“The salesman knows nothing of what he is selling save that he is charging a great deal too much for it.” – Oscar Wilde
There is a fascinating article on the New York Times website about whether accountants should charge for time spent or in some other, sadly unspecified, way that would better reflect the value they add. This issue of course applies to all professionals and knowledge workers and the article goes on to discuss the related issue about measuring such individuals’ productivity for calculation of GDP statistics and the like. However, it’s the original point about charging that I would like to take up.
The article’s author, Adam Davidson, places the start of the practice back to US lawyers realising in the 1950s that they didn’t earn as much as they would like by charging fixed-rate fees and the influential American Bar Association recommending switching to charging by the hour. As he points out, the net result is a perverse incentive for professionals to perform time consuming, often boring, work rather than the interesting stuff that maybe doesn’t take as long, but which actually draws on their specialist skills, knowledge and experience. If hours worked are billable then it is hours worked that get prioritised (1).
There is an interesting case study on exactly this subject in ‘The Psychology of Price’ by Leigh Caldwell. (It’s in Chapter 5 although the whole book is well worth reading; it has a recurring example of how to properly price a chocolate teapot which rather appealed to me). The proposed solution is ingenious, but requires a client who is either sophisticated (in which case what’s all the fuss about?) or asleep. Such clients are rare (the sophisticated ones being like hen’s teeth and the others can usually be relied upon to be dormant on every issue except the price), so what is to be done?
Personally, I suspect the answer is nothing. The article doesn’t actually explain how the ‘radical’ – their term – switch away from time-on-line billing is achieved beyond a vague hint that one should seek out customers who don’t know anything about finance and/or are actually scared of the subject. It doesn’t explore whether there are enough of these holy fools to go around. If I were a betting man I would predict that we will have to stick with hourly, or in my case daily, billing for the same reason that Churchill reputedly embraced democracy; essentially it’s the worst way of doing it except for all the others that have ever been tried.
Perhaps the only real way for interim managers and other professionals to push up prices is to change the name of the service we offer. One can charge a lot more per session for ‘aerobics’ than for ‘jumping up and down’, but it’s still based on the time spent doing it.
(1) In contrast, as anyone who has ever had the management of a project based business employing salaried staff will tell you, it is impossible to get such people to book unpaid overtime to projects even though the information thus collected would be invaluable in terms of project management and bidding on future jobs.