Value Billing has been a bit of a buzz word for quite a while now in Consulting. But over the last few months I have increasingly come across people making the shift in other industries, most notably accounting and bookkeeping thanks to some pretty funky innovations in software.
For those of you who don’t know, Value Billing refers to pricing your services at a fixed fee that fits your client’s needs rather than providing a standard hourly rate.
Now, while this sounds awesome, it can also work against you. If your customers don’t see much value in your efforts, they won’t be willing to pay you very much -so it could cost you more than you can charge. So it’s really important to know if value billing suits your industry and clients.
If you do a lot of highly customised work where the amount of time is highly unpredictable and irregular, hourly rates may be the right option for you. It can also be good to stay with hourly rates if you use a lot of casual staff – in this case their wages are directly related to your Cost of Goods or Services (COGS).
If you really think about the work that you do though, you can probably find some patterns and predictability. In my experience this can be especially hard for small businesses, who often don’t have the time to reflect on the work they have done because they are always chasing next week’s revenue. But finding the patterns and adjusting your quoting structure can have significant benefits, even to small businesses. It will help you find out which of your services are under or over priced and help you get a steadier rhythm to your business. Once you have that, you can start to me more proactive and less reactive.
One area where hourly rates simply don’t work is with knowledge workers Check out our next blog on that topic, but for now, it is simply worth reflecting on the type of work you do and if it’s worth the administrative burden of tracking time for it. In some cases it is, but don’t just do it because the rest of your industry does. A small business could be saving up to 20 hours a week of admin time – and that’s a lot of money for a small business.
Some further reading on Time Tracking Productivity Costs: http://ezinearticles.com/?Timesheets-Verses-Time-Tracking—What-You-Need-to-Know!&id=1456129