02
05.21.2020   /   duration: 63 min
The Experience Lab
The Big Deal about Time and Material

The Big Deal about Time and Material

If you’ve ever lived the agency life, you’ve probably dealt with different types of pricing and billing models – time and material, retainer, and flat-rate. All come with their pros and cons, some more risky than others. Are these the only ways to structure client engagements? Rob and Jay do a critical survey of our experience with each of these models; what’s worked, what hasn’t, what pitfalls we want to avoid, and where we think the future lies.



Hosted By

Rob Hall
senior director of product
Jay Cosgrove
senior product manager


Episode Transcript

Rob Hall: This is the experience lab, the official podcast of Digital Scientists from Atlanta, Georgia. We’re an experienced lab that explores and builds digital products. My name is Rob Hall and I’m the Senior Director of Product with DS. Thanks for listening. 

 

So Jay, how’s it been going? That’s the first time I’ve seen you in person since the first week of March.

 

Jay Cosgrove: Well, it’s worse now if I have to be honest. 

 

Rob Hall: Really? 

 

Jay Cosgrove: No, just kidding.

 

Rob Hall: No, it is great. I’ve missed human contact. As an extrovert, I need to see other people. So.

 

See, I am innately an introvert. So the last 90 days, or so have honestly been pretty good for me. I’d say my overall quality of life has gone up, and I know that has not been the for many people, where being a little more isolated or being just straight up stuck in your home has been very difficult. I think for me, I’ve been able to get into a decent routine. And I’ve cut out the commute. And so just getting that time back 

 

That’s two hours everyday.

 

My body feels better. Like I was dealing with some pretty serious shoulder and neck pain and most that’s gone. 

 

Jay Cosgrove: Crazy. 

 

Rob Hall: And I think a lot of it

 

Jay Cosgrove: It’s from your car?

 

Rob Hall: I think it is from my car. Exactly. I’m thankful for the time. Though, I’m still you know, there’s still a serious risk. It’s not all better. 

 

Jay Cosgrove: Yeah. 

 

Rob Hall: Yeah, the last time we talked all of this, this COVID nonsense was just getting started. 

 

Jay Cosgrove: Yeah. 

 

Rob Hall: As a company, we were moving towards working from home. How do you think that’s worked for us as a team overall so far? 

 

Jay Cosgrove: I think well. So for those that might not know DS. Like we’ve been, how we’ve hired is almost all local. So we have three locations, in Greenville, Alpharetta in downtown Atlanta. And those that’s been like the hubs for hiring people; however, as we’ve had really good staff that want to stay with us and their life moves them on, we’ve been pretty flexible with them. So we have some people out in, well one person out in Denver, and is that it? I guess that’s the only one that’s outside of the office.

 

Rob Hall: Oh, Denver, Greenville.

 

Jay Cosgrove: Yeah. in Greenville. Yeah. If you count that as an office, yeah. So, this really has just shown us that we can work remote, I think. Because we haven’t really lost productivity. My team was completely remote, two people in Denver, one person in. I’m sorry, one person in Denver, two people in Greenville, one person in Midtown before, and I barely saw all of them together. So.

 

Rob Hall: Right, right. Yeah, nevermind, Biff who is down in Griffin. 

 

Jay Cosgrove: Oh, yeah, that’s true. 

 

Rob Hall: Wherever that is?

 

Jay Cosgrove: Florida?

 

Rob Hall: Halfway to Florida

 

Jay Cosgrove: Halfway to Florida. Yeah. I think it’s been good as a company. I don’t think we’ve really skipped a beat.

 

Rob Hall: No and I think in some cases, I think some of us are doing honestly our best work. Yeah, I think a lot of people it’s give them an opportunity to remove distraction and focus on the work. I think some of us again, like more extroverted personalities, or folks who have just realized how much they thrive on human contact. I think it’s, it’s been difficult for them. I think for introverts. It’s been like, you know, the moment we were all born for.

 

Jay Cosgrove: That’s probably, yeah, that’s probably accurate.

 

Rob Hall: So if you were, if you were to roll the dice and, and just like guess, where are we going from here? Well, what would you say?

 

Jay Cosgrove: You’re talking about workwise? Like, will we be working from home? 

 

Rob Hall: Yeah, like, what do you think? 

 

Jay Cosgrove: I think in general in our industry, if it hasn’t already gone that way it’s gonna stay that way. You know, it’s just like, if if you can work from home and it’s okay, then go ahead and do it. And then, yeah, if there’s an meeting that requires people to be together to like whiteboard or something, then maybe, but I don’t know. You’re seeing the rise of Miro and Mural board and a lot of other tools that are even replacing those kind of in person brainstorming sessions. 

 

Rob Hall: Sure, right. I don’t know, like, I have my issues with some of those tools. They’re great. And they serve the purpose. Maybe I just need a new laptop. I find myself rebooting a lot after I use them. Yeah, there was a series of tweets posted by the Shopify CEO a couple of days ago, talking about how remote work for them is the new standard. So like the old standard has been this, this working culture where everything revolved around the office. It was very office centric. And now they’re moving to a new model, where working in the home is the default kind of center of the work life. And that’s not to say that they’re eliminating the office space as a whole. But redefining the focal point of work. That it’s no longer all about the office. The office is there, but it’s the other way around. That’s right. And so I think where we’ve been certainly is remote work is something that was kind of it was a privilege, it was an allowance, but it wasn’t the default

 

Jay Cosgrove: Right.

 

Rob Hall: action or behavior on our part. Whereas now it feels like coming to the office is is the privilege. 

 

Jay Cosgrove: Right? 

 

Rob Hall: Right. And the thing that in the reality is we do have to be careful about it. 

 

Jay Cosgrove: Right.

 

Rob Hall: Because real lives can be affected if 

 

Jay Cosgrove: Sure. 

 

Rob Hall: If we don’t proceed carefully. How do you think that might affect our culture? Long term? I mean, do you think it, obviously we really haven’t missed a beat. We’re still working, and we were already set up for it. The transition to it was relatively painless.

 

Jay Cosgrove: Yeah, I think the question too, is like, how is it going to moreso affect new hires. Because I think a lot of us not skipping a beat has to do with the relationships we already have formed in person. 

 

Rob Hall: Yeah.

 

Jay Cosgrove: Because you can’t take away in person interaction, all the nuances of facial expressions and all that kind of stuff really builds the relationship 

 

Rob Hall: For sure. 

 

Jay Cosgrove: And your understanding of communication. 

 

Rob Hall: Yeah. 

 

Jay Cosgrove: It sounds dumb to say, but like the older I get, the more I realized that some of the most challenging parts of a project really rely around figuring out how to communicate with people on the project. 

 

Rob Hall: That’s absolutely true. 

 

Jay Cosgrove: Like the scheduling and everything else is the easy part. It’s like how do you communicate well, whether it’s to the stakeholder or to your team.

 

Rob Hall: Right, right. I think to your point about onboarding, that’s something that I, I think about a lot as we consider some potential new roles, that will likely be hiring for digital scientists in the near future. In the past, having this hand on hands on experience, to really sit with the person and get to know them. And share with them our culture and our approach, our methodology and our tools and just all the things. Even to the welcome lunch.

 

Jay Cosgrove: Right.

 

Rob Hall: Where we’d all, you know, a group of us would take the new person to lunch and just spend time getting to know each other.

 

Jay Cosgrove: Yeah. 

 

Rob Hall: It’s been hard not having that. 

 

Jay Cosgrove: Yeah. 

 

Rob Hall: And so that really, there’s been two people that we’ve onboarded since all this started, where their experience coming on board the team has been very different than what we ideally I would have liked it to have been. I don’t think it’s been bad per se. It’s just been, it’s been different. It’s taken an adjustment.

 

Jay Cosgrove: I think it’s just gonna be longer, you know, for people to be comfortable.

 

Rob Hall: That and I think we have to be intentional about how we continue to connect to people on a very human level to facilitate that connection, and that bond that we form as a team when we’re sitting across the table from each other. Like we are right now. 

 

Jay Cosgrove: Yeah.

 

Rob Hall: At the CDC recommended six foot limit.

 

Jay Cosgrove: Yes, that’s true. So I think your original question “How will affect DS’s culture?” I think Our culture has been intact because we’re a small team and kind of diverse across the country anyways. But as we bring on new people, that’s where it might be affected if that DNA doesn’t get kind of transmitted digitally

 

Rob Hall: Right. 

 

Jay Cosgrove: or remotely. 

 

Rob Hall: Agreed.

 

So today we’re going to be talking about time and material. So this is this is a topic that we – Yeah, you’re you’re making noises right now. Yeah, this is a topic that we touched on some in our last episode that we wanted to get into more detail on.

 

Jay explained for our wonderful audience what time and material actually is. What does that mean when we say T&M? 

 

Jay Cosgrove: All right. As a disclaimer, I don’t have a formal definition in front of me, but 

 

Rob Hall: You can wing it.

 

Jay Cosgrove: I’m going to wing it. So to me a time and material contract is a contract where I’m counting hours. And that is what the user has, the client has signed off on. So they’ve signed off on an estimated bank of hours, probably diversified across different roles, probably charged at different rates for the roles. And as a product manager, in specifically a project manager, if that role is separated in your company, you’re going to have to manage that pretty closely and report on it. Because that’s going to be the total amount of hours and or the cost, the material piece of that, is going to be what affects you creating a change order. Or if you guys are way under budget, which is probably unlikely, you know, your company not getting what you had predicted you would out of that contract.

 

Rob Hall: So, to summarize.

 

Jay Cosgrove: Yes, summarize what my ramblings, please. 

 

Rob Hall: Yeah, sure. So time and material roughly means I have time in the form of billable hours, and I have the cost of any materials that were associated with it. If I’m a contractor and I’m painting a house, my time is however many hours it took me to paint your house and my material is the cost of the paint and the caulk and whatever else I may have needed to purchase to do the job. In our case, in building software, it’s, again our time to do the work, and maybe server expenses. If we had to travel anywhere for research, you know, any other tools that we might have needed to purchase licenses for things 

 

Jay Cosgrove: User interview, you know, rewards? 

 

Rob Hall: Yeah, exactly. Things like that. That would be the material part of it. The model itself is very simple,

 

Jay Cosgrove: Right? 

 

Rob Hall: But 

 

Jay Cosgrove: It’s transparent. Like, I think that’s why people like it 

 

Rob Hall: Is that though? 

 

Jay Cosgrove: Well, you can hide costs in your hourly rate. That’s where you would if you did. 

 

Rob Hall: You mean ghosting hours?

 

Jay Cosgrove: Right.

 

Rob Hall: Yeah. 

 

Jay Cosgrove: Well, ghosting hours or jacking the rate, you know, but obviously, that’s going to be if you’re giving transparency to the rate on the roll, that’s going to be a bargaining factor, I’m sure.

 

Rob Hall: Yep. I want to take a journey back in time because we at Digital Scientists have had a pretty epic history around time and material. And partly because it’s just always kind of been the standard, right? Everybody does it. Everyone who’s worked in an agency has dealt with time and material in some form or another. And really, any, any sort of professional service business deals with it. And there’s variations of the model. But at the end of the day, most companies that bill for their time, are doing it in that fashion. But there’s some issues with time and material. And and these are issues that I would say most, if not all, of the organizations such as ours, who build software for a living have had to face.

 

Jay Cosgrove: Right. 

 

Rob Hall: And it’s not just about building software, but it’s being hired to build software for someone else. Right and bill for that time and that effort.

 

So there’s other models for billing work, aside from time and material, that we’ll get into some today, Jay. So like there’s, there’s time and material. There’s fixed fee, where you’re, you’re charging a price for whatever, and it doesn’t matter how long it takes your what kind of materials you might spend the price is the price. And that’s the contract amount that’s agreed to. There’s a retainer. So I have a pre-agreed amount that I burned down throughout the month, and you use it or lose it. Or Lastly, a trickier model yet one that some find very alluring, value based billing. But before we get into all those, are there any pros to time and material?

 

Jay Cosgrove: I think so. I mean, I think it’s attractive for a reason. You mentioned the simplicity early on. And I agree with that because it’s easier to calculate and explain the cost, right? You’re saying we estimated X amount hours. And, you know, this is how it breaks down and X amount of cost. And this is how it breaks down. I think for the agency owner, so our boss, it’s probably more reassuring, because he’s considering how he charges for us based on hours, probably. Right. 

 

Rob Hall: It’s it’s very simple math. 

 

Jay Cosgrove: Right.

 

Rob Hall: Right. You can, you can extrapolate a pretty simple formula to understand “we need to build X amount of hours each month on average, in order to remain profitable at whatever percentage.”

 

Jay Cosgrove: Yeah, right. So very easy internally, and reassuring when you have that those kind of numbers baked in, 

 

Rob Hall: Yes, that’s right.

 

Jay Cosgrove: in the contract. 

 

Rob Hall: Yes. 

 

Jay Cosgrove: And if you recall, on early days, when I interviewed with you, I was very, very curious about your billing structure. I think that was most of my questions in the interview. And I was very excited to hear that you guys were timing materials at the time. So for me, it was nice because I had come from an agency that did fixed fee where I’d actually seen it done a negative way. And I wanted to go time materials and just be transparent.

 

Rob Hall: And it’s funny because that was like, the only negative thing in our interview.

 

Jay Cosgrove: That I was positive about time and materials?

 

Rob Hall: Yeah. I was already sour at that point, 

 

Jay Cosgrove: You know, I wouldn’t have known because you were pretty positive about it. You said I remember, you’re like, “we’re just transparent about it.” And I was like, “That’s incredible. We should just all be transparent.”

 

Rob Hall: Oh, well, maybe the boss was in the room at the time? I don’t know.

 

Jay Cosgrove: Yeah, open offices. What do you do? 

 

Rob Hall: Right? 

 

Jay Cosgrove: Yeah. So that is probably the Pro is that if you are a PM and reporting hours are responsible for communicating costs of a project, then you have to do if you’re going to do it, well, you have to do regular and frequent updates on the costs and how they’ve moved and why. And so I think there is some plus to the transparency of that, and some clients are going to demand it, you know, some, some people really only work in that way. And it’s kind of up to the agency, i think, to decide if they’re willing to structure their contract in that way, but…

 

Rob Hall: I think the ultimate pro to the time and material model is if a project is finished on time and on budget, everyone’s happy. 

 

Jay Cosgrove: If it’s under budget, potentially the agency isn’t happy, though.

 

Rob Hall: Well see, now we’re getting into the reality of this situation.

 

Jay Cosgrove: Has that ever happened in the history of ever? 

 

Rob Hall: Alright, let’s do this. So if you don’t like potentially negative discussion, now’s your time to change the channel. But let’s get real about time and material. It has a number of issues that make it very difficult, long term, to be a model that works for growth, or that’s even sustainable from a management perspective.

 

Jay Cosgrove: It challenges kind of the partnership view that you really try to have with your clients. Right?

 

Rob Hall: That’s exactly right. And so there’s a couple of things here. It’s funny, I went back in my records and my notes to try and because I’ve written a lot about this problem over the last few years. So two years ago, I created this thing to try and make the argument for moving away from time and material as our default model for pricing and billing and so on and so forth. And so there’s the sequence of things that happens here, right? Particularly when we’re talking about revenue capture. So with time and material, our ability to capture revenue is 100% dependent upon the billable hour.

 

Jay Cosgrove: Right.

 

Rob Hall: versus the value that’s delivered. And there’s a big difference between those two things. So and what I mean by that is, as a director, I might make a decision in 15 minutes, that has a severe impact on the value that we as a team deliver.

 

Jay Cosgrove: Right.

 

Rob Hall: Either we’re going to turn right or we’re going to turn left and the outcome is going to be different based upon that decision. 

 

Jay Cosgrove: Right. 

 

Rob Hall: Likewise, for product manager, that same decision making process can have a huge effect on on the direction, the quality, the thought work, whatever.

 

Jay Cosgrove: And eventually the cost 

 

Rob Hall:  And eventually the cost. That’s right. Or our ability to deliver. 

 

Jay Cosgrove: Right. 

 

Rob Hall: So if we finish something on time and on budget, everyone’s happy. But let’s think about efficiency. Time and material for folks on this side of the table does not behoove us to be efficient in any way, shape, or form. So take our developers, for example, who and our designers who are always pushing to find new ways to do things better and faster.

 

Jay Cosgrove: Right.

 

Rob Hall: When they gain efficiency. We don’t get credit for that. 

 

Jay Cosgrove: Exactly. 

 

Rob Hall: Right. We end up giving away time, which means we lose revenue. 

 

Jay Cosgrove: Yeah. 

 

Rob Hall: So it disincentivizes the team to do their job better and to learn. Now, there’s a flip argument there that says, well, aren’t you just greedy? Aren’t you just, you’re just trying to charge the customer more? Like, well, no, that’s not it. But that goes back to that value issue.

 

Jay Cosgrove: Yeah, right. I mean, it could be depending on your agents.

 

Rob Hall: Yeah, but then if I’m interested in being dishonest and grinding the customer then I’m just gonna to let the clock run. 

 

Yeah exactly.

 

Right and bill them more hours and deliver less value. 

 

Jay Cosgrove: Yep. 

 

Rob Hall: Which does happen. 

 

Jay Cosgrove: Yeah, that’s what I’m saying, that’s the point. 

 

Rob Hall: If we finish something too slowly, though. If we hit bumps along the way 

 

Jay Cosgrove: Yeah

 

Rob Hall: Right, then the client loses.

 

Jay Cosgrove: And you lose trust with the client. 

 

Rob Hall: Exactly. 

 

Jay Cosgrove: Yeah. 

 

Rob Hall: Right. 

 

Jay Cosgrove: So the secret that like no one wants to admit early on in product management is that having surety behind your estimates is almost always impossible. You know, there’s even with technologies that you’ve implemented like 12 times before, there’s changes there’s updates, there’s different circumstances different API’s, changes to the API’s, different staff than a different staff member that might do it. It’s never going to come out exact. And as much as we want to have those even if we have those historical records to lean back on. So okay, it always took us 100 hours to do this thing. The likelihood is very low that we’re gonna hit it. And of course, everyone’s want to like Rob is saying, you can hit a win and you can finish it in half the time, which is awesome and move those hours over to something else. If you still want to get in, get those that time in. However, more than likely, it’s going to take longer for some reason or another. And so then it comes down to the whole explaining that to the client, which is the trust loss part.

 

Rob Hall: And even when the client understands the fact that you’re going back to the well, to ask for more money never leaves a good taste in someone’s mouth. 

 

Jay Cosgrove: Yeah. 

 

Rob Hall: Unless it’s the customer making the request. If the customer is approaching you and says, I understand this is out of scope, right? I want you to do X, Y and Z.

 

Jay Cosgrove: Which is also rare. 

 

Rob Hall: Give me a price for it. 

 

Jay Cosgrove: Yeah.

 

Rob Hall: It does happen. 

 

Jay Cosgrove: It does. Yeah, it does. 

 

Rob Hall: But typically, that’s not the case. 

 

Jay Cosgrove: Yeah. 

 

Rob Hall: But unless that’s the dynamic, you know, the the expectation is already set that we’re going to do X, Y and Z thing and the cost is going to be thi.

 

Jay Cosgrove: Right. 

 

Rob Hall: You know, and I guess that’s that comes back to another dynamic with time and material. Is it’s rare that customer will enter into a contract on the basis of an hourly rate alone. They want to know what their total investment is going to be. 

 

Yeah. 

 

And so we’re we we got backed into this position repeatedly where we were trying to give an estimate to the customer, even though we’re saying it’s an estimate, it’s not the final price. 

 

Jay Cosgrove: If it’s numbers on the page, that’s it. They don’t think it’s and estimate.

 

Rob Hall: That’s exactly right. It sets that expectation up front. And so the customer regardless of whether it’s time and material, or fixed fee or whatever, they see the dollar amount. 

 

Jay Cosgrove: Yeah. 

 

Rob Hall: And they communicate to their higher ups what that expectation is. 

 

Jay Cosgrove: Yeah.

 

Rob Hall: Digital Scientists said they’re going to build this for $50,000. That’s just the estimate. 

 

Jay Cosgrove: Right? 

 

Rob Hall: Okay. But you said that was the that was the estimate. Well, yeah, that was just the estimate. And so then we get into this ridiculous back and forth when we get halfway through the project. And, oh, we discovered that this feature you want to build is actually more difficult, or this approach that we really thought was going to work isn’t, and it’s gonna take more time. But you know, whatever the list of things that always comes up when you’re building software, and then you have to say, “Well, actually, it’s gonna be 75K.”

 

Jay Cosgrove: Right.

 

Rob Hall: Oh, well, what happened? 

 

Jay Cosgrove: Right. 

 

Rob Hall: I kind of half jokingly half begrudgingly labeled 2018, the year that we gave hours away. So without naming any names, we had a couple of projects that were large projects where  we ran into these exact issues. So the first one, we had to give away some design time and some dev hours. There was another one where we came with and had low estimates. We were being optimistic about what we could deliver

 

Jay Cosgrove: Right.

 

Rob Hall: Given certain constraints.

 

Jay Cosgrove: Yeah. And sales is always going to push you in that direction. 

 

Rob Hall: Absolutely. Sure. 

 

Jay Cosgrove: They always want the numbers lower. So even if you use your better judgment, and pad the crap out of the hours because it’s an estimate, when it gets to the final chopping block of sales, Will it actually go through that way? That’s the question.

 

Rob Hall: Then there was another one that I mentioned here in my notes. We gave away over 90 design errors and a Toyota camry’s worth of development work. That one, that one’s strings. And so you deal with those issues, and again, I think back to your comment, Jay about trust. So we want to build trust. We can’t be successful without having a partnership with our clients that’s rooted in trust. 

 

Jay Cosgrove: Right. 

 

Rob Hall: Right? And so time and material, I think, just by its very nature, kind of innately creates this dynamic of mistrust. 

 

Yep. 

 

Because our ability to be transparent and perfect

 

Jay Cosgrove: Right. 

 

Rob Hall: is tied into what we’re going to build and what the customers ultimate liability is going to be 

 

Jay Cosgrove: Yeah. 

 

Rob Hall: Success or fail. 

 

Jay Cosgrove: Overall, that that is the the issue between you and the client, but also it creates mistrust between you and your internal staff to.

 

Rob Hall: That was my next point.

 

Jay Cosgrove: Yeah.

 

Rob Hall: Right. So I would

 

Jay Cosgrove: Which is potentially the larger problem here. 

 

Rob Hall: It’s a huge problem, okay, because you can’t serve your client unless you have a well oiled machine

 

Jay Cosgrove: Right.

 

Rob Hall: unless your team is operating extremely well. And so my argument is that the time of material actually stifles collaboration also. And we had a whole lot of experiences that spoke to that. And so it was like, if the team ever wanted to over deliver for the client, you know, hey, we had this great idea. The client would love it. It’s not in scope. But we really want to do it. The answer had to be no.

 

Jay Cosgrove: Right.

 

Rob Hall: No, we can’t. Why? Because we have to build those hours to the client. 

 

Jay Cosgrove: Exactly. 

 

Rob Hall: And then to have that whole conversation again. Oh, well, now we’re giving away hours again.

 

Jay Cosgrove: Yeah. And if you’re waterfall during certain phases, which just kind of naturally happens, even if you’re in an agile kind of structure. There’s going to be sprints or whatever, where you didn’t necessarily estimate a designer being included because you’re halfway through dev, but you actually need a designer to look at this change. And you literally as a PM have to make that decision, “Okay? Do I risk an extra 10 hours on this week?” you know, “that’s going to cause my project to go over. How am I going to communicate that?” But back to the mistress on your team, it really it turns you into an hour watcher as a PM. And you’re sitting there if you’re using harvest like we have, and you’re just refreshing the screen. 

 

Rob Hall: Right.

 

Jay Cosgrove: And hoping on Monday when you do your report that, you know, it didn’t go in or someone didn’t forget to put in their hours. 

 

Rob Hall: Exactly. 

 

Jay Cosgrove: And then all of a sudden you look back and you’re 10 hours under turned into 50 hours over.

 

Rob Hall: Right. That’s never happened, has it?

 

Jay Cosgrove: Oh my lord!

 

Rob Hall: Yeah.

 

Jay Cosgrove: I think so in general, you start questioning your team. That’s where the mistrust comes from. We estimated 40. It took you 45. Why?

 

Rob Hall: Yeah, what happened? What happen? Aren’t you a professional. 

 

Jay Cosgrove: Yeah. 

 

Rob Hall: I thought we’re good at what you did.

 

Jay Cosgrove: Yeah. 

 

Rob Hall: Yeah. 

 

Jay Cosgrove: And makes you not want to give them another chance.

 

Rob Hall: And then then you start, like, trying to, you’d play this whole mental game of micromanaging what people are doing. 

 

Jay Cosgrove: Yeah. 

 

Rob Hall: You know, have you seen so and so they’re staring at their phone?

 

Jay Cosgrove: Yeah. And I’m billing my so and so because

 

Rob Hall: I’m pretty sure they’ve gone outside for a walk a lot lately. 

 

Jay Cosgrove: Yeah.

 

Rob Hall: Check their time sheet. Did they, did they bill that time to the client?

 

Jay Cosgrove: We can’t bill that. 

 

Rob Hall: We can’t bill that to the client. Oh, my gosh. Wait, wait. Did they take a long lunch?

 

Jay Cosgrove: Exactly. 

 

Rob Hall: Ooh. Yeah. So that creates this whole like ridiculous dynamic that is absolutely not what you want. 

 

Jay Cosgrove: Yeah. And you have the other side of the spectrum to where you have some team members that I get passionate about the project and want to put in more than 40 hours. 

 

Rob Hall: Absolutely. 

 

Jay Cosgrove: And it may not be common, but we’ve definitely experienced it. And you get timesheets at 45, but you estimated 40 for the week

 

Rob Hall: Right. 

 

Jay Cosgrove: What do you do that extra five hours? 

 

Rob Hall: Mm hmm. Back on the point of collaboration, this was a huge issue. And, and it was such a contradiction for us. Because we want our people to talk to each other. We want our people to ask for help, because we believe that our collective IQ makes our work better. 

 

Jay Cosgrove: Yep. 

 

Rob Hall: But so time and material completely stifles our ability to tap on our neighbor and ask them for help. Because then that neighbor is required to bill for that time. And so we’d get that question all the time. Hey, I hope so and so with this bug that he experienced, where should I build my time for that? And you go back to the issue of ghosting hours. That’s exactly where that would happen. 

 

Jay Cosgrove: Yep.

 

Rob Hall: Right? And so so then we would end up with this inaccurate picture. 

 

Jay Cosgrove: Yep.

 

Rob Hall: But then still billing the customer too much. 

 

Jay Cosgrove: Yep. 

 

Rob Hall: And then let’s think about the issue of downtime and continuing education for people. 

 

Jay Cosgrove: Yep.

 

Rob Hall: It hits that too. It goes back to the issue of revenue capture

 

Jay Cosgrove: Right. 

 

Rob Hall: If we don’t build X number of hours by the hour, then we lose money as a company. That had the effect of creating this this anxiety around billing adequate number of hours each month, and pushing off the need for education and conference attendance and whatever just time for people to learn and do whatever they need to do every now and then. Yeah. To deepen their skills.

 

Jay Cosgrove: Right. And then at that point, the owner or whoever’s kind of managing the budget is literally looking at opportunity costs of your billable rate. And that’s, unfortunately not always taken into consideration in the billable rate, which it should be in the beginning. You know, that you’re including padding in it if you are going to go T&M to allow for downtime. It just doesn’t happen though. That’s the thing.

 

Rob Hall: Agreed. 

 

Jay Cosgrove: We become greedy for the hours. And then what ends up happening is your nickel and diamond clients. They feel lack of trust because they keep getting change orders for new chunks of hours. 

 

Rob Hall: Yep. Then there’s the other issue of of internal projects. 

 

Jay Cosgrove: Okay.

 

Rob Hall: So anything like work on our own website? Take a day into a hackathon. Nope. Can’t do that. 

 

Jay Cosgrove: Right. 

 

Rob Hall: Everybody’s got to be on billable work. 

 

Jay Cosgrove: Yep. 

 

Rob Hall: And so those those types of things. Talk about marketing initiatives, for example. Heck, you and I sitting here recording this podcast 

 

Jay Cosgrove: Exactly. 

 

Rob Hall: Under time and material is such a no no, because we can’t afford the time. 

 

Jay Cosgrove: Yeah. 

 

Rob Hall: I do think though, we we identified a space where there was there were some places where time and material does make sense. 

 

Jay Cosgrove: Okay. 

 

Rob Hall: Mainly with support issues. 

 

Jay Cosgrove: Yep. 

 

Rob Hall: So for example, we have a mission critical service that’s running. And on a Sunday afternoon, it goes down. And it’s a level one support problem. And it gets escalated to us. And we have to wake Dylan up and, and make him fix it on a weekend day. 

 

Jay Cosgrove: Yeah.

 

Rob Hall: Right. Totally a great example of where time and material makes sense. 

 

Jay Cosgrove: Yeah. 

 

Rob Hall: Easy. 

 

Jay Cosgrove: Yep. 

 

Rob Hall: Right. But that’s limited and combined. It’s not a huge project.

 

Jay Cosgrove: Yeah, exactly. And I mean, at the end of the day, you’re really just putting T&M in place for contingencies, which is different than structuring a project around it. So in general, it’s going to work better. The client is going to for the contingency only going to have to pay if the issue actually happens, and you don’t really want the issue to happen anyways. So it’s really just excess money, if you end up helping them out.

 

Rob Hall: Yep, there was one other example where we we felt like it was appropriate to utilize T&M. And that would be a case where we’re building an app that is dependent on someone else’s API, where that API is also in development, where where our ability to estimate has been completely, basically removed from us. And so in those cases, it makes sense to bill time and material because we have no other way of, of telling the client how much longer it will take us to accomplish a task. 

 

Jay Cosgrove: Yeah. 

 

Rob Hall: And, and especially when we’re talking about engagement, we don’t want our people to sit still. But we also don’t want to waste their time. 

 

Jay Cosgrove: Yeah. 

 

Rob Hall: And so when there’s…We’ve had a few cases of this in the past where the clients API is, is not as well formed as they thought it was. Or they start changing a lot of things and they’re not communicative about

 

Jay Cosgrove: And there’s pauses on our end? Is that we’re saying? Yeah.

 

Rob Hall: Yeah. So you deal with this whole start and stop kind of issue.

 

Jay Cosgrove: Right.

 

Rob Hall: And the reality is we just we have to build for our time. 

 

Jay Cosgrove: And it’s kind of like support in that way anyways, because you’re literally supporting their API, which is happens to be kind of the buggy item at the at the moment. Yep. I think that makes sense, too.

 

Rob Hall: So let’s get into more conversation around fixed fee. 

 

Jay Cosgrove: Okay. 

 

Rob Hall: I think we’ve beaten T&M down.

 

Jay Cosgrove: I was gonna say we’ve we’ve shown all the issues that can be there. I think in recap, it might help to recap. Your big issue is trust between you and the client and you and your internal team. It likely will stifle collaboration, and also give you a ton of busy work as a PM. Almost never works out.

 

Rob Hall: Let me let me recap it this way. 

 

Jay Cosgrove: Okay.

 

Rob Hall: In terms of my ultimate view on time and material. Number one, it inevitably results in a reduction of your hourly rate. Because you have to communicate your hourly rate. 

 

Jay Cosgrove: Yep. 

 

Rob Hall: And so and we’ve gotten beaten up on that many, many times, in areas where it was just truly inappropriate to do so. Micromanagement of tasking. So you see customers who see the number of billable hours escalating, and they want to start chipping away at certain things that you know need to be done. 

 

Jay Cosgrove: Right. 

 

Rob Hall: But they don’t want to pay for it. 

 

Jay Cosgrove: Yep. 

 

Rob Hall: If the billing model and the expectation was different, then you wouldn’t have to engage in that dialogue necessarily. 

 

Jay Cosgrove: It’s a good point. 

 

Rob Hall: Also, of course, low estimates equal bad expectations. 

 

Jay Cosgrove: Yeah. 

 

Rob Hall: And then you get into this whole issue of providing reporting that accounts for every single billable hour logged by an entire team. And that’s not an argument against transparency. But it’s, it’s a question of, again, am I setting the right expectation for the customer versus the value that we’re trying to deliver to them? 

 

Jay Cosgrove: Yep. 

 

Rob Hall: And then, you know, ultimately, the customer doesn’t want to pay for something that they don’t need.

 

Jay Cosgrove: Yep. 

 

Rob Hall: Right. 

 

Jay Cosgrove: Good luck selling research.

 

Rob Hall: But that’s it. Right? And so if they perceive that they don’t need something, and they can scratch off the hours

 

Jay Cosgrove: Yep. 

 

Rob Hall: Then they will. 

 

Jay Cosgrove: Yep. 

 

Rob Hall: But we know they need research, right? Or at least a certain amount of it. Right

 

Jay Cosgrove: Exactly. 

 

Rob Hall: And we don’t want them to remove it. And we’ll talk more in a little bit about how we have tried how we’ve attempted to solve this problem. So let’s talk about fixed fee.

 

Jay Cosgrove: So the next one fixed fee or fixed bid as it’s been described. I’m gonna give you Jay’s definition, which again, is probably not very formal. But that is where you have a contract that is structured around a fixed item. I’ve seen it done a few different ways. So I’ve seen timeline fixed, I have seen staffing fixed, I have seen cost fixed which is kind of where it gets its name from, or features fixed, or combination of them. And so I might be wrong in assuming that they all fit necessarily under that fixed bid model. I think the most common one that you would see is here’s X amount of features, and it’s going to cost you know y amount of dollars. And that’s generally what you’re going to see for the contract. It’s not going to change unless the features change that that’s usually what what we’ve seen. 

 

Rob Hall: So fixed fees, a funny one, because it in some ways, it’s easy to have a knee jerk reaction and see it as a cure for a lot of the problems of time and material. But in many ways, it’s it’s actually worse. 

 

Jay Cosgrove: Yep. Hence me coming in to my interview, hoping that you did not do fixed fee.

 

Rob Hall: Yeah, exactly. 

 

Jay Cosgrove: Yes. 

 

Rob Hall: Yeah, well, fixed fee sucks. Because you’re, you’re basically trying to know the unknowable upfront, and say, This is what’s gonna take to do this challenge. And when you’re doing experimental work, like a lot of what we do

 

Jay Cosgrove: Yeah

 

Rob Hall: For example, build this app that uses voice control and does X, Y and Z thing that no one’s ever done before. And by the way it needs to have a native barcode scanner. And and I don’t know, read your eyeballs? Well, sure, let me figure out how much that’s gonna cost.

 

Jay Cosgrove: Your back to the issue with T&M, which is just estimation from humans is always flawed.

 

Rob Hall: It’s T&M without recourse.

 

Jay Cosgrove: For you.

 

Rob Hall: Right for us. That’s right.

 

Jay Cosgrove: Yeah. And so well, I mean for the client, I guess. So that’s the safety that the client has is I’m getting X amount of features. If they’re efficient than they get some extra money out of it, but I don’t have to worry about going back to my superior to ask for more money, because this is what’s included in the contract.

 

Rob Hall: So that’s the the power of the change order.

 

Jay Cosgrove: Right.

 

Rob Hall: That says, If I have a frozen scope, right, and you are very disciplined about that scope, 

 

Jay Cosgrove: Yep. 

 

Rob Hall: And you maintain good documentation, you document decisions very carefully and you stick to it your chances of budgets are far greater. 

 

Jay Cosgrove: Yep. 

 

Rob Hall: Then then you have this this clean trail of evidence that backs you up when and if a change order is needed.

 

Jay Cosgrove: Exactly.

 

Rob Hall: However, if your team hits the bumps in the road, there’s not much you can do about it. Yeah, typically in a fixed fee contract, you’ve agreed to do whatever it is for price, no matter what happens.

 

Jay Cosgrove: You assume the risk.

 

Rob Hall: Yes. And and by the time that you’ve built in enough escape clauses, you’re basically back to time and material.

 

Jay Cosgrove: Yeah, pretty much. And the big issue there is you’re going to push your team really, really hard to define it as granularly as possible. So you’re going to set the expectation exactly what technology you’re going to use blah, blah, blah. So that again, like Rob is saying, like, if the feature changes or that technology you’re going to use changes, you have grounds to go back for a change order to say, “okay, we thought we were using Google analytics, we’re going to use Optimizely.” And because of that, we need to, you know, charge more, cost more, whatever and explain the cost. 

 

Rob Hall: But see that, to me, that’s also part of the problem with fixed fee engagements is you’re building in all these assumptions into the contract.

 

Jay Cosgrove: Right

 

Rob Hall: I’m going to build it using React Native, I’m going to build it using Vue. js, I’m going to build it with a 

 

Jay Cosgrove: Right.

 

Rob Hall: Ruby back end, I’m going to do all this different stuff. But we really haven’t started yet. 

 

Jay Cosgrove: Yeah. 

 

Rob Hall: So you either find yourself in this position where you’re doing a whole lot of work in upfront just to produce the proposal.

 

Jay Cosgrove: Yeah, like, are you charging for that?

 

Rob Hall: Exactly. So am I building in that cost accurately into the proposal hoping I get the work and what if I don’t? Well, then I’ve just lost all this time that we’ve spent trying to create this, but then I still have to deal with the unknown. I don’t know if I can accomplish this challenge in the amount of time I’m saying I can.

 

Jay Cosgrove: Yep. So there is incentive for you internally to be efficient, right? Because you’d pocket the extra dollars, you say it’s going to take two weeks, and it takes one week. That’s great. And the client doesn’t win, necessarily, I guess they win maybe on timeline, but you’re gonna benefit from it as the agency. But in general, you’re still going to be the eagle eye, maybe not of hours, but of scope. And as we all know, and love to swing around the word agile, it’s very hard to be agile, and claim it if the scope isn’t flexible to it. It’s the scope of the contract.

 

Rob Hall: That’s right.

 

Jay Cosgrove: And it wouldn’t be at that point, because if it’s a new feature. There’s a great idea and you’re wanting to pivot and that next sprint, you can’t because of the contract.

 

Rob Hall: That’s right. Well, and I think the fixed fee model, it creates a waterfall approach. 

 

Yep. 

 

I mean, by its very nature.

 

Jay Cosgrove: I mean, I think there are some ways where it can be done well like if you fixed so if you didn’t fix the scope, like the feature set, but maybe you fixed the personnel in that contract. Which honestly, at that point, you’re getting closer to a retainer than you are getting to like a fixed bid or fixed fee project. So I’ve seen that done. And that’s probably been the most successful, right? It’s like, we think we’re gonna do X amount of features. But really the estimate in there is for the team and your self.

 

Rob Hall: I mean, listen to yourself, Jay, even the way you’re talking about it, we’re going to build X number of features. 

 

Jay Cosgrove: Right. 

 

Rob Hall: Right? And that That isn’t what we do. We’re not a feature factory. 

 

Jay Cosgrove: Exactly. 

 

Rob Hall: Right. We’re trying to focus on solving problems

 

Jay Cosgrove: Right. 

 

Rob Hall: Solving problems by its very nature requires a period of exploration. 

 

Jay Cosgrove: Yeah

 

Rob Hall: To understand what the right possible solution could be for a given problem. And when we’re going into the proposal with the assumption that we’ve already solved these problems, or that we know what the answer is. It’s a huge gamble. 

 

Jay Cosgrove: Yep. 

 

Rob Hall: Because you don’t know. You’re just making up stuff.

 

Jay Cosgrove: Yep. So that is tricky. And then, you know, add on, so we’ve really been discussing the cons of just fixing the feature set, right? And the cost to that feature set. Throw in timeline. And it’s just a recipe for stress. Really? That’s what you’re gonna have?

 

Rob Hall: Well, yeah. So we talked about one of the pains of time and material being counting hours. But it’s the same pain with fixed fee. Only it’s now, “Well, once we’ve gone over hours, we’re watching our gross profit margin. 

 

Jay Cosgrove: Exactly.

 

Rob Hall: vanish.”

 

Jay Cosgrove: Yep. And now all of management is just staring at that developer to get that sucker done as soon as possible. 

 

Rob Hall: And please, is that developer working any faster? 

 

Jay Cosgrove: Yeah. 

 

Rob Hall: Are they getting more done?

 

Jay Cosgrove: Back to mistress of a team, and that was my previous problem coming into an interview here at Digital Scientists. I had just gotten off projects that again, needed exploration needed time we padded as much as we could. It just went over, you know. I think it was an IoT project. Just kind of cutting edge, don’t really know what’s what’s going on working with mesh networks and a bunch of new stuff being thrown in midstream. And internal management is just breathing down your throat. And so in the PM’s hands, you have the client relationship where you’re trying to keep them happy and push them to value, right? Like you want them to, to love the product and to give them the right solution. On the other side, you want to make sure your your company is profitable, and you’re just stuck in the middle of it. And for me, you know, I hadn’t really seen retainer sold a lot at that point, or value based billing. And so I was just thinking, “Man, I would much rather sink into T&M because at least I can be honest with hours and pitch him hours.”

 

Rob Hall: I’m so glad you mentioned the R word retainer.

 

If anyone’s ever hired a lawyer, you should know what a retainer is. A retainer fundamentally is a bank of ours that you pay for upfront. So I’ve got a 100 hour retainer. So I’m purchasing from Digital Scientists 100 hours a month. And it is my job as the customer to make sure that they have enough work to use that 100 hour investment that I’m making each month because I’m paying them that money anyway. In exchange Digital Scientists agrees to reserve the people capacity. So enough people on the team to utilize that 100 hours regardless of whether I actually utilize it or not. 

 

Jay Cosgrove: Yeah. 

 

Rob Hall: So the effect of that could be a team that’s very busy and utilizing 100 hours a month. It could mean a team that’s slow and sitting there not doing much if I have not provided them with enough work to do.

 

Jay Cosgrove: I think what I’m most often seen in those scenarios to is the client doesn’t use their retainer, a couple months in a row, so you double booked your team. 

 

Rob Hall: Yes.

 

Jay Cosgrove: Because they’re sitting around, I will throw them on something else. And all of a sudden something comes up from that client.

 

Rob Hall: It’s a huge temptation with the retainer model

 

Jay Cosgrove: Right.

 

Rob Hall: Depending on the type of work that’s going on. And when you’re dealing with small support agreements, it’s less of a headache because you have  more bandwidth to work with, typically anyway. But when you’re talking about defined project work, it seems that those retainers tend to be more common, really, when you’re just dealing with maintenance, or like building marketing websites or running campaigns – things that are repetitive in nature and more production focused and not necessarily focused towards intended outcomes. 

 

Jay Cosgrove: Sure. 

 

Rob Hall: The retainer is nice on on a certain level, because it gives you a sense of predictability as agency. If I’ve signed a contract with the customer for a 12 month long retainer, I know I can count on that money each month. 

 

Yep. 

 

No matter what, I have consistent revenue. Whether or not we build that revenue, if we don’t use it, oh, well, I still get I still earn that money. 

 

Jay Cosgrove: Yeah. And I mean, the customer, I think feels that same kind of thing. They’re not going to get a change order out of nowhere.

 

Rob Hall: That’s right, right. Or, well, there’s still a dynamic of tracking hours.

 

right. 

 

So I’ve got to know “Am I burning down? What’s my burn rate?”

 

Jay Cosgrove: Yep. 

 

Rob Hall: If I have been given too much work by the client I’ve got to communicate that expectation with them. “Hey, we’re doing a lot. We’re gonna go over on ours this month. 

 

Jay Cosgrove: Yeah. 

 

And you’re gonna get a bill for it.”

 

Jay Cosgrove: Yeah. 

 

Rob Hall: So then you can still get into these sticky periods in negotiation. 

 

Jay Cosgrove: Yeah

 

Rob Hall: I’ve dealt with this before where we’ve got a retainer with the client and you know

 

Jay Cosgrove: T&M is slapped on top, pretty much 

 

Rob Hall: T&M gets slapped on top. Or they start playing with funny math. 

 

Jay Cosgrove: Yeah. 

 

Rob Hall: So this was one of my favorite questions. I remember one client I worked with years ago, April and May of that year they didn’t use any of their retainer. We had a 300 hour a month retainer. And when they came back later that year, like September, October, they got very busy. They were going to get a big bill from us for an overage and they said, “Well, remember back in April, May when we didn’t use all that time. Can you can’t you guys just apply that to this overage?” No, no, we can’t. You paid for that time. We provided the staff for that time. 

 

Jay Cosgrove: Yep. 

 

Rob Hall: You owe us for that. And so it was still this like

 

Jay Cosgrove: They’re expecting it to do be T&M at that point?

 

Rob Hall: That’s correct. It’s still a tough expectation to manage, because you’re still counting hours. 

 

Jay Cosgrove: Yeah. 

 

Rob Hall: There’s still a bill at the end of the month, that has a that can be broken down into an hourly form.

 

Jay Cosgrove: Yeah, right. I think your quickest way to success under retainer is to staff your team 100% on it. I mean 100% of each resource on the team. And that’s still tricky, because like we’ve mentioned on some of the other contract types, you may want to pull other team members in, that may have a strength that could add to a particular portion of the project. 

 

Rob Hall  

That’s right. 

 

Jay Cosgrove: But that’s really where I’ve seen retainers done best is just we’re not really – we are reporting hours, but no one’s really caring, because they just know they’ve got a full team staffed. And if you’re running kind of in a sprint model and showing them the value that you created each sprint, then it’s, it’s fine. Really, you know, it’s the the hours are there more so to just justify if it came down to some sort of audit.

 

Rob Hall: So where we’ve landed as an organization, I’m going to get into this whole concept of value based billing a little bit. The idea behind value based billing, and this is not something that we’re good at. I’m just gonna say that right now?

 

Jay Cosgrove: So are we value based billing? 

 

Rob Hall: No I’m saying we are not. 

 

Jay Cosgrove: So we’re, what are we? 

 

Rob Hall: Yeah, I’m gonna get there.

 

Jay Cosgrove: Very excited. 

 

Rob Hall: We’re in this, we’re in kind of this odd, strange space. We’re stuck in this chasm between a retainer and value based billing. The idea behind value based billing is that we’re aligning our pricing behind what the thing is that we’re producing and its perceived worth to the customer. The concept is, if I understand that if I charge $100,000 for the design and build a tool that’s going to generate $25 million worth of savings or revenue for an organization, I am under billing our time 

 

Jay Cosgrove: Yeah.

 

Rob Hall: as a team. I’m not billing a level of value that’s commensurate to the value that the organization is going to gain through our performance. So the idea is to get in front of that equation. And try to come up with some sort of calculus as to what the things really worth to the organization. Yeah, that is not easy to do. 

 

Jay Cosgrove: No. I mean, you would need access to customer data at that point.

 

Rob Hall: But not always so good. I mean, at a high level, yes. So you’ve got to, and honestly, you have to ask the question, what does this really worth to y’all?

 

Jay Cosgrove: Right.

 

Rob Hall: And so part of that estimation process becomes a takes requires a huge focus on ROI. 

 

Jay Cosgrove: Right.

 

Rob Hall: Right. What do you expect success to look like as the customer and not just in pats on the back and a lot of our boys or girls, but actual dollars and cents? What impact to your bottom line as an organization do you perceive success having?

 

Jay Cosgrove: Right. 

 

Rob Hall: And then working into that at an appropriate level? So to go back to that you go, okay, just off the cuff, how long do I think this might take? And then I figure out a multiplier that I apply on top of how long I think it’s gonna take. That dollar amount gets me closer to what the actual value is. And then the perceived value of that thing is part of the story that I tell the customer. Okay, that’s implicit into the proposal itself. So you go back to the customer with here’s the scope of work, here’s how long we think it may take. But we don’t know that for sure, because of all these different conditions. And by the way, this is the impact that we see it taking. And here is the investment that you’re making to drive this type of change. 

 

Jay Cosgrove: Yeah. 

 

Rob Hall: So you’re you’re associating the cost of the performance of the team with the outcome.

 

Jay Cosgrove: Okay. So I assume in this breakdown from how you’ve explained it and I haven’t seen this done well, so I’m a newbie along with anyone else here that hasn’t heard of it before, is you would not be explaining hours or potentially even team members staff to it. You’re just saying “This is the outcome we’re going after”

 

Rob Hall: Your pricing the outcome 

 

Jay Cosgrove: Your pricing the outcome

 

Rob Hall: That’s exactly right. 

 

Jay Cosgrove: Yeah. Yep. Okay. 

 

Rob Hall: And so then level of staffing, in theory level of staffing, the amount of time that it takes to produce,

 

Jay Cosgrove: Totally flexible,

 

Rob Hall: totally flexible, doesn’t matter at all because the dollar amount is still fixed. 

 

Yeah. 

 

But the dollar amount is set at such a level, that you have the time and the freedom and the flexibility to answer the challenge, and meet their expectations. Because you’ve already set an expectation that you don’t know how many hours it’s going to take. Because hours aren’t part of the conversation. 

 

Jay Cosgrove: Yeah, get them out of there. 

 

Rob Hall: That’s right. Exactly. And the team doesn’t need to build for hours anymore.

 

Jay Cosgrove: Yeah. If you think about it internally, I would assume that’s how you would structure an internal project to like if you were a company that owned a product, you would be looking at that bottom line more than you’d be looking at anything else. 

 

Rob Hall: Yes. 

 

Jay Cosgrove: I mean, 

 

Rob Hall: Exactly.

 

Jay Cosgrove: You’re not really concerned with the salary rate or anything else is just get it get the job done and produce whatever X amount of increase in revenue or whatever that value is, and obviously there’s some roll up of the cost, but it’s much more flexible.

 

Rob Hall: Yep. Okay. Yeah. To me that’s that’s that’s kind of the the golden vision. 

 

Jay Cosgrove: Yeah. 

 

Rob Hall: For project work. 

 

Jay Cosgrove: It’s like a new view of almost like staff. It’s not staff og, but it’s how staff aug should be. It’s like you’re pulling in partnership. It’s more of a partnership model.

 

Rob Hall: It absolutely is. And so here’s how we’ve split the difference right now. Right now we’re in this model, where we’re in this place right now, where we have what what amounts to a fixed fee, team based retainer. It’s weird. What that basically means is our primary clients are purchasing our team for a long period of time, six months to 12 months and just this big block. And we staff the team with full time resources. So design Product Management, engineering solution architecture, all of our disciplines, research, are part of that team full time. So basically, with this, this kind of hybrid model, the customer is making a larger commitment to the team, right? So instead of hiring us for a project that’s focused on just build me these features, they’re saying, we’re purchasing your team with all of your disciplines, as well as your process. And that’s, that’s very important to us, because our people are, are just a bunch of people. But with our process, we’re a team. 

 

Yeah. That’s right.

 

And in a team that that’s very performant. So they’re making an investment in the process in the team for at least six months, preferably 12. And we give them a price that says, If you want our team for this amount of time, this is how much it costs. If you want our team for this amount of time for a year. That’s the dollar amount. 

 

Jay Cosgrove: Sure. 

 

Rob Hall: We don’t bill by the hour 

 

Jay Cosgrove: Right.

 

Rob Hall: Any longer, right? They get an invoice every month, it’s the same amount, no matter what. 

 

Jay Cosgrove: Yep. 

 

Rob Hall: It’s not like a retainer, because the dollar amount doesn’t fluctuate. Our team is fully staffed all day every day. But our scope of work is focused towards an outcome. 

 

Jay Cosgrove: Right.

 

Rob Hall: So they’re employing the team to focus on solving certain challenges that are defined in the SOW.

 

Jay Cosgrove: Would you call those more as projects or milestones in a project? or how are those broken out?

 

Rob Hall: So it’s a little of both. They’re they’re essentially projects. They can be plural, right? Sometimes there’s more than one project. Sometimes there’s just one.

 

Jay Cosgrove: Right. 

 

Rob Hall: We have one SW right now that that’s just one project, and then we have another that has several. But the idea with them is that the client has the flexibility to set or reset those priorities as we move along.

 

Jay Cosgrove: Okay. So in that way, it’s like retainer.

 

Rob Hall: Well, I’d say it’s far more agile in that sense. 

 

Jay Cosgrove: Okay. 

 

Rob Hall: I mean a little like how the flexibility that retainer gives the client 

 

Jay Cosgrove: As far as scope goes. Yeah

 

Rob Hall: That’s right. Yeah. But it gives us the stability from a financial perspective

 

Jay Cosgrove: Yeah.

 

Rob Hall: that we have anticipated revenue every month, we know what’s going to happen. We have set challenges up front.

 

Jay Cosgrove: So in in that model, at what point would you issue a change order? Because we’ve talked about that for each one of the other models? T&M it’s hours, right? For fixed fee, its scope, like you can change scope or timeline. And for retainer, it’s kind of ours too, right?

 

Rob Hall: Yeah. So that’s, that’s kind of the odd thing right now. So it really we don’t care about hours

 

Jay Cosgrove: Right.  

 

Rob Hall: At this point. If anybody works overtime or a little bit under time, it doesn’t affect the billing at all, because we’re just billing one amount each month for the entire team. If the addition of a new team member is required

 

Jay Cosgrove: Okay.

 

Rob Hall: So if the client identifies, if we identify in conjunction with the client, that we need an additional developer on the team, or another designer, whatever that would necessitate a change order.

 

Jay Cosgrove: Okay

 

Rob Hall: Because that cost would not, you know that that assumes a certain number of people for the team.

 

Jay Cosgrove: Okay, so the upfront contract for our hybrid model is not about hours, but is about people.

 

Rob Hall: That’s right. 

 

Jay Cosgrove: Okay. Got it.

 

Rob Hall: Yeah. So you’re thinking about more of just overall costs? 

 

Jay Cosgrove: Yeah. 

 

Rob Hall: Over a longer period of time. 

 

Jay Cosgrove: Yep. 

 

Rob Hall: Not focused on an hourly rate. 

 

Jay Cosgrove: Yeah. 

 

Rob Hall: It has been very successful with our clients who have engaged with us at that level. Because they’re honestly they’re maximizing their investment. Because we’re empowered as a team to do our best work. 

 

Jay Cosgrove: Yep

 

Rob Hall: Our team is able to collaborate without worrying about going over on hours. 

 

Jay Cosgrove: Sure

 

Rob Hall: Our team is encouraged to dig deeper and over deliver, and it’s not to the detriment of the customer. 

 

Jay Cosgrove: Sure.

 

Rob Hall: They’re not going to get penalized for our team wanting to go above and beyond which has been a huge issue in the past with T&M as we as we’ve worked out earlier. 

 

Jay Cosgrove: Yeah. Beat it dead. 

 

Rob Hall: Yes. 

 

Jay Cosgrove: Yeah.

 

Yeah, that makes a lot of sense. I think there’s value, we’ve seen value in that on the client side too, because they’re able, like you’ve mentioned to kind of throw new weird ideas out to us. And it’s not completely detrimental to everything for us to change that. 

 

Rob Hall: Yeah, that’s right. 

 

Jay Cosgrove: It is something we there factor into the next sprint, or like you mentioned, we’ve had one contract with several projects under where we’re really kind of substituting a project for it’s a it’s a full pivot. And I think that’s good because at the end of the day, we’re charging towards the outcome again. Like what, whether that’s might be, you know, increase the number of users or all the way back down to revenue if we have that kind of insight. And if one idea doesn’t work out in a true agile manner, you can go to the next idea.

 

Rob Hall: Yes, exactly. Pointing it also towards our own process and our own defined engagements having the flexibility to pivot and say this was research. This is our defined research engagement. This is how we work through research.

 

Jay Cosgrove: Right.

 

Rob Hall: And transitioning that to this is how we approach product design. 

 

Jay Cosgrove: Yep

 

Rob Hall: The product design team is going to do their work and create a beautiful, engaging experience. And this is how we approach product development. Our dev team is going to work their magic and do some incredible work and you’re going to be happy with the outcome and seeing how all of those components work together. When we’re stuck, just focused on T&M we really don’t get a chance to let that process shine. 

 

Jay Cosgrove: Yeah. 

 

Rob Hall: Applying agile methodology within a longer runway gives us a lot more flexibility and the outcomes the customer wants are what really starts to come through.

 

Jay Cosgrove: Yep. So as a PM under you that has experienced all of these contract types in the last two years, 

 

Rob Hall: Yes. 

 

Jay Cosgrove: I will say this has been the best it’s ever been. And I’m gonna give a couple situations where we’ve seen improvement. So the minute we switched to this new agreement type, we have seen cross team collaboration between design and dev a lot more, no one’s worried about hours, it’s more about like, let’s just complete the task and get it right. Whether that’s mid-dev, you know, build out of a certain thing, needing to rethink flow or rethink a specific feature and its functionality, or even just down to pair programming on the dev team within the teams. I mean, that has been the biggest change I think I’ve seen in the years. 

 

Rob Hall: That’s huge. 

 

Jay Cosgrove: I mean, 

 

Rob Hall: It wasn’t possible before 

 

Jay Cosgrove: It was not possible. We can even think of trying to justify to clients that like we’re gonna put two developers on the same feature all day long on a call. 

 

Rob Hall: No. 

 

Jay Cosgrove: But it’s gonna be better, trust me. It just, it just sounds like an impossible sell. 

 

Rob Hall: Yeah. 

 

Jay Cosgrove: But if you look at it, I mean, we so we’ve been able to do that now because our teams are staffed with, you know, multiple developers in kind of varying strengths and in length of time, at you know, in the roles and because of that they’re able to pair together and learn from each other. So I actually just wrapped up a project. And at the beginning of the project, we had not been doing pair programming very, very frequently. Think at the most it was just if you ran into an issue you would pull in, you know, more senior dev to come like unblock you from it.

 

Rob Hall: Right. 

 

Jay Cosgrove: So we had quoted out done some, you know, back of the napkin math on how long it was going to take us because they had this release that they really wanted, you know, certain set of features in before. And so we were estimating and out based on individual people working on individually estimated tasks. 

 

Rob Hall: Yeah.

 

Jay Cosgrove: Right? And so we broke a lot of our own rules and doing this, but it was like, Okay, well, you know, we’re going to do this to kind of just see if we feel comfortable three months out hitting the certain set of features, right? So we did that. And we ended up, that timeline ended up going away, which was great. About a couple days after we had quoted everything out. Now I revisited that estimate at the end of the project. And throughout that project, we had actually pair programmed, our developers two have our developers specifically, for almost the entire project, because we didn’t have the deadline anymore and we just felt like it was something new, we wanted to try. And we completed it in about this exact same amount of time.

 

Rob Hall: Wow.

 

Jay Cosgrove: And in arguably far better code.

 

Rob Hall: Right.

 

Jay Cosgrove: Which is two heads are better than one. 

 

Rob Hall: That’s right. 

 

Jay Cosgrove: So that was like living proof to me as a PM, who was very skeptical that pair programming would actually result in faster timelines

 

Rob Hall: Yeah.

 

Jay Cosgrove: That it did in fact.

 

Rob Hall: And your developers happier, you would say, with the outcome.

 

Jay Cosgrove: Yeah, much happier. You know, they felt like they solved it better. They felt like they understood it better. Going back and changing code, if it was someone else’s code, you know, that wasn’t an issue because they had seen all the code together. And in general, just, especially right now, in the midst of everyone kind of being isolated, a lot more communication and just interpersonal connection was able to happened. 

 

Rob Hall: Right. Right. Oh, it’s a great way to build camaraderie, I think. 

 

Jay Cosgrove: Yeah. 

 

Rob Hall: So to kind of wrap things up. Number one, if you do time and material, know what you’re getting into, and understand that it’s, it may seem very simple and very straightforward, but it can be very easily fraught with a lot of gotchas. Likewise, with fixed fee, you have to think through the exceptions very, very carefully, before you have contracted yourself into a corner. With a retainer, it has an appropriate place, but make sure you’re judicious about what that place is, and what works for your team. Finally, with value based billing, if you are able to figure it out in a way that works well for your organization, and communicate it in a way that is effective to your customers that builds trust, by all means, go for it.