Hourly billing is top dog in the world of service pricing, but has it earned its stripes from being the most effective approach or because it’s what has always been done? It certainly makes sense to bill by the hour for more condensed projects (think typical auto repair jobs). On the other hand, you wouldn’t expect to pay by the hour while your new car makes its way down the assembly line and on towards your local dealership.
So what’s the alternative for those of us who fall somewhere in between? Let’s use creative agencies as an example. They run on variable hours, so designing a logo can take a few minutes…or it can take a few days. We have found that by separating out project goals into weekly “buckets” rather than hourly rates eliminates this sharp fluctuation in hours and creates a fairer billing approach for clients.
What is a bucket?
Simply put, a bucket is a defined amount of time and resources. In our case, we usually define a bucket as one week because it’s rare that a primary goal of a project will take less time than that. Each bucket type determines the resource allocation and deliverables. For example, a Define bucket will have a larger allocation of a week for the resource dedicated to planning and a smaller allocation for the resource doing the development. A Develop bucket will be the opposite. Buckets are usually standalone, meaning they are a complete cycle of planning, action, and review.
Why would you use buckets?
When determining how to price an agreement or project, there are three things to consider:
- How accurate does the budget need to be?
- How accurate does the timeline need to be?
- If a problem arises, who should the burden fall on?
These are hard questions to answer for most projects in our industry, because we can’t predict every task that’s needed to accomplish a goal. We also can’t predict people.
Buckets balance the estimated cost with the real cost. They enforce a timeline but give flexibility for the unseen. And they balance accountability between both parties.
How do you determine what’s in a bucket?
The best answer to this is experience, but we also base the allocation of each resource to a bucket based on the adjusted average of time it usually takes for that type of bucket. For example, if a developer spends an average of 30 hours on a project during a week of the development phase of a project and the project manager usually spends 10 hours, then a Develop bucket would consist of a week where we would expect 25% of the project manager’s time dedicated to that bucket and 75% of the developer’s time. Since this is an average, sometimes someone will do more than a days work and sometimes less.
The four bucket types:
- Define: Usually a heavy allocation goes to the strategist and to the project manager. A small allocation may go to a designer and/or developer to provide insight to the strategist.
- Design: Heavy allocation to the designer(s), with a small allocation to the project manager for logistics and the developer for insight.
- Develop: Heavy allocation to the developer(s), with a small allocation to the project manager for logistics and the designer for insight.
- Deliver: Heavy allocation to the project manager, with a small allocation to the developer for revision and a small allocation to the strategist for goal analysis.
Why we use buckets
- Focus: Ever tried to build an IKEA bookshelf but the phone keeps ringing? After every interruption, you have to review the stick-figure instructions to remember where you left off. The end result is it’s 2am and you’re looking for the Ärftlilg, not sure if you already attached it to the Flort. It’s much better to put the phone on silent, review the instructions, check the pieces and then move forward with confidence and without interruption.
Eh…who needs a nightstand anyway?
- Predictable timelines: Since our allocations are based on adjusted averages, our timelines are more reliable statistically. Instead of trying to guess at hours and then adding arbitrary buffer in case we’re wrong, we’re calculating a likelihood.
- Places importance on planning: “If you give me five hours to chop down a tree, I’ll spend the first four sharpening the ax.” — Abe Lincoln. A bucket can’t begin until it has everything it needs to be completed. That requires a lot of planning and strategy, but makes the work easier and faster. It also shows you potential issues before you encounter them.
- Services are complimentary: A designer needs a developer when designing and a developer needs a designer when developing. The roles of a team (in our case) are interdependent, and so we have designed buckets to allocated time and accountability accordingly.
Buckets vs. Sprints (or the Scrum method)
You may have heard the terms Sprints or Scrum if you’ve worked on a creative project before. While Scrum sounds like something you might find on your shoe, it’s actually a popular project management method employed for projects that require constant iteration and revision. A Sprint is an iteration of a Scrum process in which some work is planned, done to the fullest extent that it can be within a time frame, and then evaluated. It’s a super effective way of balancing creativity and efficiency. We took inspiration from this with the design of our buckets, but we realized that we didn’t need to follow the full Scrum methodology for certain types or aspects of a project, such as those with a defined scope of work. We also realized that many of our clients aren’t familiar with the Scrum method and find the terminology confusing. So a bucket is really just a specialized type of Sprint that we re-branded.
Buckets vs. Hourly Estimates
If you’ve ever been asked to estimate how many hours something complicated will take to do, you have felt our pain. We’re not sure why, but the creative industry is OBSESSED with hours. When we’re asked to quote out a project, we are almost always asked to break down our estimate into hours. This makes sense from an accounting standpoint, but it’s simply not practical or conducive to problem solving. And a slight misrepresentation of expectations can mean wild gaps in the actual vs. estimated hours, which no one is ever happy about.
Comic via XKCD.
The perceived advantage to this estimation method is that it places accountability on the agency to delivery in the time they said they would, but in reality, it usually causes the client more money because agencies inflate their estimates of time (sometimes by 200-300%) to make sure there is a buffer for any unknowns.
Buckets vs. Time and Materials
Time and materials is a billing agreement in which you are charged (usually by the hour) for exactly the amount of time used by a resource (plus any miscellaneous fees or cost of materials needed to complete a task). The perceived advantage is that you are billed only for exactly what is used.
However, time and materials usually doesn’t come with a high-level goal, and if it did, there is little incentive for the resource to complete the goal in a reasonable amount of time. It does have it’s place. In fact, we use time and materials billing for “reactive” services, such as providing support if something goes wrong. In those cases where you can’t predict or plan for a task, T&M may be the only option.
What if I don’t use all of my bucket time?
This is the most common question we get about our bucketed approach. Buckets are designed so that as many of the unknowns are eliminated before beginning a project. This means that we typically won’t start a bucket unless we have everything we need (or at least established expectations).
The reality is that sometimes things will take longer than expected and sometimes they will take less. Bucket allocations are designed to average those out.
What if something changes after a bucket has already started?
This is the “what if a meteor strikes” question. The only real answer to this is that we do our best to plan and anticipate, but we can’t predict everything. In case something drastic changes, we’ll just have to call up our rag-tag team of outlaws to save the day (AKA: manage the change professionally and practically.)
Often, we work to find a solution which deviates from the plan as little as possible. In cases where that’s simply not viable, we have a discussion with the client and judge who the burden of the change falls on. If it’s us, we put in the overtime. If it’s you, we may ask for an another bucket or offer to address the change on a time and materials approach.
Need more questions answered? Want to pose a question of your own? Drop us a line below.