if you have them in mind at all, you’ll try to keep using them.
by rob nixon
i think this entire method of pricing by time is not only bad for you, it is bad for your client. it is highly unethical. there is no winner. there has to be a better way.
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the good news is, there is a better, more ethical way. it’s called value pricing.
it’s all about working with the client to scope and then price each project based on what value the client gets out of the project. you price the project so there is fair and equitable remuneration for you and a dramatic return on investment for the client. you do this before you commence work on the project. you then communicate in writing the scope, price and value to the client and then get the client to approve the project.
charge rates vs. value pricing
it’s like the old saying, “blue and green should never be seen.” the same goes with charge rates and value pricing – they do not go together.
how can you really value price a project if in the back of your mind there is a charge rate hanging over your head? you will constantly struggle with the charge rate and not focus on the value of the work. so get rid of the charge rates – all of them! once you start pricing all jobs up front, they are surplus to requirements.
be warned, though. do not get rid of charge rates until you are pricing every project up front. i would advise that you initially keep timesheets (and put the charge rate at $1 per hour per person) for measurement purposes. however, as soon as you are comfortable with the strategy and highly profitable, eliminate timesheets as well.
once you get rid of charge rates you can have this wonderful conversation with a client or prospect when they ask you, “what are your charge rates?”
“just about every accounting firm in the country uses charge rates. those firms that use them are directly rewarded for how inefficient they are. the longer they take the more they get. in our view that is unethical behavior. we don’t think that is fair on you so here at xyz we don’t use charge rates. instead, we will give you a fixed price for the work that we undertake. you will receive that price in writing and in advance of us starting. when we get into the work if we are inefficient then that’s our problem – the price remains the same. if the scope of the work changes as we get into the project then we will inform you of any price changes. normally the price does not change because we spend quality time with you at the outset to determine the exact scope of the work. overall we think this is a fairer way to do business.”
you just promoted how your firm is different and more client-focused and at the same time you gave every one of your potential competitors a “backhander.”
when my son, hugh, was 12 he asked if there were some jobs he could do at the office. i told him i needed 1,000 stickers adhered to 1,000 paper bags. he said, “how much will you pay me?” i said 10 cents a unit. “is that 10 cents for the bag and the sticker?” he asked. smart kid. “no – 10 cents per completed item.”
on the first morning he did 200 bags in three hours and i gave him $20. he was thrilled. i told him he made about $7 per hour and then i said, “when you come back next week to finish the remaining 800, do you want to be paid 10 cents per unit or $7 per hour?” as quick as a flash he said, “10 cents a unit – i’ll probably do it faster next week.”
if a 12-year-old gets it then what is your problem? never charge by the hour. it’ll send you to the poorhouse.