Service prices

[Slinky Bender]

For those who work in service businesses (consulting, law, accounting, etc. ) what has your business done with the hourly rates it charges clients in the past year?

[pjorourke]

My “posted” rates have stayed the same. However, most of my projects work off an agreed upon budget and I have found that in order to sell the job, I have to be much tighter on my estimates. In short, although the posted rate is the same, I’ve got more unbillable time on projects than I have in the past -- which is tantamont to a rate cut.

[jseah]

"standard" rates has stayed the same, but who pays standard? basically, everyone gets a discount, with the percentage dependent on how important and potentially big the client can be.

[BigMadM]

Originally posted by jseah
"standard" rates has stayed the same, but who pays standard? basically, everyone gets a discount, with the percentage dependent on how important and potentially big the client can be.

Some people can learn from this.

[jseah]

I'm surprised that slinky hasn't said....

"retail, who pays retail" yet....

[sean960]

Posted rate means very little,it the EFFECTIVE rate that counts....

[justme]

Yeah, but everyone's bitching about posted rates.

[Wwanderer]

So are people answering the poll according to their posted/standard rates or according to what they are actually collecting these days? It is hard to draw any conclusions without that info.

-Ww

[justlooking]

You know, I'll say all sorts of incriminating things on this board.

But if you think I'm ever gonna suggest out loud in public that my collections differ greatly from my billings . . . .

[pjorourke]

I think you and Wwanderer are talking about two different things.

Just to clarify terms, there is the actual time spent on a clients work, the number of hours billed, and then the amount collected.

In my experience, large firms want all time spent recorded. So if you were posting on UG and the Acme Industries file was open on your desk, good old Acme probably got charged. (Assuming you don't have a time code for goofing off.) But when its time to send out bills, you look at the Acme file and see that although there are 20 hours logged, there is only a two page letter in the file. So you write off 15 hours and bill the 5. In flusher times you might bill 10 or even the full 20.

I think Wwanderer's post related to the time billed. Yours related to how much actually gets collected which is typically a pretty large percentage.

[justlooking]

I thought Wwanderer was talking about realization rates, which is what I was talking about. I think.

[pjorourke]

Define "realization rate"? Is it:

a) Money collected/(rate x hours recorded)
b) Amount billed/(rate x hours recorded)
c) something else

[jseah]

my company goes by c)

standard rate x hours recorded = standard fee

standard fee x realization rate = amount expected to be billed

therefore, amount billed should always equal or exceed amount expected to be billed (we go by fixed fee arrangements). if it does not, then the excess is written off and the write off hits the partners' bottom line.

therefore, realization rate is "decided" on, and not calculated.

[justlooking]

It actually can be "(a)" OR "(b)" depending on what they want to bug you about.

[pjorourke]

Originally posted by jseah
therefore, amount billed should always equal or exceed amount expected to be billed

Doesn't this logically produce a Lake Wobegon effect? (I'm assuming here that the realization rate is the average realization rate.)

[jseah]

Originally posted by pjorourke
Doesn't this logically produce a Lake Wobegon effect? (I'm assuming here that the realization rate is the average realization rate.)

Not necessarily. Say the company sells a project for $20k. It expects that at standard rates, the project will take $100k to complete. The realization rate is set at 20%. If the actual billings turn out to be $17k, they still bill $20k, and there is a $3k excess booked after "covering costs".

My company also has a number of projects that they sell so cheap, to "get their foot in the door", that the realization is set to 0%, so any time charged to the project code is valued at zero, and essentially all billings are in effect pure profit.

Of course, management is judged based on our ability to keep realization high, although it is also expected that for "signature" clients, we have to bite the bullet and give the work away in order to keep the client happy. We're also graded on the revenues we bring in, which is just the amount we actually bill. The way revenues are measured for performance purposes is very similar to how a MLM works, we get credit for the revenues brought in by the people below us, and the people above us get credit for the revenues I bring in, plus the people below me.

[justme]

Seems like a bizarre way to do cost accounting (which is the only reason I'd think that people would begin to care about this stuff).

(But I have absolutely no formal accounting background, so take that for what its worth)

[Slinky Bender]

It's not really cost accounting, it's blame accounting.

[justme]

Sometimes I wish I worked in an organization that had the luxury of the concept of 'blame' or 'fault'.

[Monk]

Originally posted by justme
(But I have absolutely no formal accounting background, so take that for what its worth)

Which brings us to an important question, JL: what formal background do you have?

[pjorourke]

Originally posted by Monk
Which brings us to an important question, JL: what formal background do you have?

justme said that. jl gets blamed for enough on his own around here.

[hansolo]

I have found that standard/stated rates haved pretty much stayed the same -- but there is much more room for negotiation. Also, I think the high end places have really been hit the hardest -- I have found quite a few providers who used to work at high end places (north of $$$$$) slumming at low end places now