Don’t count the hours
I had a tradesman come to my house last week. I wanted some gutter guard installed to keep all of those pesky leaves from blocking up my downpipes. This seemed like a simple enough job and he quoted me two dollars per metre for the new revolutionary gutter guard.
That all seemed reasonable so away he went. He worked away at the job, took a few phone calls, had some smoke, left to pick up some more screws, had a smoke, stopped to charge his cordless drill, had a chat to me about the weather and then, after three days at our house, finished the job. I really thought it should have taken about two days but I guessed with a variety of distractions it stretched the job out to three days.
I was therefore a little surprised when I was handed a bill at the end of the job for 24 hours of labor. The tradie said he was at our house from 8am to 4pm for three days so that totaled eight hours a day over three days.
We had some further ‘discussion’ about the variety of interruptions he had over the three days and I explained I was disappointed that all of these interruptions weren’t deducted from the time. The tradie explained that he had no way of tracking all of these little interruptions – unless he had a stopwatch on the job – so he just charged for all the time he was there.
Over protracted discussions and disagreement on the legitimacy of the charging regime, he eventually reduced his hours and I unhappily paid my bill. I assured him that next time I will employ my own stopwatch while watching his every move to guarantee I am only paying for the work he actually performs for me.
Now I don’t want to seem like a complete tightwad but at best I took mild exception to paying an hourly rate while a tradesman was taking phone calls from other clients and at worst I think it is downright dishonest for him to charge me while he is trying to give himself lung cancer.
Picture a better scenario. My tradesman has done his research and worked out how long it should take him to install gutter guard. He then converts his labor to a per meter rate and adds the cost of the product. He might come up with twelve dollars per meter. When he arrives at my house, he quotes a total installed figure – per meter – of gutter guard. He then measures my house and tells me that my one hundred meters of guttering will cost a total of twelve hundred dollars installed.
At this point in time, I can say yes or no. If I say yes, I have verbally agreed to a contract and once he is finished the job, I will pay the agreed amount. I then don’t really care if he takes two days or five days and I don’t mind if he takes three or three hundred phone calls – I agreed on a price for a job to be done and hours no longer are relevant. If I think the price is too dear, I say no and the tradesman leaves my home having only wasted ten minutes of his time. The result either way is better for all parties concerned.
And so it is with the IT industry. In the past we have become fixated on charging hours. The client doesn’t really care about our hourly rate or how many hours we worked on a job. They want to know the total amount for the job.
The classic scenario I used to see was when a client would have a virus on a single PC. Some of those viruses can be stubborn little varmints and they can take hours of work. Every time we would hand a computer back to a client and tell them it took two hours to clean their virus ridden computer, the client was amazed it could take that long and they weren’t happy about paying the bill. They would often compare the price of anti-virus software and remark how this was cheaper than the labor charge. These conversations would go nowhere and usually involve some form of manager so even more time was taken for what should have been a relatively simple little job. Not good for the business and often an unhappy client.
Many years ago our first step in our full-blown MSP transition was to throw away hours and put a price on all work. A standard price list was created which listed all of the common jobs and the exact amounts for those jobs. For work outside standard work, a guaranteed price was given to complete the job BEFORE the job was started. For example, when a client walked in with a virus on their computer, a fixed price was quoted. In some instances, the client would exclaim that this was too dear and walk out. No problems – better to know the client thinks the price is too dear before you have performed the work. If the client thinks the price is too dear after the job, you are hardly going to re-infect their computer! In the majority of instances when the client says to go ahead, once the job is completed they will happily pay the amount because they agreed to it before the work was started. Humans don’t like to be backed into a corner and they will often feel as if they are backed into a corner when they have no option but to pay AFTER the work has been completed.
I can hear what you are saying – how do you price EVERY job before you start. I am not saying this is easy – there are definitely some challenges in pricing all your jobs before they start and I guarantee you won’t always get them right. Keep in mind a line from a 1914 poem by Patrick Chalmers: What's lost upon the roundabouts wepulk up on the swings! Some days you will lose a little on one job but make it up on another job. And if you are consistently losing on all jobs either quote your prices higher or train your staff better. If you can get this part of your business right you will leapfrog so many other IT businesses that you won’t have a problem with the occasional job that blows out in time.
Tell me how often you have your gutters cleaned at [email protected].
More Managed Service Provider articles
- Get your message out: Make your business tagline work for you
- How do you make the leap from owning a job to owning a business?
- How to get employees comfortable with business change
- For MSPs, meetings are more than get-togethers, they are come-togethers
- Is your MSP a business model or just a billing model?