by Jim Boomer, Boomer Consulting, Inc. &
Drew West, Deltek
Imagine arriving tired and
weary, late at night in a strange city. You hail a taxi for what you hope is a
quick ride to your hotel. But with no
knowledge of the area, you have no idea how long the ride will take or what the
final fare will be. Isn’t it unsettling to watch the meter tick up and up,
while you just hope you have enough cash when you finally reach your
firms may see little in common between themselves and taxi drivers, hourly
billing basically takes our clients for a faithful ride in the backseat. Just like you in that unfamiliar taxi,
clients have little idea about the path we take to deliver the end product, or
how long it will take. Wouldn’t an
agreed upon price up-front make both sides more comfortable entering into a
transaction – whether it’s a cab ride across town or business advisory
Fixed Fees | A Balancing Act. Yet many firms long
attached to hourly billing feel uneasy about the risks of fixed-fee
pricing. Even firms sold on the merits
of switching still face internal resistance, fueled by the mindset of sticking
to "how it’s always been done.” Yet with
timely access to the right information, firms can confidently turn to fixed-fee
pricing to reduce risk on both sides of the relationship, increase trust and
gain a competitive advantage.
considering fixed-fee pricing must consider both the advantages and the risks:
Project Management Required
free of hourly billing means confidence in your engagements– confidence driven
by accurate status of projects, appropriate guidance for your people, and
knowledge about what works. For this kind of project management, your practice
management system should deliver visibility into information, control over people
and their work, and insight into the results.
management systems with the following attributes provide the information you
need to price, staff, manage and deliver successful fixed-fee engagements.
Making the Leap | Some Recommendations
Visibility. Visibility is all about the past,
present and future. To scope accurately,
you want easy access into past work and results, so ensure all the firm’s
critical data is easily accessible– from either a single environment or a
tightly integrated system. Present status is key– you want to know immediately
when engagements are off schedule or budget, so look to dashboards and alerts
to provide margin, utilization, or realization KPIs to partners and all
involved staff. Looking to the future,
effective resource planning means knowing who’s currently available, and their
future capacity. Connect constantly-updated staff availability to the sales
pipeline of fixed-fee engagements, so you can effectively plan resources.
Control. Control is about guiding engagements to the
profits you expect. Don’t take on costly
inefficiency; make sure your invoicing and billing has the flexibility needed
for fixed-fee pricing– such as automatic invoicing triggered by progress
milestones. Of course doing this means progress has to be accurate, so once
again look to your practice management system to enforce prompt collection of
the hours spent on each project.
Finally, control how people are treated. Ensure your practice-management
system fairly measures each resource’s true contribution, and accurately calculates
realization or utilization targets– so staff working on early phases aren’t
penalized if revenue is realized at the end of the engagement.
Insight. Insight is
going beyond the simply visibility of facts and status, to having true
knowledge. Practice management systems
that combine information together are good at providing knowledge, because
people then have a path to connect outcomes back to the decisions behind
them. Put in a much better place for
deep analysis of past activity, the single set of historical data in a good
practice management system helps consistently determine appropriate
scope-of-work, accurately estimate costs, and even evaluate the historical
effectiveness of involved staff. As
insight gets increasingly deeper, fixed-fee engagements become easier to
accurately scope, and increasingly less risky to deliver.
weighed the benefits and challenges and you’re ready to make the leap. What are some initial steps to take as you
head out on your journey?
Buy-In. Ensure the entire team is on
board– you’re impacting culture, and that’s no small undertaking. Before diving in, conduct strategic planning
sessions to gain consensus and set a roadmap for implementing fixed-fee pricing
that includes initiatives, responsible parties and due dates.
Readiness. Assess your ability to access the information you need to
effectively manage projects. Ready your
practice management capabilities to support the firm’s fixed-fee approach.
Focus engagement letters on value creation. Move important risk-mitigation language to an
addendum to the main agreement.
Look among your top clients for those using multiple services– and with
entrepreneurial spirit. Pricing is an art not a science– so be ready to adjust
to their feedback. You’ll also gain
confidence and skill as you get more engagements under your belt.
and Price. Bundle your services and price
these packages for monthly billing. Give your clients pricing options based on
ranges– like small, medium and large bundles.
This can increase margins and monthly cash flow.
Clients. Define your target client in terms
of ideal monthly fee and your acceptable minimum monthly fee. Beyond fees, consider other criteria like:
- Are they
willing to take our advice – are they coachable?
- Will they
refer us to other clients that meet our defined criteria?
- Will the
client increase our capabilities?
- Respect –
do we respect the client and do they respect our team?
- Does the
client appreciate our services and promptly pay bills?
of sitting lost and worrisome in the back of a taxi in an unfamiliar city, you
now have a roadmap to take on fixed-fee pricing. Will you maintain the status quo and march in
step with the rest of the profession? Or
will you break out into the fixed-fee pricing model proven by innovative firms
to deepen client relationships, increase revenues and improve profitability?