Project-Based Billing - A Relationship-Based Option

“Should I bill by the hour or by the project?”

This is probably the most common and challenging question in our community of consultants as we strive to be catalysts for change while also making a financial living.

We often toil when asked what an engagement will cost or squirm when the direct question, “what is your hourly rate,” gets posed.  Our heads start spinning as we ask ourselves the backend questions – What is my time worth? What if it takes me longer (or shorter) than I expected? What do others charge? Are different tasks charged at different rates? What if the client balks at my rate when compared to their own salary? (and the list goes on…)

To cope, we either strut our inner peacocks, declaring what we are worth because of our pedigree, history, and potential OR we self-deprecate, feeling guilty that we are asking too much of cash-strapped organizations – all the time praying we can cover our own bills. This is not the roller-coaster ride we need, nor does it create the potential of building the confidence and relationships that can propel our work forward.

So, what would give you permission to get off the rollercoaster and feel better about the financial side of our work? Many of us have found project-based or fixed-fee billing models to be one answer. Much of what I learned about this approach goes back to a personal experience.

Several years ago, while working on a do-it-yourself home renovation, a mason was needed to open up and reinforce a brick wall. Definitely something we wanted an expert to do. A recommended mason came and gave us a quote and said the job should take about 2 days. 4 days into the work, I was getting anxious. This was obviously taking more time and materials than originally planned. In my head, the dollar amounts were ticking up.

What was I to do? I had a giant hole in my wall. I finally mustered enough to passive-aggressively ask, “seems this was a bit more complicated than you expected…” He adeptly saw right through my question and answered, “Yeah! Yours is definitely on the harder side, but don’t worry, I’ll honor what I quoted you. After doing so many of these, you see some that are easier than expected and some that are harder. It all works out in the end.”  On day 5 of what turned out to be 6 days of work, he add “I see you are working on a dog door. I can talk you through how to remove the outer brick while I’m finishing up.”

This was a professional who was completely comfortable with the situation. While, he certainly spent much more time than he expected, he delivered, honored his assessment, and never begrudged me for the situation. So who do you think is my go-to mason these days and who gets referrals every time I’m asked for a mason?

When it comes to being comfortable with flat-fee based models, there are key things my mason taught me that I use in my practice:

• Know your business and what it takes to get a job done – You need to gain experience in whatever it is you do and you need to know what it takes to do it in terms of time, materials, and relationship building. This means that while you may not charge by the hour, you certainly need to track your own time so you can learn what it requires. Over time, having completed more projects, you’ll be better able to estimate what it takes on average. Also, TALK TO YOUR PEERS ABOUT MONEY AND WHAT THEY CHARGE! It’s ok! We all benefit from learning how others make these important decisions.

• Think long term, across multiple projects – While some projects will be harder and take more, others will be easier and take less. Over time, it will work out as long as you aren’t chronically under estimating the effort (refer back to the above bullet). This reduces anxiety on your end so you are less likely to cut corners and compromise outcomes on the projects that are taking you longer than expected.

• Consider the relationship – Know that anxieties run high when money (a limited resource for most) is involved. Anxiety weakens relationships! Be quick to recognize when money concerns are bubbling up and have a conversation about it. Also, don’t be afraid of giving something away, the knowledge my mason shared with me while doing his work amplified my own success and deepened my trust in him and his integrity and made me want to work with him again down the road - meaning more money for him (see above bullet).

• Set clear expectations about what both sides do – While my mason’s work didn’t require much from me, I did know what the finished product (outcome) would be and that is what I expected to have when we were done. Certainly the work many of us do requires more contributions from all the parties involved. Agreements about the work should clearly identify what is required of all parties in order for the outcomes to be achieved. You should also have benchmarks in place along the way to serve as progress reports and possible partial payment points. While hours are not billed directly, all parties should make it clear the rough amount of effort, time, etc required.

• Be honest about the unexpected – When something happens that is significantly outside of the bounds of what you or those you are working with expected (either positively or negatively), TALK ABOUT IT. Be honest about what it means and if the financial side needs to be re-considered and talk about what can be done. If you adhered to the above bullets, you’ll likely be in good stead to work it out.

Consider what would make it possible for you to move from hourly billing? What would it free you up to do? What potential gains could you see for your practice and the people with whom you work?

PS: Let me stop here for a moment to say that there are clear instances when contracting for an hourly rate for specific transactions a consultant/vendor will carry out for a client makes sense (i.e. outsource services like bookkeeping, grant management, etc). Generally, this is true when the work being done is directly analogous to transactional work that an employee might carry out. It’s just that the client has decided to pay an outside entity instead. But pay close attention to that language. “Hourly” makes sense when there are clearly defined “transactional tasks” that need to be completed and the payment is directly related to the skills needed to carry that out. For most of us, our work is not so transactional. It is transformative. It is based on an intended outcome for the partner with whom we engage.