Hourly vs. Project vs. Valued-Based Billing
Just before and just after our November Phoenix FMPug meeting, we touched on what I’m calling the “Value-Based Billing Controversy”. It was an interesting, albeit brief dialogue, and (for a number of reasons) I thought it would make a great topic for a future meeting.
So, on Tuesday, December 15th, we’ll be having an open and friendly discussion about billing methods. I hope you can join us!
If you’ve missed the history and on-line debate, here’s some background information and resources to bring you up-to-date:
In March of 2009, I listened to an engaging FileMaker Talk Podcast: Matt Navarre was interviewing Jonathan Stark about value-based billing. You can listen to it here. Although I had never heard of “value-based” billing, it is not new. At first blush, it seemed to go against all I know about billing for software projects, but as I listened I found I was in agreement with a lot of what Jonathan was saying.
I wondered if I could make value-based billing work for me and my clients and decided I would give it a try. So, in May I completed a small test project for an existing client. I told them up-front this was a billing method test and we agreed on a fee.
In retrospect, I didn’t know enough about value-based billing to be implementing it, but I charged (what I thought was) a value-based fee… it wasn’t. Anyway, they loved it. I loved that they loved it, but I invested more time on the project than I had anticipated. Not exactly the win-win I was looking for, but I was okay with it for a first-time trial.
Later, in August at the 2009 FileMaker Developers Conference, I attended the “Secrets of Running a Successful Consulting Business” UnConference Panel Discussion. It was expertly moderated by Matt Navarre (MSN Media/FileMaker Talk) and the panelists included:
- Kirk Bownman, MightyData
- Jonathan Stark, Jonathan Stark Consulting
- Jesse Barnum, 360 Works and
- Molly Connolly, Thorson Consulting
One of the topics for discussion was “Estimating and Billing Methods (Hourly vs. Project vs. Value-Based Billing)” and it seemed to stir up more than a little controversy. An interesting debate ensued, and one of the primary opposing arguments was that value-based billing could not be successfully implemented in a multi-developer environment. In the end, it didn’t appear anyone had moved from their original billing position. I left wondering why some were so opposed to the concept of value-based billing and why it seemed to be such a contentious issue. I don’t hear FileMaker developers engaging in heated debate over data-separation vs. single file development or which methodology is best for managing the relationship graph… ?
Since August, Jonathan has posted a few (apparently inflammatory) tweets about the ethics of hourly billing. A single tweet, “Hourly billing is unethical for project work”, set off a flurry of passionate and opposing tweets from other software developers. As he later tweeted, it seemed he “stepped on a hornet’s nest” (heh… a slight understatement, Mr. Jonathan). Subsequently, Jonathan has tweeted:
- “You can’t partner with the customer if you are billing hourly because of the intrinsic conflict of interest… because it’s in the best interest of the customer to get it done fast, and best interest of the consultant to get it done slow.”
- “Charging for a custom software project by the hour is just as arbitrary as charging by the pixel.” (which made me laugh.. out loud) and
- “When did you decide to start billing by the hour?”
Each of these posts was met with objections from individuals who wanted to defend the concept of hourly billing.
More recently, Jonathan has started a weekly blog on the subject:
How I Realized That Hourly Billing is Nuts
The Moral Dilemma of hourly Billing
Trust Fractures: How Hourly Billing Hurts Software Projects
In January 2010, Kirk Bowman will be presenting a PauseOnError Unconference session called “Value-Based Billing: Not Just for Sole Proprietors”. Kirk will explain why he’s embraced this billing model for his company and what he believes the advantages are. I will definitely be attending this session.
If you would like to learn more about value-based billing, check out Alan Weiss’ book, “Value-Based Fees: How to Charge - and Get - What You’re Worth”.
