{"id":54697,"date":"2018-05-30t18:47:19","date_gmt":"2018-05-30t22:47:19","guid":{"rendered":"https:\/\/48e130086c.nxcli.net\/?p=54697"},"modified":"2024-08-14t09:30:24","modified_gmt":"2024-08-14t13:30:24","slug":"great-debate-case-value-pricing","status":"publish","type":"post","link":"\/\/www.g005e.com\/2018\/05\/30\/great-debate-case-value-pricing\/","title":{"rendered":"the great debate: the case for value-pricing"},"content":{"rendered":"

\"\"18\u00a0 reasons to trash the timesheet.\u00a0next, read\u00a0the case for timesheets<\/a>.<\/span><\/strong><\/p>\n

value-pricing or hourly-billing: which works better and why?<\/strong><\/span>
\nsound off: join the survey, get the answers.<\/a><\/span><\/p>\n

by ed mendlowitz<\/em><\/p>\n

if you’ve read the “the case for timesheets<\/a>,” you might think i couldn’t live without timesheets.\u00a0 but i know many firms use their timesheets differently than i do.<\/p>\n

but first:\u00a0 the business model of not using timesheets recognizes there is a new way accounting services are being delivered to clients and so we need a new way of managing the accounting firm.\u00a0 this new model is explained and charted excellently in a logically understandable book that i highly recommend which is\u00a0from success to significance: the radical cpa\u00a0guide<\/a><\/span>\u00a0by jody padar.<\/em><\/p>\n

based on the partners and firms i know, most use timesheets only for billing and determining staff \u201cbonuses,\u201d which are substantially based on \u201cexcess\u201d hours, rather than exceptional performance and client service.<\/p>\n

working long hours on a client does not equate to effective value transference.\u00a0 because of this, i believe these partners are short-sighted and actually do not understand how to fully run their business.\u00a0 i have used timesheet information as a valuable tool to great success.<\/p>\n

however, today i want to trash the timesheet and present my reasons for value-pricing.<\/p>\n

<\/p>\n

the case for value-pricing<\/h2>\n

1. timesheets are an excuse for poor management<\/strong> and oversight by managers and partners.\u00a0 using timesheets for many partners\u00a0replaces<\/em>\u00a0a closer hands-on management and awareness of what the client is getting based on what they need.<\/p>\n

2. timesheets foster a compliance mentality<\/strong> rather than a service and value providing mindset.<\/p>\n

3. when the only thing timesheets are used<\/strong> for is billing, staff and partners become less aware of the purpose of what they are doing and more concerned with the \u201chours\u201d spent.<\/p>\n

4. there is a tendency to reward staff who\u00a0work high hours<\/strong> greater than staff with low hours, irrespective of the quality of the work done.\u00a0 for instance, an error-prone staff person would usually work more hours than one that does not make errors. also, the error-making staff person is seen working late, while the more effective staff person goes home earlier since they do not need to make up the time to correct errors.\u00a0 that late-working staff person is wrongly considered more diligent and a better team player.<\/p>\n

5. the client with the error-prone staff person would be billed a higher amount<\/strong> on a time-based billing system.\u00a0 this is just not right and it doesn\u2019t make sense.<\/p>\n

6. it’s simply not logical<\/strong> to base staff bonuses on hours worked rather than on the quality of the work, the results, or the value conveyed to the client.\u00a0 i know those timesheet advocates will disagree with what i just said because, as one of them might say, of their \u201cclose and diligent management of the work done and value conferred.\u201d but i am willing to bet that their \u201cclose and diligent management” is a myth.<\/p>\n

7. using timesheets\u00a0for any reason<\/em>\u00a0confuses the staff and partners<\/strong> and turns the focus away from staff performance and delivery of client value.\u00a0 timesheets create the fences around which thoughts are contained and ideas cannot percolate freely.<\/p>\n

8. when timesheets are used, everything is \u201con the clock.\u201d<\/strong>\u00a0 no matter what partners say, every minute, or tenth, or a quarter of an hour gets recorded.\u00a0 clients do not like being billed for off-the-cuff discussions or telephone calls. such billing practices inhibit free-thinking discussions and calls.\u00a0 the last thing i want is to have a client not call me because they are watching the clock.\u00a0 it is important to make clients aware that they will not be billed for phone calls, unless it is a prearranged meeting to discuss a substantive matter.\u00a0 i feel so strongly about this my most recent book is titled call me before you do anything<\/em><\/a><\/span>.<\/p>\n

9. quoting hourly rates when a client is relatively unsophisticated<\/strong> or has a fairly standard issue doesn\u2019t work.\u00a0 clients will use professionals they feel are experienced in a matter.\u00a0 it stands to reason that if the accountant is experienced they should have an idea of what it would take to deal with it, so a fixed fee quoted beforehand should be pretty easy to do.\u00a0 telling a prospective client your rate is $300, $400 or $500 an hour and that you don\u2019t know how many hours it would require does not work, at least for me and the people i speak to.\u00a0 what are you afraid of \u2013 quoting too much or too little?\u00a0 if too little, then what is the harm?\u00a0 it is a new matter and whatever you receive will go to your bottom line.<\/p>\n

10. clients don’t buy hours.<\/strong> when was the last time a client engaged you saying they wanted to buy so many hours?\u00a0 what they want to buy are solutions to their problems and the security knowing they are in the good hands of a professional that will look out for them.<\/p>\n

11. sometimes it requires some investment to determine the fee.<\/strong>\u00a0 so in many cases i ask to see the prior tax returns or financial statements, brokerage account statements, contract or whatever document can help me understand the issue and get a sense of what is involved.\u00a0 sometimes i ask to visit the premises or meet with others involved in the matter and even bring other partners with me.\u00a0 after i have a sense of the issue, the scope of the dollars involved, and the importance or value to the client, i am able to come up with a pretty good fixed-fee or value-price.\u00a0 sometimes there is some give and take, but not outside the realm of what i initially quoted.\u00a0 i am also very careful to delineate the services we will perform and the client’s responsibility, duties, collaboration,\u00a0and assistance.\u00a0 if the scope starts to drift from the agreed-upon parameters, it is called to client\u2019s attention and a new or separate fee is agreed upon for the extra work.\u00a0 this is similar to ron baker\u2019s change order.<\/p>\n

12. once, a long time ago, i did a special consultation<\/strong> for a client and charged him $12,000 based on time.\u00a0 immediately after i finished that project a second client called with the same issue.\u00a0 the time came to $6,000 which was billed and paid.\u00a0 right after that, a third client had the same issue and the time came to $1,500 which was also billed and paid.\u00a0 doing this today i might still do the initial project on a time basis.\u00a0 if it were initially on a fixed fee, i am not sure the results would have been as good since i would have more closely stuck to the original project as described by the client. but i actually exceeded the scope and did a much more thorough job that included potential circumstances that were not anticipated either by the client or me, but which developed while the research was being performed and also during the report writing.\u00a0 seeing the result, i was prepared to justify the time, but it never came up and we were thanked and promptly paid.\u00a0 today the second and third clients would be quoted a fixed fee somewhat similar to what the first client paid.\u00a0 over the years, this project was replicated a dozen more times and fixed fees were quoted based on the charge to the first client.\u00a0 i learned, but i needed a little reflection and an unshackling of my mindset regarding the supposed integrity of strict time-based billing.\u00a0 i suggest that if your fee arrangement is strict time-basis and you do not discuss the pricing for special projects before starting, you are locked on that basis.\u00a0 however, regardless of the fee arrangement, you are never precluded from suggesting a fixed- or value-based price\u00a0before<\/em>\u00a0you start an out-of-scope special one-time-only project.<\/p>\n

while agreeing upon a fixed price in advance is a good way to set prices, there are some situations it cannot be done, or where it just won\u2019t work. and for those, i would keep time records.<\/p>\n

13. value-pricing\u00a0is not value billing.<\/strong> value-pricing is where a fee or price is determined prior to any work commencing and where the project and objectives are clearly defined and the value to the client is clearly understood.\u00a0 value-billing is where the bill is presented after the work has been completed and is based upon what the accountant thinks the value to the client is. it is a unilateral expression of value, while the value price is a collaborative endeavor.<\/p>\n

14. i like to try new things<\/strong> and search out ways to add value to a client.\u00a0 when i am on a time-basis, i make myself accountable for the time spent and the\u00a0results, and i usually need to explain why i exceeded the parameters of the engagement without first discussing it.\u00a0 on a fixed fee i have the leeway to try new things or to look in areas that weren\u2019t contemplated.\u00a0 i know that special work needs a \u201cchange order\u201d but sometimes i like to explore new areas, not knowing if our search will yield a successful solution.\u00a0 many times we have come up with extraordinary results and, while we weren\u2019t specifically compensated at that time, it resulted in substantial additional fees going forward.\u00a0 time-billing thwarts experimentation.\u00a0 of course, if you are on a time basis and you have a client that will pay whatever you bill them without question, then you also have the freedom to try new things, but those clients are few and far between.<\/p>\n

we are who we are in some respects because of our experience.\u00a0 if we ignore the experiences from new or unusual things it is no different than not having had the experience.\u00a0 if we are smart enough to recognize the new, then we can grow \u2013 not dramatically, but somewhat.\u00a0 it is the sum of the somewhats that shape us and, in my case, has allowed me to have a successfully fulfilling and fun-filled career.<\/p>\n

two cases in point:<\/p>\n