The first part of this value billing series focused on the three most common ways professional services firms set fees – Cost, Market and Value. Most professionals think they use cost-based fees but actually employ market-based fees. Mimicking fees like this leads to a Death Spiral known as commoditization, which is the greatest threat to profitability.
The second part of the series focused on the central truth of value billing – value is solely defined by the client (and the market overall).
This third part focuses on how to value bill in BillQuick.
Value Defined Upfront in Project Profile
In many situations, the value of your services is determined before you do any actual work. You discuss and negotiate project goals, how to achieve them, costs and billing arrangements. To formalize decisions you might give your client an estimate, engagement letter or a letter of intent.
Within BillQuick, you can record these details in the project profile. If you agree to complete the job for a set amount, say $30000 for an architectural project, you will select the Fixed contract type. If you take a consulting project at an hourly rate of $125 and agree to complete it for a total fee not to exceed $15,000, then the contract type will be Hourly Not To Exceed.
Billing Full Contract Amount
In any situation where you agree to a maximum amount for your services, if accumulated time and expenses are less than the contract amount, you should bill the full contract amount. The fact that your knowledge, experience and efficiency finished the project under-contract does not change the perceived value. The fact is your client received full value. Charging less than the contract amount negatively influences their perception of value received. Doing so, you also de-value your professional services.
BillQuick allows you to easily bill the remaining contract amount for a project with a quick mouse-click. On the Billing Review screen, you can use the Bill Final option from the right-click menu. BillQuick re-computes the remaining, final bill amount as:
Net Bill Amount = Project Contract Amount – Project Billed to Date
Whatever change you make to the Net Bill, BillQuick records this adjustment to the value of work as a ‘write-up’ (increase) or ‘write-down’ (decrease). The Write-Up/Down by Project report tracks these adjustments. Of course, if you have already billed up to (or more than) the contract amount, the original Net Bill (value of Billable Hours + Billable Expenses + Taxes) does not change.
During the review of time entries, a project manager's intimate project knowledge allows him to identify billable items that were materially more or less valuable than the amount computed. For example, a structural engineer makes a calculation mistake on a project. Though it is found out later, his work is already charged to the project. Its cost should be part of the project regardless of its value. On the billing end, the question arises: Should you bill the engineer’s time to the client?
Commonly a billing manager chooses not to bill the engineer’s time because it contains no value. However, you should bill the time for the person who corrected the mistake. This ‘mistake’ scenario exemplifies the mindset of most service professionals – readiness to adjust billable value downward. Ideally, you must increase billable value when managers and staff are more efficient because of skills, knowledge and/or technology; or if the value of what is delivered provides greater benefits. For example, if a task was supposed to have taken 15 hours and it was done in 10, then you should adjust the hours billed to a higher amount to reflect its true value.
To sum it all, you should start practicing value billing and implement it via your business solution, whether BillQuick or any other application. Evaluating your services and tracking project information such as more efficiency, new technology, better methods, greater benefits to the client and so on can help you make better value billing decisions.
About the Author: Bob Wolff is an accountant-turned-Channel Manager at BQE who helps to offer consulting and software solutions for BQE customers. He likes to share his business expertise here on the blog whenever he can.