The science of billing – how to avoid pouring cold water on client relationships
Just what has immersing your hand in cold water for 60 seconds got to do with sending your clients a bill? Well, it seems, more than any of us might have thought.
In recent years the field of behavioural science has learned a lot about how we make decisions. It turns out, we are less in control of our decision making than we like to believe.
Nobel prize-winning behavioural psychologist Professor Daniel Kahneman has conducted a number of key experiments on what drives our decision-making behaviour. One experiment involved asking people to immerse their hand in 14-degree water for 60 seconds. Fourteen degrees is uncomfortably cold. As a comparison, it's like swimming in Port Phillip Bay in early June or swimming at Bondi in, well, never, as even in the depths of winter it doesn't fall below 16 degrees.
After this test of will, the same people were asked to repeat the process with the other hand, only this time for a longer period. The total immersion time was 90 seconds, only, after 60 seconds at 14 degrees, the temperature was secretly increased to 15 degrees for the final 30 seconds – say Port Phillip Bay in May (and still colder than Bondi ever).
When the participants were asked if they had to choose to do one of these uncomfortable experiences again 80% chose the longer experience. How does this work? Both experiences involved 60 seconds of 14 degree water, but the longer experience added 30 more seconds at 15 degrees – that's still cold.
It turns out that our memories aren't as good as we'd like to think they are and, more importantly, recency matters. What psychologists like Kahneman and others have discovered is that there are at least two parts of our self – the experiencing self and the narrating self.
The experiencing self is our moment to moment consciousness. This part of the self felt the extra pain of the longer immersion. But it seems that the experiencing self remembers nothing.
It is the narrating self that is responsible for retrieving memories, telling stories and making big decisions. However, it does this by taking some pretty big shortcuts. It spins a story out of only the peak moments and the end result.
Another weakness of the narrating self is that it is duration-blind as it focuses only on the peaks and the end. It evaluates an experience according to the average of these experiences – what is called the 'peak-end rule'. In both experiments the peak experience was the same (14 degree cold water), but the longer experiment ended less uncomfortably at 15 degrees. The peak-end average then, made it seem more bearable.
What does this have to do with billing your clients?
Well, it is likely that the recency of bill shock for a client – where a larger than expected bill is received – can disproportionately outweigh the memory of a month's worth of otherwise excellent, even above and beyond, client service.
If we apply the learnings of Kahneman and others, the decision making narrating self will average the bad experience of receiving the bill with the peak client service experience. For example, let's assume the client would have given you a 9 out of 10 score for general satisfaction throughout the month, but a 3 out of 10 for the bill experience alone – this implies an average of 6 out of 10 – damaging, but perhaps not critical. However, if the monthly client experience was more like a 6 then the bill shock might give you an average of 4.5 and perhaps a client starting to think about other options.
Of course, you are no doubt always cautious when sending out larger than usual bills. You probably already do what you can to manage the client's expectations. But how often do you think about adjusting the billing process depending on what you already know about the client's general level of satisfaction? Do you ask yourself, is the relationship strong enough to handle this bill?
If you aren't sure whether or not the relationship is strong enough, perhaps you need to explore other strategies – ringing the client to explain before sending the bill, offering one-off extended payment terms, deferring part of the bill to the following month, or better still, communicating mid-month – e.g. the bill is getting up there, did you want us to defer some work till later...
However you tackle it, understanding the importance of recency and the power our internal story-teller can help us better manage our clients and keep them for the long term.