listen to the marketplace.
by rob nixon
i am using the ethics card right up front to get your attention.
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i personally feel that pricing by the hour in arrears is an unethical way to price. here’s why:
when you price by the hour you are not incentivized to be as efficient as possible and get the job done super-fast. in fact, you are directly incentivized to do the task slower. you are incentivized to overanalyze and take your time. you are incentivized to pad out timesheets and in some cases make mistakes.
and it gets worse when management (aka partners) actively promotes and measures productivity, utilization and billable hours targets. i’ll give you 6.5 hours a day charged to the client says the eager accountant who wants to impress. i’ll go a little slower and i’ll do things in the job that i didn’t need to do. i’ll even leave the clock running as i go to the bathroom. i’ll start the clock as i am driving to the clients’ office. i’ll keep it running as we have lunch together. and seeing we charge in 6-minute units then if a task takes 45 minutes i’ll just round it up and charge 8 units. with all that (the eager accountant says) i got my daily target.
is there anything more unethical than that? at this point in time you may think of sending me some hate mail. that’s ok; you’re entitled to your opinion.
seriously, though. pricing by the hour for professional services has got issues written all over it.
other than what i have mentioned earlier here are some more examples:
- how can a relationship be enhanced when the client is worrying about “when does the clock start” when they meet with you?
- the price per hour assumes that the salary level of the person is correct.
- the project assumes the time taken was correct.
- why would you invest in super-efficient processes and technology – your price will drop.
- you give the accountant $5,000 worth of time to do the task and miraculously they take $5,000 worth of time. that’s after they have gone faster, gone slower and stopped the clock a few times.
- you will always (always) get writedowns when you price by the hour in arrears.
and lastly, what about the poor client? they have no idea what the bill will be until it arrives.
i understand that nearly every other accounting firm in the world does it this way. i understand that’s the way it’s been done for centuries. it doesn’t mean it is right.
i think since the introduction of the computer on everyone’s desk in the 1990s the issue has been exacerbated. the introduction of the background timesheet and electronic timesheet has fueled the unethical fire.
i think there is only one option forward. that is to tell the client the price and scope of every single project in advance and in writing. the client signs off on the price and scope and you get to work and do the job as efficiently as possible. that’s it. nothing more, nothing less.
now you can get creative with this and give your clients an enhanced version.
you could package up a number of services (known ones) and give your client an “annual accounting service” that is an annual fee divided by 12 to get a monthly fee. then have a direct debit authority for the monthly fee.
you could promote known services into packages on your website. it’s the old “small, medium and large” idea.
note: this is a guideline only and not designed to be the price to charge or the package to promote. also, i am sure you could come up with more creative titles than i have here.
or you could simply scope out every project and offer a written price to your client before you start.
i am reminded of an old marketing saying: “it is arrogant in the extreme to dictate to the marketplace how much they will pay and what they will buy.”
what that means is you come up with an idea/price/package and you put it out there and see how the marketplace responds. if they buy it too easily then play with the pricing until you get some saying no. if they consistently ask for “this but not that” then play with your packaging. let the marketplace tell you what they will buy and how much they will pay by testing.
your clients deserve a price before the project starts. you deserve to be rewarded based on being as efficient as you can. your team needs to be incentivized for going fast rather than slow. and lastly, you also need to be rewarded for the value you create for your clients, not the time it took to do the task.