Hourly Consulting Fees are Dead
For the better part of 4 years we’ve been continually adjusting how we work with our clients and how we price our services. Like any consulting business, we started with hourly billing. That quickly became a frustration point for our clients, as they would have no idea as to what their bill would look like at end. It also became a pain point within the company. Our strategy and production teams weren’t fond of having to log every minute spent on work, calls, meetings and other tasks.
Hourly billing also puts a big strain on the consulting firm as it has to pay its employees before it receives payment from a client. We began to feel like a law firm — chasing billable hours.
We’ve also tried project-based planning. Everything is great during the discovery and planning sessions. We’d work out a detailed plan for the 6 months of a project and put a price on it. But then the client requests a feature change and we then have to tell them that change will either extend the length of the project, or they’ll need to remove something from scope. This happened again and again.
We were spending too much time working on change orders and renegotiating price, instead of working on the actual project. This was not an efficient use of ours or the client’s time and resources.
Our successful clients work with us on a full retainer engagement. Our retainers are month-to-month and a flat rate for each month. We become an extension of their business, working with the client day-in and day-out to make their business successful. We’re able to focus on strategy, planning, and production without the worry of every minute being clocked and the client being billed for it.
There are many upsides for the client. They get to have a fixed expense for their technology consulting. The client also has a full team of professionals at a fraction of what it would take to hire a whole internal team. On our side, we can predict revenue, meaning better hiring on our part and in turn providing clients with the best consultants possible.
We’ve heard the argument that clients need to control their costs and they’d prefer to go hourly or on a project basis. In our experience, retainer or monthly-based engagements have had the biggest benefit to our clients. The client has the benefit of converting their consulting dollars into a predictable fixed cost, while gaining better control of the project.