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How many US accountants still charge by the hour?
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How many US accountants still charge by the hour?

Value Pricing: The Timeless Debate

Jun 30th 2016
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“Keeping track of time only matters when you’re serving a prison sentence,” according to Ron Baker, the Verasage Institute founder and premier champion of value pricing within the accounting profession.

Baker’s provocative comment at last year’s QB Connect conference is an appropriate starting point for a look at the issues stirred up by AccountingWEB’s National Value Pricing Poll. Time-based billing seems to be written into the profession’s very soul, and attempts to challenge it trigger deep emotions, not just in the United States, but in Europe and Australia, too.

This article will recap some of those battles as a scene-setter for AccountingWEB members to share their own views on the issue. With your help, we can get a clearer idea of the extent to which time-based fees retain their hold within our community.

Baker and other value pricing adherents have been beating the drum and tangling with traditionalists around the world for years. The message is getting through in some territories and markets, particularly among firms that are embracing cloud accounting and advisory business models. But many accountants still shy away from Baker’s “burn the timesheet” rhetoric.

At their QB Connect chat, consultant and publisher Joe Woodard challenged Baker with one of the most common counter-arguments: “Without timesheets, I lose control and measurability.”

Baker replied, “I used to believe that and used to use timesheets. Then I realized that billing my time isn’t a scalable business model. And it’s a pretty crappy customer experience. A timesheet gives the illusion of control – as anyone who ever fudged a timesheet will know. It’s equivalent of timing your cookies with a smoke alarm. By the time you see it on your timesheet, it’s too late.”

Culture Shock

US AccountingWEB members will be comforted to know that value pricing causes just as much cultural shock across the Atlantic. As long ago as 2005, members of our UK sister site were arguing with Baker over his ideas, while accountants in Europe continue to resist the concept.

Dutch accountant Marcel Spoelstra embraced value pricing after going through sales and marketing training with Panalitix founder Rob Nixon in Australia. After he blogged about it, Spoelstra received hate mail from fellow accountants. “They accused me of being unethical for charging clients different rates for the same services,” he said.

Timesheets - the equivalent of timing your cookies with a smoke alarm” - Ron Baker

Spoelstra answers critics by highlighting what he calls “the dark side of the cloud”: As the cloud gives you the capability to take on more work, you’ll end up having to work harder to increase revenues. Increasing prices and agreeing up-front, value-based fees lets accountants reap the benefits of efficiencies they implement.

“Eight years ago, it used to take me 40 hours to do the annual accounts for a client. Now, I do them in eight hours for the same price. They get a better quality service for the same price, but I can spend more time working profitably for other clients,” he said.

Value Pricing “Lite”: Fixed-Fee Menus

There are alternatives to the purist approach. Nixon and UK-based pricing consultant Mark Wickersham are both a little more relaxed about value pricing than Baker.

Wickersham takes a pragmatic approach involving clients choosing services from fixed-fee menus. He also says it is OK to keep an eye on the margins you make on these jobs which, whisper it quietly, might involve timesheets.

Fixed prices quoted ahead of time give clients certainty when they buy, according to Wickersham. He favors having a variable menu of services that clients can choose from to match their particular requirements. This approach also gives the accountant a framework that can help them communicate the value of the service they provide.

“If the price is too high, rather than losing the sale, you work with the client to change the package until you reach a price the client is willing and able to pay,” he said.

Wickersham has distilled his ideas into an online solution, Not only does the site step you through the basic approach, it also applies its own rules to encourage practitioners to sign up for the app.

According to the Bankstream Accountants Confidence Index conducted with our UK site, two-thirds of participating firms used fixed-fee pricing strategies. This figure represented a significant increase on responses to a similar question last year.

Only 25 percent of practices in the summer 2016 survey continue to bill mainly by the hour, compared to 65 percent that offered some variant of fixed fees agreed in advance with clients. Only 10 percent adopted true value-based billing by charging what they thought the job is worth to the client.

The UK tax department’s rapid shift to online filing mechanisms is accelerating this trend. Introducing a requirement for submitting monthly “real time” payroll information encouraged more accountants to move into offering payroll services. The next digital wave will deliver quarterly income reporting for personal and employee insurance taxes within the next two to three years – and force many manual accounting and spreadsheets users in the United Kingdom to start using online bookkeeping tools.

These shifts are causing and will continue to cause a lot of extra work for accountants, but are also opening up opportunities for new business and new business models.

Tax lecturer and former AccountingWEB UK editor Rebecca Benneyworth has taken on a lot of payroll clients at her practice following the introduction of real-time information reporting. She bills them on a quarterly basis.

“It’s very interesting to see I’m part of the crowd,” Benneyworth said. “It’s something I’ll look at rolling out to the tax and accounts side as soon as we get to quarterly filing. There is an element of value billing to it: This quarter you’ve had this value out of me – here’s a bill for it.

“If firms move down that road, they’ll see the cash flow ease. It’ll make perfect sense.”

Anyone who has negotiated such a transition will know that it demands confidence, patience, and a firm, but soothing, manner with clients.

Show Them You Are Worth Your Fees

Some of the best advice on the subject comes from the “trusted advisor” guru himself, David Maister. In a 2007 blog, he suggested starting the fee-setting process with a free consultation – “just long enough to show them you are worth your fees and long enough to find out if you want to work with them.”

Then come up with a fixed-price estimate based on how long you think the project will take. “If they feel like the price is worth it to them, then you are essentially measuring the value added (maybe lower than value added),” he wrote. “Then if it takes longer or shorter, it was based on their value and not your hours. And in the future, as you get more efficient, you still bill the same for the project.

“Folks, I don’t think this debate is over yet. There’s more to be done and said before everyone can adopt the same approach.”

What is your stance on value pricing and fixed-fee billing? After taking part in the National Value Pricing Poll, let us know more about how you go about it (or not) by commenting below.


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Apr 24th 2017 06:52 EDT

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