When we are giving free advice to a (potential) client, there is usually a background motive.
This motive is the expectation or hopes that it might result in a good engagement
In sales, that syndrome is called “hopium-opium”.
Does giving free advice always pay off?
If you were to track all the time we spent on free advice, you would see that it is a huge waste of resources.
And what do we get in return?
Here is how to use free work more efficiently and with a good return.
1. Qualify Your Clients for Free Advice
Free advice should be avoided. However, if it seems like you can win a client through it, you should keep the following in mind:
Make a list of the criteria needed for giving free advice. The answer to the following questions can help you with that:
- Is it a company within your target group (does it have the ideal client profile)?
- Do I have a firm belief that the client will hire our company in the near future?
- Is the client confident that our services are solving an important problem for them?
- Are we talking to a company that is usually willing to pay for services like ours?
The clients will often contact our team members and use their time for consultations that aren’t explicitly agreed upon within the engagement.
If it is an existing client, the question of why are you working for free arises.
When it comes to the existing clients, you need to determine all the hours spent on them that weren’t billed.
Then, you need to communicate to the client that this type of work needs to be invoiced.
If this practice isn’t going smoothly, or you are afraid that you may lose the client, here is the analysis you can do.
If you firmly believe that you’ve “bought” the client long-term with additional free advice, you should have an assessment of the total income and expenditures for that client for the current work.
For example, you have a monthly retainer of $1000. The client works with two of your employees whose hourly rate is $20 on average, and they spend a total of 20 hours per month (15 of those hours are related to the agreed project and 5 hours to additional, uncharged, work). Hence, the cost is $400, and the gross profit is $600, or 60%.
If the average gross profit at the company level is, for example, 40%, this kind of investment in non-billable hours will pay off. However, if you have clients below the average gross margin of the company, you should reconsider working with them.
In the bottom line, this approach leads to a significant improvement in profitability.
2. Limit Free Work Hours
Regardless of whether the client is qualified for you to do free work for them, you should definitely be rational in determining this.
- Limit the free (non-billable) hours on a monthly basis (per client or at the company level)
- Track time to make sure the limit hasn’t been exceeded.
- Limit the number of monthly non-billable client-related hours for each employee
3. Track Hours on Free Work
Peter Drucker said: You Can’t Manage What You Don’t Measure
It is important to establish a simple time tracking system and to track both billable and non-billable hours.
Then, you can see the performances and the effects of spending the resource of time from various reports.
4. Define Internal Policy on Free Work.
Once you look at all these factors practically, you’ll deduce it’s good to have a policy for free and non-billable work for the clients.
The policy should explicitly define:
- The cases that prohibit any free work
- The types of work that can be done for free
- The team members eligible for giving free advice
- The maximum number of hours that can be spent on an individual client
- Time tracking or timesheet filling instructions
- Define the approval for free work
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