As each client, as you pointed out, is different and requires a different amount of effort and scope per project - a simple hourly rate with your other obligations isn't a perfect fit for you. Don't beat yourself up, it's not about "growing up" or doing it the right way. It's about doing it the way that creates abundance for you and the highest quality work for your clients. If I may offer a hybrid solution that may work out best for you as you seem to not have a per project problem but a "knowing your limits" challenge:
Use an a la cart method of project selection and bill by project with written limits and expectations included as well as a set limit of hours devoted to each project.
For example, a public relations professional I was working with set her press releases with a maximum of two rounds of edits. If more is required, charge for the excess hours at a discounted rate.
Now go a step further. Whether you have a website or not, you can start using a service like acuity scheduling.com to bill and book projects directly onto your calendar and availability so your clients have the freedom to choose when they want you to work on a pre-packaged project during your availability, and can even add discounted hours automatically should they need them.
This level of automation takes the guesswork out of your billing question and saves you from going crazy with overwork and over-extending yourself.
Let me know if this sort of solution would fit in your particular work environment and please call me to discuss further or if you have any questions, going over your packaged pricing and reverse engineering the projects so you aren't over worked is your next step. Sometimes, simple system strategy and knowing your resources can make all the difference!
There is no perfect solution for this. My company has struggled with this for over 15 years, trying multiple methods of billing only to run into the same problems you have. Ultimately we have settled on a format where we outline what we plan to do and provide a cost based on the number of estimated hours that will take. We don't stress the hours but we make sure the client is aware that our services include "up to" however man hours. If we find that the scope changes or that things are taking more time than we anticipated we either cut back on the deliverables or inform the client so they can adjust their budget if possible.
Ultimately, it comes down to communicating expectations with the client. As long as you're doing that then it makes everything go more smoothly.
It is a tough solution. Personally, I don't like fixed price billing as you never know what you are going to get into - UNLESS - you have a packaged service of solutions that you plan to offer, clearly defined or the client. But then a fine line can occur as to variations and interpretations of what those specific deliverables are.
I believe in hourly billing against a retainer. It is the fairest for all as long as you are providing value for the time billed and measurable results. The client knows at least what his/her initial cost is and can have some control over it once the retainer is exhausted.
In this manner, as changes and curve balls come at you (and they will), you are protected and the client know he will have to pay.
Just my own personal opinion for what it's worth.
I prefer a hybrid method as many on this thread have mentioned. I do an internal audit of what each service should be billed at individually, then take that rate times the hours needed to do the job. I add on the amount of time needed for "consulting", training, and followup (via email, phone, etc.) and put together a monthly rate that covers all that I would do PLUS extra for emergencies that may arise. I bill this monthly rate at a minimum project price of 3-6 months, and if there is a lot of upfront labor (setting up systems, learning homegrown software, etc) I charge a set up fee. Being confident in your processes and work allows you to do all this and not feel like you're overcharging. In almost every instance, I've come in under the budget number clients have in mind, and -- if they don't use all the services needed in a month -- the extra earnings helps cover time I spend acquiring new clients. Hope this helps!
If I am right, this hobby became a consulting and now you wish to make money out of it.. You need to focus on the few. You need to consult with one person, fully focused and fully engaged. You need to focus on your customer not your hourly money,,
Try this: John, I will assist you on this project. It is going to cost you this much but at the end, you will accomplish what you set out for. if you want an advise i charge $$$ by hour, you can send me questions in advance and we talk during 1 hour..
Example: My last consulting project took 3 months, that is everyday with the owner, hands on, intense, involved in every aspect of the company and nothing else. We turned the company around with more than 300% increase in business, in just 3 months. I took 35% of their profit and we move on,,
I agree with Stoney and most other contributors, there is no silver bullet.
I personally would ask for a retainer and then add-ons. I don't believe in getting paid by the hour in business consultancy. Everybody wants results and if they pay you 1hour, 10hours or a retainer, they still expect the same result.
In the above method, you need to justify your add-ons, but don't need to worry about your cashflow.
I love creative methods for billing.
Yes! You can certainly bill by the week, explaining that your time commitment during the week is actually 5 half-days. Why not? It's a clear system that's easy to understand. You can refine/iterate the details as you go forward.
This can help you build clear back log (as clients book in advance) and has the potential to create a very stable income stream. If there's a cancellation or you have an empty week, you can easily market that availability as a last-minute discount to you existing client base.
It also has the advantage of creating scarcity. When your website points out that you have ZERO availability until 6 weeks from now, that gives you credibility.
It also reserves time each week for you to do overhead and business development stuff (such as initial consults with new leads).
This kind of block scheduling certainly won't work for everyone, but I see many advantages if it does mesh with how you work for your clients.