Let’s start with a question. As a seller of contractual services, do you make more money if you charge a new client $65,000 or $70,000? The answer is not obvious, but it may be the smaller amount. Why?
What if you told the client you would do the work for $65,000? But, your company had some cost overruns that may or may not have been the client’s fault taking the cost to $70,000. If you told the client, we had some overruns, but told you it would be $65,000, so that is what we will invoice, you will create goodwill and trust. Your firm may get hired for future work as a result. If you billed the $70,000, you may not get hired again.
But, what if you told the client it would be $70,000 and you were more efficient. By invoicing the lesser amount, you will have done something unusual and it will be noticed. This may also lead you to being hired for future work.
The key that gets lost on managers who push for billing every cent in the system is most services are relationship based. If trust is established, the opportunity to have a mutually beneficial relationship exists. You make more money serving the client long term. When trust is broken, all bets are off.
This is a hard lesson organizations like Wells Fargo are learning today. And, if you doubt the veracity of this observation, the most acclaimed accounting firm used to be Arthur Andersen. They no longer exist as they breached the trust of a significant client and they could never recover.