Many of you know we’ve been providing R&D and technology development services for nearly 45 years now.  (By the time this post exits the queue, it will be less than 10 days shy of that mark!)

And, for that entire stretch of time, we struggled with the proper way to bill folks for our services.

When we started, we had a billable hourly rate.   Except…

When we were agreeing to develop a new neurosurgical device, a new pharmaceutical, a new home health appliance… Our potential clients were nervous about signing a blank check.

After all, how could we predict that we’d have a workable prototype after 1,232 hours?  Or after 15 hours?  And, if we were lucky enough to finish our concept in 15 hours, how would we obtain adequate compensation for our ingenuity?

That’s part of the problem with the billable hour.

Before I continue this discussion, let’s switch to another of our endeavors.  We’ve served as financial managers and CFOs (chief financial officers) for more than a few law firms.

And, as you know, lawyers live and die by the billable hour.  It’s one of the reasons PCLaw, a time and accounting program with which we’ve been associated for three decades now, was developed and thrives as the premier system for legal firms with 25 or less lawyers.

While PCLaw accurately can track the hours one devotes to client efforts, it can’t quite track that “just 5 minutes” of your time phone call that is ubiquitous from clients during the day.  (If they only were 5 minutes- or the diversion of one’s efforts for that needed answer doesn’t affect the productivity of the project one was effecting before that call arrived.)

For years, to augment the PCLaw timing, we used Outlook’s automatic  “journal” tracking system (an extra feature that geeks like me deployed until it was  removed as an improvement- NOT!!!!!!) to double check our attorney’s time logs.

(Outlook used to record the time one had a Word, an Excel, a PowerPoint, among other programs open- from start to finish.  That meant we could determine that while a brief for Johnson might have occupied Lawyer A’s time from 9 to 4, we saw that another Word program was opened for 21 minutes during that duration, and 3 phone calls from Somers, Winters, and August of 11 minutes each were also taken.  Which meant Johnson’s time needed credit for 54 minutes spent on other client efforts, not to mention that hour long lunch.  You can’t imagine how ticked off I got when this attribute of Outlook was eliminated in Outlook 2013.  [Yes, Journal still exists (CTRL + 8)- but it’s a manual entry, not automatic tracking.])

I admit that, for our intellectual property firms, we could develop a firm quote for preparing patent and trademark filings (based upon the complexity of the product and the number of claims).  But, that quote did not include oppositional actions- since we can never predict how much money an opponent of this new development is willing to devote to keep a product from the marketplace.

For that same reason, family law practices can’t accurately predict how much a divorce can cost.  It depends on the opposing attorney, the attitude of the protagonists, custody, etc.

But, for our design practice, we could guesstimate how many hours it might take- and certainly how much the product would be worth to the client.  For our larger clients, we quoted a (large) percentage of the hours we thought we’d need (provided as a monthly fee over the expected project duration) and a smaller percentage of the sale (of the product) proceeds.  Smaller clients, those with less available cash, would get their quotes with a sliver of the hours we estimated we’d need and a higher residual value to us from the successful development.

Generally, that worked out perfectly.  Oh, sure, we had one client deliberately withhold our product from the marketplace until our royalty payment period expired.  (Yes, our attorney sued and got a judgment.  And, yes, that product is still sold around the world- having waited 10 years to see the light of day.)  And, we had more than one marathon session to finish a product design. (I wrote about one such effort here.)  Plus, at least one occasion, while we were in hour 58 of such a session,  we were wondering where we’d get the money to refund the client if we failed to deliver the prototype!

We use similar processes for our tax and financial process.  Instead of billing by the hour, we charge by the form- and for some forms, for how many entries are involved.  (Forms that deal with items such as depreciation or stock and bond transactions come to mind.) Now, for clients who call every 10 minutes, or find one more tax form after we’ve begun preparing their submissions- they get dinged for such annoyances.

We use this process because it would be way too easy to “pad” our hours.  Even though we use journaling and PCLaw timers.  We also provide discounts off our bills (services only) for payments received within seven (7) days.

It’s because we value our integrity.   And, are positive of the value added we provide our clients’ bottom lines.

(Our tax service motto is “We help you pay the lowest amount of tax required by law”.  And, we mean it.)