The Death of the Billable Hour

 

Written by

Chris Fello

9/22/2017

The Death of the Billable Hour

We're done. We've broken up. We're no longer friends. In fact, it's a harsh breakup, we never even want to see you again. Not on another customer invoice, not in a sales proposal, not even in our internal documents graveyard. Innovative Solutions has moved onto greener pastures.

Here's a question for you

Why hasn't the billable-hour gone to the wayside since the dawn of new tech, new process, new ways of doing business has forced so much OTHER positive business impact, in favor of something more focused on business outcomes? For far too long, the world of professional services has largely leveraged a business model that isn't sustainable, doesn't encourage a unique customer journey and buying experience, emphasizes inputs instead of outcomes, and generally requires an unnecessary amount of time to analyze and approve. Isn't it easier, if I am the buyer, to approve an outcome, like my computer being fixed, rather than the amount of hours and the rate required by X resource. It's either fixed or it's not, and I want to pay fair market price for the service. In short, it's not easy enough to do business with a company who doesn't know how to lead their customers through a business cycle that is entirely and absolutely laser-focused on the results, not the inputs.

This is an industry (r)evolution and I'm proud to see my organization leading the charge among service providers in our space. We've recognized not only that time and materials can't be part of our value proposition into the future, but neither can solely offering project services or managed services. To be successful, we have to unlock the value of our "secret sauce" and use it to create return for our customers. The rest will take care of itself.

Here's the evolution

Time and Materials (selling a product/service), to project services, to managed services, to packaged intellectual property. You can hopefully quickly see the problem areas with each one of these models, other than the fact that margins run from 20% to 65% at either end of the spectrum. Packaged IP is what the best companies are leveraging now and what has propelled a company like Datto to the very top of their industry in just about 10 years time. A fantastic technology platform (IP), married with automated process, married with customer demand for uptime, married with a customer experience you cannot buy anywhere else equals a pretty tough combination to beat.

Time & Materials is not a sustainable business proposition. It doesn't encourage loyalty, it doesn't encourage solution-selling, it doesn't encourage absolute alignment between provider and customer business goals. It sucks and how it has survived this long is beyond any wisdom I ever thought I had. I'd be glad to share with you what we have in store for early next year...but that is another conversation unto itself.

Here's why it's not sustainable: Simply put, we are in an age of machine learning, artificial intelligence, virtual and augmented reality...etc...where industrial companies have become tech companies (or have failed), and it's become a necessary evil to incorporate into your business model Intellectual property, automation, and a LOUD marketing effort to outpace your competition. Hours x rate makes it so difficult to allow for growth of a product/service/solution because you simply cannot create an easy buying experience focused on business outcomes.

Here's an example

SaaS (Software-as-a-Service) - Probably the best example. Office 365, for instance, has priced their offering, with ultimate flexibility, given a set of features, support, and functionality, and made it so easy to consume that I'm of the opinion it's a large part of this platform becoming the #1 best-selling service they've ever offered, with exponential growth over the past 4-5 years. It's consumption-based, and you can flex and scale instantly with the number of users who need the platform, under what licensing agreement, and what features each person may need. There's no mention of the hours or the rate at which a given set of experts at Microsoft have developed and support this platform! It's incredibly simple, and it works beautifully.

It's time for the stupid joke where we ask our lawyer if s/he is going to charge us for this phone call to END! It's time for the industry to become better at leading the customer journey with a focus on their goals - after all, this is the Age of the Customer.

Learn More About Consumption-based IT

Do you want to continue this conversation? Give Chris a call at 585-292-5070 x215