There’s another post on AccountingWeb about pricing so I thought I’d write something.
There are three active billing methodologies being used in the profession – time, fixed and value. Unfortunately, most accountants who are moving away from time confuse fixed fees with value pricing. To be honest I did before I invested time reading and listening to Ron Baker as well as asking him lots of annoying questions!
Anyway, I came to learn that Value Pricing is much more than calculating a price. It’s a whole approach to running a practice. And, as far as I am concerned, when a firm switches to value pricing they would never offer services using time based billing. Not, just because they would not use time to bill but because it would cut across every fibre of their soul!
Interestingly, I did some one-to-one SEO training this year and the provider charged me by the hour. I agreed because I asked how long it would take and worked out my own price. By the way, it was less that I was prepared to pay to become an expert and get the results I can now.
Had the provider used Value Pricing he would have taken some time to understand what I was after and why it was important for me. Had he done this the window of opportunity would have opened and together we could have designed a very different service and price. That's why value pricing can re-shape your product offering and entire business strategy.
In fact, value pricing starts with the firm’s strategy and runs through the marketing, selling and only then can the price be set. Compared to this, there really is little value in measuring time, especially when you think how long it takes! Remember, the major downside of recording time is that it gets you thinking about how long you’ve spend doing something rather than what you have done and how that makes your client's feel.
The best time recording can do is to help make you more efficient, but that will only take you so far and it’s not far enough for the practice of the future. The objective is to be more effective and there’s more value for accountants in focussing and measuring the results of their work. Creating positive feelings is what you should be focused on, as BMW knows in their latest advert.
Understand what drives your clients’ emotions and measure these things. If you’re an airline you could measure (and focus on) on-time arrivals, lost luggage and customer complaints. For accountants you could measure turnaround time on accounts, your client’s effective rate of tax, customer service score.
Before thinking of dumping time recording there needs to be management systems and skills in place. Good project management and communication skills are must haves.
If you are going to record time then get rid of the charge out rate and include the cost because cost accounting is the only benefit and split work between proactive and reactive. Set a target to have say 40% of your firm’s resources being proactive with clients as this will turn your fee from a cost into an investment. This could be one of the guarantees you provide.
Compliance work, it isn’t going away but it’s becoming less important. Rather than looking at compliance as the reason for the relationship think of it as the basis and engineer value with service extensions. Firms that embrace value pricing soon start to appreciate how little value there is in compliance and that can be scary. And, this can put accountant’s noses out of joint because you have studied for years just to be told what you do doesn’t have value! Well, there is value, just not a lot.
Many firms I’ve spoken with who tried to switch to value pricing failed because they didn’t appreciate how big a step it is. One firm reported to me that the exercise cost them over £100,000. The problem isn't value pricing but not understanding what it is and have an effective implementation strategy. Just withdrawing timesheet doesn't make you a value pricing firm.
My advice to firms thinking about switching to value pricing is don't, unless you’re passionate about helping your clients.