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We're all in the wrong profession.........

We're all in the wrong profession.........

It's simply not true what they say about solicitors. A client is embroiled in various legal matters, and has engaged a (huge) London legal firm to act. This firm invoices monthly and includes a full and detailed breakdown of time costs per invoice. Having not kept timesheets for many years, I find it fascinating reading, particularly the numerous items along the lines of - Partner A: Receiving email from client; reading email; forwarding email to Manager B; notifying client of same: 1.1 hours at £575/hour. Manager B: Receiving email from Partner A; reading email; forwarding email to Associates C and D; notifying Partner A of same: 0.6 hours at £320/hour. Associate C: Receiving email from Manager B........you can probably guess the rest.

I'm not suggesting there's anything dodgy here - the firm is upfront about where their astronomical costs come from so if the client is happy to pay, fair enough. I admire their chutzpah, in fact. Having been a long-time disciple of Ron Baker and the whole value-pricing ethos, I guess the interesting question for me is - for very large professional firms, who genuinely price on time, what's the attraction of potentially complicated value-based billing exercises when they can use technology to self-generate time costs like this? All you need is 1) truly extraordinary hourly rates and 2) a system to ensure every email and letter goes direct to the partner so it can be filtered down, expensively, to the correct level and it's champagne all round! When profits are averaging £750k per partner, time sheets suddenly seem a great idea.

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By Anonymous
19th Aug 2009 13:07

have you ever
seen the detailed time records produced by the big 4 Accountants when reporting on large insolvency cases that they handle?

The detail is almost as much as in the example you have given and, no doubt, for the same reason: to obviate any fee disputes

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19th Aug 2009 21:15

Why is that then
The profession is irrelvent - law firms are charging out the same 'product' as accountants which is the time use of the minds of the partners and fee earners.

How firms choose to bill is a matter of internal policy and stategy, you could adopt entirely the same approach as the law firm you detail above.

Anyway, profits per partner in excess of £750k are restricted to the big boys who have the capability to charge up to £1000 per hour in addition to all sorts of success fees, with the juniors and trainees additionally being charged out with huge margins. Take a large complex case with cross sector Partners working constantly on it with help then the fees rack up to huge amounts in no time.

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By Anonymous
20th Aug 2009 14:40

No change in that.
The problem for accountants is that too many of them have low charge out rates. Solicitors must be qualified whereas accountants do not have to be qualified. Accountants often gain clients by undercutting. Clients see accountants as being cheap. Solicitors fix their charge out rates and operate a cartel just like most other professions. Regretfully accountants do not operate this way. If the term "accountant" was legally defined to exclude the non qualified and accountants set minimum prices we would see better charge out rates. Non qualified people working for solicitors are happy to put "trainee solicitor" on their business cards so the accountancy profession(?) should follow their lead.

Accountants in general have always been poorly paid in comparision with other occupations and they will continue to do so. Someone once told me that I would never be a good a accountant. I asked why. He replied "you are not humble enough, you want the good things in life, your suits are too sharp and you want to make money for yourself not for someone else. So why become an accountant, be a lawyer or an estate agent instead where the rewards are higher" That was said to me over thirty years ago. It is still valid today.

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By Anonymous
20th Aug 2009 16:44

Agree with this...
I whole heartedly agree with this, although we already have protected names that only we as accountants actually understand and so do not capitalise on and have also had the gist of the "put down" said to me several times

Albert Camus

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21st Aug 2009 16:25

Value Based Pricing/Billing
I agree with Jason, but this doesn’t either identify or solve the problem.

Another contributor uses words like ‘undercutting’, ’cheap’ and ‘cartel’, and regrets that Accountants don’t work in the same way. Get real!

The problem is that those who charge in this way are not allowing their clients to dictate what their fees should be.

Charging for your time is intrinsically adversarial. At its simplest, the client wants a quick fix and the professional wants a slow one! Win-win, where the professional acts in the client’s best interest because that also happens to be in his/her own best interest, is the best course. It is perfectly possible for the client to say “That’s a bargain!” and simultaneously the professional is thinking “That’s highly profitable!”

The solution is Value-Based Pricing, or rather the skilful application of value-based pricing to the overall ‘sales conversation’. The client may not understand, let alone be able to articulate the full value of having their problem fixed when you first discuss it, but it is one skill of the value-based pricing practitioner to help them do so. Only when the client can understand and articulate value, can the professional understand value - As that particular client perceives it!

A fixed fee for solving the particular problem can then be proposed, giving the client a huge return on their investment (fee) and giving a hugely profitable reward to the professional. If both cannot be achieved at the same time, both parties have the option of walking away.

In this way, no timesheet is ever needed for presentation to the client. Within the agreed scope of the project, it takes as long as it takes. If the professional feels this is too open ended from their point of view, then the first project should be to scope the more detailed project. And the client must be helped to articulate the full value of this one too, before a fee is quoted for it!

Another upside of this way of operating is that no timesheet is needed internally either!

What does it matter which member of staff spends how long on a particular client’s particular project? What matters is that the project progresses to completion in the most efficient and effective way. In this case, each member of staff is merely earning their salary, and can be dealt with appropriately if they aren’t.

In this way, it is the desire of both parties to produce a quick fix that is the best fix possible. What does it matter to the client if it takes an hour, a day or a week of the professional’s time if their vastly valuable return is delivered within the elapsed time agreed. In fact the client is best pleased if it does only take an hour rather than a week, as they have almost five days extra benefit from the solution!

Who cares what this computes to as an hourly or daily rate, as long as it is highly profitable for the professional!

David

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23rd Aug 2009 08:13

Value Pricing also needs sound delivery of the service
David has a really good point - just think about your own personal purchases - we all like to think we have a bargain .... it's no different with people in business. But overall success is not only about this element - you still have to deliver the service efficiently and effectively.

The level of resources you need to apply to delivering is all about the way you do things in your business and this is totally under your own control. Getting this right, reducing the risk of it not happening effectively and making sure you price on value will together determine whether you make a big profit or not.

If you are only doing the job exactly the same way as everyone else, and people are using the old cost plus model, this drives a commodity market and the current position. Innovate, manage risk and value pricing will make all of the difference. The other interesting thing is that as soon as you start to innovate, you also start to identify what additional added value you can deliver to the customer, rather than just what they think they need and what the rest of the market is focusing on. If you put this into the mix you offer to the customer, then you really can price on value whilst also increasing revenue and delighting the customer - or at least those who want this level of added value.

So, if players in the market can put these three things together, they will start to move away from their competition. David described value pricing above, whilst effectiveness, innovation and efficiency are delivered thorough well designed business process and managing risk is done by a mixture of making sure you are doing what you have said you need to in these processes and understanding the 'behavioural risk' of not continuing to do so. This is not just for the big boys, but just a sound way of running your practice.

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24th Aug 2009 09:13

Truth is ...
most of us are doing work at about the same standard as legal conveyancing and that doesn't pay big bucks either. The fees on my first house purchase in 1989 were £350 and three years ago I paid ... £400. My average job takes 1 day start to finish and I'm not going spend a whole lot of time worrying about how I cost and price it! How much do I want and how much do I think a client is willing to pay .. job done. I think m ost of us are probably the same.

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24th Aug 2009 09:30

What Is The Client Willing To Pay?
How do you establish what you think the Client is willing to pay? Do you ask them? Would they know, even if you did?

My points are that a/. You ought to ask; b/. They probably won't really know initially; c/. Their guess is no better than your guess; d/. You can help them know; e/. Their considered view beats your guess any day!

And f/. This process needn't take very long.

And g/. The alternative is to operate in a commodity market and thus subject to price-wars!

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24th Aug 2009 10:44

Its still a day ....
Most of my clients are professionals in a similar boat to me i.e they charge someone for their own expertise. Most will be charging in the range of £300 - £750 per day. Their expectation for my work will be geared by that. Lower paid traders will perceive that I will be better paid than them but the upper limit on fees will be determined by affordability ... these people will chop and change to get a lower fee. Larger clients with a full time financial professional probably offer more scope for profit making depending on where they have been before they come to you. As a sole practitioner though, you see less of these sadly!

At my level (which I have absolutely chosen) I don't think this is really an issue.

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