Why you shouldn't work
on a time and materials basis
or an hourly rate basis?
First off, if you're not doing jobs on a time and materials basis, good well done
but also keep watching because you'll be competing against people who are and you
can use what I'm about to say when you're competing against somebody who's
working on time and materials basis or quoting on a TM basis. It can be
tempting to work like this. You can feel fair, you can feel nice. It's simple and it can feel sensible
especially if you're going into unknown territory like an extension
on an old building where you don't know what you're gonna find when you come with the covers.
So a quote was hard to prepare and can feel tempting then,
you can feel like you're helping your customer or charge an hourly rate and materials
without their margin on top of course so they're only pain for the work you do
and the stuff you use and no more.
So it can feel
nice or round. I think it's an easier sell as well.
On this basis numbers are low. You're talking £89 to £200 bucks an hour,
15%, 20%, 30% on top of the materials
instead of numbers like £20,000 or $200,000, or half a million.
So can it can be tempting and it can feel tempting
but it's risky. It's risky for your customer
and it's risky for you. You shouldn't do it.
Let me explain why. It's risky for your customers because it's open-ended.
You can give all the estimates you like but it's going to take as long as it takes and you're going to use
as much stuff as you use or you're on estimating.
It's meaningless really isn't it? If the contract, the agreement is an hourly rate
and a margin on top of materials and will show you receipts and timesheets.
When you're estimating, you could estimate £50,000, it could cost them a hundred
Your customer has no protection from your estimating being wrong or sh*t or dishonest or optimistic.
I'm not saying you would be but some people do. This is a reasonably common experience of people
for a time and materials estimate to be wildly optimistic and for the true cost to end up
being rather than more.
Time and materials billing or hourly rate billing doesn't protect your customer from that at all.
So the commercial risk for the job sits with your customer, not with you.
If you're slow,
and it rains
or for whatever reason things take longer
than you thought or you told your customer you thought it was going to take, they pay the price, not you.
So it's nice for you in that way, you're all protected - not nice for your customer.
It's also risky though for you probably because putting the risk on your customer
makes it more likely there's going to be a gap between what they were expecting to pay
and what you end up invoicing them for. And when there's a gap between their expectation and the reality,
you're going to get disputes, you're going to get unhappiness
and you're going to have problems to deal with.
And that's the risk to you, an unhappy customer or even a dispute over the invoicing.
You don't want to be falling out with your customers dispute over cost and payment or a refusal to pay
some part of your invoicing. It's quite likely, vastly more likely
than if you've done a fixed price quote.
When it's more than they thought, they're likely to blame you aren't they? They're likely to go where you were slow.
Your guys were slow, saw them standing around, doing nothing so the apprentice
on its phone all day. You weren't there all the time.
You made a mistake, you fucked it up, that's your fault. I shouldn't pay for that.
You're going to end up in all sorts of difficulties and disputes. It's not always, it's not definitely going to
but those things are much more likely because the process isn't controlled by clear rules.
And that's what you've done. When you're quoting on a time and materials basis,
you've not been clear, what the rules are, you've left it a bit open and relaxed and informal
and you put yourself at risk. Customers will cite many reasons for not wanting to pay more
than they thought and you'll end up in dispute. You might damage
your profitability on the job because you might not get with your money.
You might damage that relationship
with that customer and you might damage your reputation.
And not only that, the proper grown-up professional way to do work is to provide a fixed price quote
for a defined scope and to have rules
for how that scope and the price is varied.
Paper trails, clarity the risk then is on you not on your customer. Your customer
gets the job done as written down in the scope for a fixed price and it's up to you
how long it takes if you make a mistake. It's on you to fix the customer's protected.
And a fixed priced quote protects your customer and is therefore more professional for you
and they get to choose. They get to choose they want that job done that was written down and described
and clear for that price. That's a nice clear exchange rather than this kind of open-ended,
'probably this much'.
So time and materials
is bad. If you're up against someone using a time and materials basis for their pricing, explain this
to your customer.
Yours is a fixed price quote. It's fixed.
They won't pay more unless they vary the scope
in which case they'll be rules and they'll get to see how much extra will cost them
before they make their mind up, whether they want to vary the scope or not.
Time and materials does none of that.
So don't do it, don't do T&M, do fixed price quoting.
The Cowboys do time and materials, don't they? I'm not suggesting you're a cowboy.
If you're doing T&M pricing at the moment, you might be but you probably not
but it's what they do and if I've offended you, I'm sorry.
Change, do fixed price quoting. Don't allow yourself to be tarred
with the same brush that the Cowboys are tarred.
You're not necessarily a cowboy.
I can help you make this shift. I can help you work out how to do your fixed price quoting, how to manage the
risk involved in fixed-price quoting and I can help you defend your fixed price quotes.
It's part of the sales systems that I teach my clients.
So if you're interested in that, book yourself a 10-minute chat, there'll be a link below.
That's where we talk quickly about whether the coaching is right for you,
whether I can help you, whether I think I can and we move into the next stage. We do a strategy session
if we think we can help each other work together or you can book yourself
a ticket to the next Tools Down workshop.
See you later.
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