When you hear any combination of the following be very careful.
“But that’s what we had to bid to win the work”
“There is no point in keeping track of our hours because it’s all fixed fees”
“We’ve had a few projects with problems lately”
“It takes a while for people to get up to speed on new projects”
“The client keeps changing things”
Fixed price work, value based fees, are not the easy option. They are great when they run well, when you have a well oiled machine, but if your organisation does not have the discipline to properly track hours, utilisation and margins by project when you use hourly billing there is a very good chance using fixed fees will kill you.
If you have ever waterskied, very few people can learn on one ski. A few can but for most it would just be just a series of accidents.
If you doubt this talk to a builder that does big projects, you might be surprised how few make money. The tradesmen they engage, on an hourly rate, are probably making very good coin; with none of the headaches.
I know I bang on about utilisation a lot, and the thought of tackling this stuff might make you even more exhausted, but when you feel that way just try to do the one small thing that can move you forward. Write down the hours and work out the cost of people to find out the profit on each project.
And remember that the amount of time you should bill for any task is the average it takes your organisation to perform it, not the best you could possibly do in perfect circumstances.
Photo by Najib Kalil on Unsplash