Episode 167 – From Timelines to Bottom Lines: How a Consulting Firm Shifted From Time and Materials to Fixed Fees After 40 Years – Member Case by Alan Wyne

In this session, we peel back the layers on how a seasoned ERP implementation consulting firm revolutionized its business model, moving from the traditional time and materials approach to a groundbreaking fixed fee structure. Discover the strategic decisions that led to this bold shift, the challenges overcome along the way, and the significant impact it had on their competitive edge and profit margins. Tune in to witness a story of adaptation, resilience, and success that could redefine the way you think about how you monetize your expertise.


Greg Alexander [00:00:00] Hey, everybody, this is Greg Alexander, the host of the Pro Serv podcast, brought to you by Collective 54, the first community for founders of boutique professional services firms. And on this episode, we’re going to talk about how a consulting firm who’s been around a long time using the traditional time materials billing method, has recently switched to a fixed bid approach. And this firm is in the middle of this transition, which is what makes this case study so unique, because there’s lots of early findings and learnings and lots of motivations. And we’re going to jump into all of that. And I hope at the end of this, you’re all inspired by this story and you consider making a similar journey. And then for the members that are listening to this, of course, you can attend the Q&A session with Alan and we’ll get into much greater detail. But with that, let me bring in our guest. Alan, it’s good to see you. Would you please introduce yourself and your firm to the audience? 

Alan Wyne [00:01:17] Sure. So, Alan Wyne, CEO of Anovia consulting. We’ve been around about 40 plus years. We do ERP implementations and a very specific part of the market from a Microsoft product standpoint. We we do business central and it’s small to medium sized business, even though we’ve scaled that quite large for some companies. You know, most of our stuff is DNA at this point in time and materials and, you know, it’s we’ve had a good journey, but it’s the market’s changing. Everything is changing around us. And we know we’ve got to get the fixed fee to really get our profits growing the way we would like them to grow. 

Greg Alexander [00:01:58] So let’s dive on to that. It’s unusual for me to talk to a firm. It’s been around for 40 years, and it’s had all the success that you’ve had. Be willing to make this change because let’s face it, what you’ve been doing before worked. So what was the motivation to go from timing materials to fixed fee? 

Alan Wyne [00:02:18] You know, it was really a couple of things. The first was we were looking for a new competitive advantage, you know, because because it is a I wouldn’t say it’s a commodity market, but it knocks on that door quite a bit when you’re doing implementations and Ram limitations. And Microsoft on this particular product move from an on prem version. So it was never in the vision and they changed the name and they went to a fully SAS version. You can still put it on prem, but but really what everybody had been software as a service up in the cloud. And that also meant that the revenue I generated about every five years for upgrades, which was significant, or the product sales I was making when we were selling it on prem, is completely going away because the upgrades now happen every six months automatically, and our service numbers while still growing. It’s just a market that’s going to go away in ten years. So how do I how do I and we sold it as time and materials. So how do I get into a market that I’ve already and ironically and become the competitive advantage. And it is most of my competition this TNM, we wanted to say look we’ll do fixed fee on. The one final point also is while there are fixed fee companies out there for our product that we sell with Microsoft, they do small fixed fees, 75 $100,000. We and we do a lot of those small companies, but we do an awful lot of large ones, meaning 250, 500, $1 million implementations of software. Nobody wants to touch that with a ten foot pole, because they don’t have the processes and the discipline to do it. We think that’s a huge competitive advantage. So hence the change to stay up with the market. 

Greg Alexander [00:04:08] Yeah okay. Fantastic. So the the on prem the SAS movement within the Microsoft ecosystem was the stimulant. You are competing with in a mature market with the fixed fee model as a way to separate because and for those that are listening that might not be familiar with this, when somebody like Alan goes to fixed fee, the client is shifting the risk from themselves to the implementer, and that’s what’s in it for the client. Now, what’s in it for Alan is if you really know what you’re doing, you can control the risk. And this could turn out to be very profitable. And maybe you win some business that you wouldn’t have won otherwise because you’re willing to do this and your competitors are not. So that’s kind of the context behind this. So, Alan, when you were thinking about it, what I loved about your story and thank you for sending me this great note, is you’ve taken a very methodical, approach to it. You didn’t just flip the switch and say, okay, everything’s going to fix me. You kind of doing it in phases. So tell us what your your migration path looks like. 

Alan Wyne [00:05:11] So it’s it’s a two year migration path for us. Prior to this year we had already had some fixed fee engagements. So we had what are called planning engagements, which we go in beforehand, look at the customer and go, okay, now we can quote this properly because we understand your business. And those were fixed fee engagements and we had a few other offerings that were fixed fee. We also though a year, two years ago we had spent ten years selling block hours. So blocks of hours. So I’m getting all this money upfront, but then I’m using it, right. We’re using it through the system. And we got away from that and we got much more to what I build. I got collected in the next week or two. And so my cash flow had already changed, and we had gotten a consistent cash flow and not these big chunks. That’s important in fixed fee because you’re going to be billing monthly or however however you’re going to do it. In our case, we’ve decided we’re going to go monthly bills and with a a calculus for it. But you know, we also said, all right, we’re going to practice with our existing, fixed fee engagements, get better at change orders, which are absolutely vital to making this successful, get better at changing the way we bonus our team, because today we bonus our team. On how many billable hours did you generate? Well, I got a fixed fee. My goal is to generate as few billable hours as I can with the same amount of ultimate money that I’m going to charge the customer, and it’s it’s contradictory. Today it it isn’t. Tomorrow it will be if I don’t change that. So so we’re changing how we bonus these existing fixed fees and they’re small. So I can’t get hurt on them right now. If I screw on up that’s okay. It’s not that big of a bite and I can handle it. I screw up $1 million. The TV is slightly different, so I want to be good before I get there. And then finally, you know, we’re spending time reevaluating our processes and procedures not only in our delivery and operations, but in our sales department. How do we go to market with this? How do we get competitive with it? How do we bonus our salespeople? Because again, it was based on what did you sell and how many hours and what was the rate. Because I to then be honest on how good my rate per hour was. And so there’s, there’s several pieces of this that we’re trying to say, look, you know, I made this statement to my team in November last year. In two years, I want to be 80% fixed fee. All across the board. I’d like it faster and more, but I figured two years was a good a good runway. 80% was an acceptable number to get us started on what effectively is a, you know, a five year journey to get completely over to it. 

Greg Alexander [00:07:58] Yeah. You know, a couple things you’ve mentioned there I want to call on because there it’s a real case study. And these two particular issues changing the measurement system from from number of billable hours and then changing the sales incentive system, you know, to incent selling fixed fees versus a traditional way culturally, especially for a 40 year old company. These are massive changes. I mean, these are not incremental moves. So how did the let’s start with the delivery staff first? You know, the folks that are doing the work for the client, how did they receive it? 

Alan Wyne [00:08:33] They’re receiving it. Okay. We’re still working through it completely. You know, same with sales. I mean, this is, you know, we’re I would say we’re in the first 20 to 25% of this journey, but, you know, it’s it’s discussion. And we’ve actually brought certain people in from each department to go look at this. This is coming that the company knows we’re going to actually across the board, I’ve announced it. We talked about it every month at our staff meeting. Certain people we’ve started bringing in and going, how do we structure this bonus program for delivery? It’s I need done faster, better, cleaner. And then I’m going to incentivize you on the profitability of the project. And so this team and we work in teams. So we’re structured okay. To be able to do this with sales. It’s the same way. How did you sell it. What price did you put on it. And then I’m going this back into what was it. How many hours do I think that’s going to take. And what was my real net realized. Right. So our internals are focused on still billable hours even though we’re not building per hour. So utilization and profitability and rate to the customer, we just look at them and go, look, it’s going to be $135,000. And when they go today, we get a little bit, well, wait a minute, what’s my rate? Why do you care. There’s no right here. This is just this is what it costs. Dude, are you happy? And we actually had a successful one with that. That wasn’t one of our pre offerings. And I actually got $15 more an hour rate and probably 100 extra hours than what it would really take, because the customer was perfectly happy with the final fixed fee number. I did. You know, that’s profitability. 

Greg Alexander [00:10:12] Yeah. I mean, the customers love it because what they don’t want to do is get surprised. Right? So the the comfort level of a fixed fee is they don’t have a runaway project on their hands, you know, and their budget gets blown to heck. And they, you know, sometimes they get egg in their face. God forbid they lose their job. So the customers love it. I find that the sales guys sometimes don’t like it because it creates it creates yet another thing they have to deal with with the customer, but feel like the example that you just mentioned, you know, the customer wants to get granular, particularly procurement department, and say, yeah, but what’s your rate? So how did you how did you train the sales team around this new selling motion and how to address the the new objections that certainly came up. 

Alan Wyne [00:10:56] You know, I mean, the beauty of having sold some fixed fee projects or planning engagements and other things. Having those people already sell that they’ve kind of run into those objections and they’ve learned how not. They’ve learned how to say what to say and what not to say. And so we sell based on look, the quality of our work speaks for itself. You’re going to get this, you know, here’s what you’re going to end up with. Here’s the documentation. The planning engagement is going to give you. We’re just translating that into when you you know, when it go live, you’re going to have a fully functional system. Here’s all the things it’s going to do. Here’s the statement of work and here’s the work plan, guys. Here’s all the tasks that are going to happen. And, you know, tell me that somebody else in my industry is going to walk up and say, yeah, for a half $1 million. We guarantee that they don’t exist. So they’ve, they’ve we’re we’re slowly learning and playing training on how to get that going. And then just, you know, getting our getting our nose bloodied every once in a while. But basically practice it’s practice practice practice. It’s really what it is. Okay. 

Greg Alexander [00:12:05] Well we try to keep these podcast short to 15 minutes and then we’ll, we’ll we’ll do a deep dive in this in the member course. I got one more question for you. What has surprised you? So you’re in the first 25% of rolling this out. You this is a multi-year journey. You know what happened that you didn’t anticipate. If anything. 

Alan Wyne [00:12:26] I didn’t I didn’t dissipate the acceptance of the company quite so fast where everybody was just like, yeah, okay, good. Let’s go. And I was I thought I’d have to bring some people kicking and screaming, you know, and, and in reality, from leadership down, everybody is just. And this sounds like a great idea. And I think it’s because we pitched it as look the next the market’s changing. We’ve all seen it. We change the way we modify the software. We don’t have a ten year journey here guys that protects us and grows it. And ultimately a job business. You know businesses primary focus is profitability. So I can bonus and pay you guys better. Can we all be together. And so that that’s been that’s been the real pleasant surprise. The other surprises are still coming. 

Greg Alexander [00:13:13] Well hopefully they’re not too ugly. You know it’s a really good point. I mean what you did there, which was a huge compliment to you as you showed that by making this move, the firm’s going to become more profitable. And when the firm becomes more profitable, there’s better paying jobs for everybody. So it’s we’re all aligned in doing that. All right, all right. Well, Alan, I appreciate you sharing your story of moving from time and materials to fixed fee here after a 40 year successful run. I’m really looking forward to the member Q&A session. So on behalf of the members, appreciate you being here. 

Alan Wyne [00:13:44] Okay. Thank you. 

Greg Alexander [00:13:45] All right. Couple of calls to action for those that are listening. If you’re not a member and you want to be one and learn from people like Alan, go to [email protected]. Fill out an application and some will get in contact with you. Do you want to just consume some more information? I would point you to my book. It’s called The Boutique How to start scale and sell a professional services firm. You can find that on Amazon. But until that and until next time, I wish you much success as you try to grow, scale, and maybe someday exit your firm.

Episode  127 – Alternative Fee Structures: How and Why to Move Away from Hourly Billing – Member Case by Sonia Miller-Van Oort

Moving away from hourly billing leads to better margins, higher client satisfaction, and happier employees. Yet, many boutique founders are afraid to do it, and do not know how. In this session, member Sonia Miller-Van Oort shares how she built her 12-person law firm using alternative fee structures.


Greg Alexander [00:00:15] Welcome to the Pro Serv podcast, a podcast for leaders of thriving boutique professional services firms. For those that are not familiar with us, Collective 54 is the first mastermind community focused entirely on the unique needs of boutique professional services firms. My name is Greg Alexander. I’m the founder and I’ll be your host today. On this episode, we’re going to discuss moving away from the billable hour. This is a hotly contested issue. Some might even say religious battle in certain sectors. And it’s important for us to have a point-counterpoint discussion around this, because sometimes making this move can increase profitability and client satisfaction quite a bit. And we’ve got a great role model with us today. Her name is Sonia Miller Van-Oort, and she is in the legal sector, which is rather married to the billable hour, and she’s got quite a story to share with us. So we’re very lucky to have her. Sonia, if you wouldn’t mind, please introduce yourself and tell us a little bit about your firm.

Sonia Miller-Van Oort [00:01:25] Sure. My name is Sonia Miller Van-Oort. I am the President and Principal Founder of a law firm called Sapientia Law Group. We’re located in Minneapolis, and we are a 12-attorney law firm that does a variety of work, mostly litigation, about 70% litigation and about 30% transactional work.

Greg Alexander [00:01:45] Okay. And where are you based?

Sonia Miller-Van Oort [00:01:47] In Minneapolis, Minnesota.

Greg Alexander [00:01:48] Okay, very good. So tell us a little bit about how you’ve moved away from the billable hour.

Sonia Miller-Van Oort [00:01:55] Yeah. So we started our firm 12 years ago, and prior to that I was a partner at another firm and this topic of billable hours. This is 2009, 2010 timeframe, clients, really not happy with ever-increasing billable hour rates. At that point, I was a more junior partner and there are a couple of things that I was seeing. One, clients weren’t happy with that system of billing they really wanted more budget certainty. And as a practicing litigator, what I what I observed as well was that the cost and the uncertainty of the cost to the clients became an impediment to them getting to the merits of their case. And as a litigator and advocate, that was a frustrating thing for me, trying to get the best result for them. So it was kind of a combination of those things. I participated in this about with my law school, which was kind of a big think tank about the traditional law firm model. And this issue came up and I started I heard about alternative fees, and it wasn’t so much that it was a new concept at that point people had been talking about for decades. But really very few law firms had really adopted it and were able to be successful in it. And kind of what I perceived was law firms would sometimes reluctantly do an alternative fee structure if the clients came and approached them about it, but they kind of did it kicking and screaming. And so when I was creating a new law firm model to start Sapientia Law Group, that was central to the concept of how could we deliver services differently to our clients, and trying to think how we could, instead of it being a reactionary and reluctant response, how could we lead with that as a something proactively always offered to clients, always giving them the option whether they wanted to do hourly or an alternative fee structure, but presenting it without clients having to kind of ask the question but to be upfront and say, here’s another way we can do this, which works best for your business. So that’s how it got there and how we really focused on that as a key core concept of Sapientia Law Group.

Greg Alexander [00:04:37] Okay, very good. You’ve mentioned alternative fee structure a few times, so if not the hourly or billable hour excuse me, what is the alternative?

Sonia Miller-Van Oort [00:04:47] Yeah, well, I always say the alternative is only limited by your own creativity. So we’ve developed quite a list of options. And so those can range from you can do, and I’ll just, to be clear, I’m a litigator, so that’s the world I live in. And people for years have said, well, you might be able to do alternative fees in law, but really you can’t do them in litigation. Is that way possible because there are just too many unknown factors? And I don’t believe that to be true. And so what we’ve developed are different flat fees, four phases of litigation. We’ve developed subscription fees, which would be more of a kind of that model I always liken it to your cell phone plan and paying for so many minutes a month and you can have rollovers. We do risk collars, which is another way to create some budget certainty that has a collar of risk around the price that you’re studying. And it allows some extra payment if you go beyond it, but it’s reduced and a greater payment if you come below the budget. We’ve done pullbacks, which is another way of saying we’re going to agree upfront. What are the key, key performance factors? And we’re going to hold so much back from what you’re paying us until we reach those milestones. And then one that I often use in complex litigation is the combination of a hybrid of flat fees for certain pieces of the work with success bonuses, again, around milestones or what the client defines as success at the beginning of the engagement. 

Greg Alexander [00:06:28] Hmm. Very creative. Thank you for walking us through those alternatives. And when we have our member Q&A on Friday, they’re going to ask a lot of questions about those, particularly the risk collar. That’s one of great interest to me. So if this is better for the client, better for the law firm, and maybe a way for a smaller firm to differentiate, why are founders of firms reluctant to go off of the billable hour?

Sonia Miller-Van Oort [00:06:58] Yeah, I think there’s a couple of reasons. I think the biggest impediment is the traditional law firm mindset, which is how we do business is billable hours and we’re going to, those are our metrics and that’s how we’re going to value our people and we’re going to set goals around how many hours people build. And when you get into that mindset, I will say that it is potentially contrary or conflicting with an alternative fee structure model. And the reason why is because the way I approach alternative fee structures is it’s a shared risk and a shared reward. And what we want to do is the professional services team is to be efficient in getting the results desired. That means you hopefully are using less time and working smarter to get the results. But if you’re in a firm that is going to measure and reward employees by how many hours they put in instead of the results they’re obtaining for clients, those two things get heads. And I think that is just the traditional way of law firms. And so I’ll tell you, when we first started our firm, I wondered, you know, people wanted to talk about the firm. And I was concerned about, do I really want to talk about alternative fees? You know, isn’t that the competitive advantage I’m trying to have and do I really want to be talking about so somebody else can do that. And what I finally came to is I can talk about it all day because as long as law firms won’t change their core structure and the metrics that they value people, how they value them, they can never effectively do alternative fees. And that’s effectively why I want to start a new firm, because I think it’s the whole infrastructure of how you run your business that can make alternative fees work really well. But if you got to look at what you’re compensating, how are you rewarding, how are you value your people, what are they being motivated by, all of those things. And if you don’t have that culture and model, alternative is not going to work. 

Greg Alexander [00:09:09] Yeah. And I agree with you. I mean. Talking about it and doing it. A very true two very different things for sure. So I think that’s a good explanation as to why law firms might do it. When you approach clients with this, I’m assuming maybe incorrectly, it requires quite a bit of education. Is that accurate? And if so, how do you handle that?

Sonia Miller-Van Oort [00:09:32] Yes, it does require some. So, you know, as I said, we are potentially going to be retained. We explain to our client there’s two ways we can do this. And for me to come up with an alternative fee structure, I want to talk about what’s going to be success to you. And I want to talk about what my strategy might be and how I see that playing out. The other challenge, going back to your last question, I think that attorneys and many other professional service organizations have answered the question, how much is something going to cost really when you get my bill, you’ll know approach as opposed to on the front side giving that client budget certainty. And so when you explain to the client what it is you’re trying to do, but you’re also saying but it’s up to you, you know, you decide what’s best for your business right now. Clients really appreciate that. And where I find that they’re more likely to try the alternative fee because there’s some skepticism at times if they’ve not done one before as well what’s the catch? What are they trying to do? Are they trying to get more money out of me? That kind of thing. So where it really works the best is where you have a trusting relationship. You’ve done work with the client before. You explain. Here’s how you’re still going to see. You’re going to get my bills. You’re going to see everyone who’s doing the work. You’re going to see what the work, what’s being done. So I want you to have that data. I want us to both have the data so that at the end of the day, you can look at it and decide, did you get value for it? And I can look at it and make the same determination. So there definitely is an educational process. But I will tell you that, you know, I’m not going to say ten times out of ten that might be too strong, but nine times out of ten, if a client has tried the alternative fee structure, they will do it again because they can see the real value of it.

Greg Alexander [00:11:30] And how about when you’re recruiting attorneys to your law firm, especially those that might have worked in other law firms where this is, you know, completely unconventional, do you have to sell them on why this is good for them or how does that go?

Sonia Miller-Van Oort [00:11:46] I don’t know, but I have to sell them on it necessarily. It’s always a point of interest for them when they want to understand how that works. And as I kind of alluded to before. I only think alternative fee structures work for our firm because of how we’ve built the firm. And so let me just give you an example. I’ve not practiced. I practiced in two other firms. I met a partner and other one before creating this firm, but not working environment that was as collaborative as our firm is. And the reason that is, is because that’s how you get alternative views to work. You’re able to identify your team. You can figure out where people’s strengths and you maximize where people strengths are. So on traditional firms, you might have, you know, a partner and an associate, and the clients don’t want to see more than two people on the bill because they’re afraid they’re going to be getting charged too much. But when I explain to them, what you get is a whole team and this is what it’s going to cost you. It doesn’t matter if there’s two or there’s five people. Okay. So your question is, so when I explain that to people about how we really work together, like we do a lot of roundtable brainstorms on the whiteboard, we’re coming up with our ideas and our strategy and how are we doing this? And you got this and I got this. And it’s a much different way to practice law than I’ve seen with other law firms. And so actually, when we’re trying to recruit people and we talk about that, I think they get excited about that.

Greg Alexander [00:13:11] And to a member who is inspired by your story and wants to give it a shot. What would be the first couple of steps you would recommend?

Sonia Miller-Van Oort [00:13:21] So I think, you know, it’s hugely important that you have data that you understand. What your costs are for what you’re going to provide and what the scope of work is. I mean, really for any potential representation, the question is what’s the scope of work? And in some ways, it’s not any different than a contractor who’s building a house for somebody. What is it we’re trying to do here? Yeah, and that’s the first piece that we always start with. What is it that’s going to need to happen? So when I talked about that strategy on the front side, that really is super important in communicating with the client. All right, here’s what I, this is what I see. These are the people who I can envision as witnesses in the case they’re going to get to close. Seems like this is the case with hundreds of thousands of documents or this seems like a case of like, you know, probably less than 500. You’ve got to kind of be able to know how you’re going to approach it. But listen, if you’re an experienced person in whatever industry it is, you do know that.

Greg Alexander [00:14:22] Right.

Sonia Miller-Van Oort [00:14:23] And if you have data, like if you have past matters that you’ve worked on, for me, it’s cases. But, you know, past deals, you’ve done whatever your industry, you glean from that. And that’s, I think, what should take away the fear of the unknown. Because you’re not just you’re just throwing it out like willy nilly and let’s see what happens. It should be based on data one and two, I think a really important thing and I think this really addresses fear, too, is defining the scope of work. And so attorneys are. That’s what they’re afraid of. But here’s the deal. These are my assumptions. So when I present the alternative to the client, I tell them what my material assumptions are. And if we go outside those material assumptions, that’s extra. Yeah, right. So I can take a package of what I can reasonably figure out my costs, what I want, who’s going to work on this, what I want my margins to be, and come up with that. I don’t have to feel like I’m going to dive off a cliff if all of a sudden we end up with twice as much because I provided for that in the agreement. 

Greg Alexander [00:15:32] Great advice. You know, I might add that when we look at our benchmarking data and you cross-reference firm profitability and client satisfaction, our power members that use alternative fee structures as opposed to billable hours tend to be more profitable and they have higher clients. And so that might be something to help people get over their fear as well. Yeah, well, listen, we’re at our time window here. We try to keep these podcasts short, but I’m so excited about the upcoming Friday session. We’re talking about this for an hour and our members will have the opportunity to ask you questions directly. So on behalf of the membership, thanks for coming today and sharing your wisdom with us.

Sonia Miller-Van Oort [00:16:11] Thanks so much. It was fun.

Greg Alexander [00:16:12] All right.  And for those that want to learn a little bit more about this, I’d give you a few calls to action. You can pick up our book called The Boutique: How to Start, Scale, and Sell a professional services firm. You can find that on Amazon. If reading is not your thing, consider joining Collective 54 Insights. And there you’ll get podcasts and videos and charts and things of that nature. You can find that also at the website. And if you want to join and meet fantastic people like our guest today, go to the Contact Us section on our website and fill out that information and then a representative will get back to you. But thanks for listening today and until next time. Best of luck as you try to grow, scale, and exit your firm.