In defence of the billable hour!

Thank You, Paul
Paul,

That's probably the most intelligent comment on this entire thread!

I am glad you enjoyed Burying the Billable Hour. Hope you check out the two other ACCA books as well, it's sort of a series. The next two are interesting because they each contain a case study from O'Byrne & Kennedy on how they implemented these ideas (trashing timesheets and firing customers).

I've thoroughly enjoyed these exchanges and thank everyone who contributed.

Hey Ron
Perhaps a hobby might help?

Thanks again for” Burying the Billable Hour” it was a breath of fresh air, something that is becoming rarer by the hour.

Hi Paul
Defenders of hourly billing and timesheets don't need an institute, they have over 90,000 of them--the number of firms in the English speaking world that utilize this antiquated business model.

"Defending" our views was a poor choice of words. I should have said "advancing" our views, which is what a think tank does. We have put the billable hour and timesheet on the defensive, and that's progress.

The firms that use the model we advocate are quietly going about their business, with a high quality of life. They've proven it works. But the group in VS is dedicated to bettering the professions. You say there are more important topics. Sure, there always is--and no, not Gore's rants.

But are you denying that this profession is eating its young? That we have created 90,000 sweatshops that people are leaving in droves, not to mention not even considering accounting as a career? The way this profession treats people like human cattle is appalling. I think we can do better.

I think the status quo is a crisis. Our model is part of the solution. No it's not all of it, but it's a huge part. This is much bigger than pricing or profit. It's basic human dignity and value. To us, that's worth being fanatical about, no matter which side of the pond you're on.

Hi Ron
Defenders of hourly billing “can be” rather than “are” zealots. I’ve not really come across too many of them and if there was an institute for timesheet fanatics…well, need I say any more?

I think your reference to “fanaticism in defending our views” says a lot. If someone is so sure of their approach and it works for them, there is no need to feel attacked or to have to “defend”, fanatically or otherwise, you just go on doing it, becoming successful & content and eventually the rest of the world is bound to follow suit, by which time you, as a “trailblazer” (but not down the middle of the road), will have come up with something even better and so change happens.

I agree with you that some change needs people who are prepared to scream & shout and make themselves appear a bit silly & weird, to get the message out there but I say again, there really are far more important issues to scream and shout about, several of which, are directed at the US rather than the other way around (Al Gore excepted of course).

Defenders of hourly billing and timesheets are zealots, too
Paul and Ainsley,

I'd like to congratulate you both on making the leap to a timeless firm.

I can understand your being "turned off" by some of our so-called fanaticism in defending our views. The status quo can be just as zealous and fanatical. We know, we battle with them everyday.

As for "form over substance" charge, that's just a substitute for reading the 5 books I've written on this topic, all of which are incredibly logical, rational, and backed by solid economic evidence and theory. There's so much "substance" there people are too lazy to read it all.

I'd also like to say that this is not just about a pricing method; it's about treating knowledge workers with the dignity they deserve. No one entered this profession to bill the most hours, and we are eating our young treating them like slaves by making them account for every six minutes of their day.

That's why VeraSage is passionate about we do. Not to put more money in your pocket, but to better our profession for posterity by liberating it from the tyranny of time.

Big changes are often made by fanatics, not people who travel down the middle of the road. You British know that--after all, you're used to dealing with petulant radicals from America.

Paul - I agree
Yep - I am with you on this one Paul. Hence some of my sharp comments earlier in this thread eg ' form over substance'. I am very close to making the leap.

Justin & VeraSage
Thank you for your congratulations, Hugh’s book and honest responses to a few questions were enough to tip the scales in favour of no longer recording time, a practice that has been of little value to my firm for several years now.

Maybe it’s a cultural thing but, as summarised in my 11 February posting to Eric, my main interest over recent months has been in the zealous/fanatical way in which some of the VS members put across their views. I’m sure I am not alone in being turned off by this evangelical style and I still feel that valuable messages can be lost in the babble of fervent preaching.

Ultimately, for me, this is just a way to bill clients for work we do, and the world will not end if I fall by the wayside and jot down a few hours spent from time to time.

Hugh Williams - he's only gone and done it!
Following our exchange 11/12 Feb Hugh was kind enough to send me(and I was kind enough to pay for) his book and it/he has answered my questions (and in a fraction of the time it would have taken me to search through the VS blogs).

This really is a good read and, when put together with something like Ron Baker's Burying the Billable Hour, (from the ACCA's website) you get a good grounding not only in the theory but in the practice.

Being completely honest, timesheets still work in my practice and some clients have told me they prefer this method however billing for hours already spent takes us far more time and effort than providing upfront quotes and bills and so I will be dumping my timesheets over the next few months.

Many thanks again Hugh

help
Ainsley, we are also happy to help. We at O'Byrne and Kennedy ditched timesheets many years ago. Our firm's case study is to be found in the trail blazers section of VeraSage web site. Please feel free to call or email.

Thank you Hugh, Ron & Justin
I am overwhelmed by your kind offers of help and assistance! I will visit the website and the links. Hugh - I have your telephone no. and if it is OK with you I will give you a call over the next few days and we can exchange e mail addresses. I can then ask the few burning questions I have! Once again thanks.

Trashing the Timesheets Webinar
Ainsley,

In addition to Hugh Williams offer of help, I'd also like to proffer mine to anyone serious about learning more about trashing timesheets and/or Value Pricing.

In fact, I recently conducted a one hour Teleseminar for More Software in the UK, which you can listen to (in 4 parts, including Q&A) on VeraSage's Web site, at:

http://www.verasage.com/index.php/community/comments/trashing_the_timesheet_webinar_by_ron_baker/

There are also other Webinars on the site that deal with Value Pricing, such as this 4 part series:

http://www.verasage.com/index.php/community/comments/value_pricing_for_lawyers_part_3/

http://www.verasage.com/index.php/community/comments/value_pricing_for_lawyers1/

I hope that helps.

Cordially,
Ron Baker, Founder
Verasage Institute
www.verasage.com

Thanks so much for the plug, Ainsley!
I would be delighted to answer any questions that you might want to put - either here in public or privately by email - whichever you prefer.

While posting, you and your readers might like to know of the following statistic that I have learned since I wrote Life Without Timesheets: I have so far addressed about 250 people on this subject and on each occasion I have asked my audience if they fill in their timesheets honestly. So far only 6 people have said that they do and, of them, one correctly and honestly lowered her raised hand when she realised that she was charging her clients for loo breaks!

So we have to face up to reality. Timesheets are a pack of lies.

Our clients know this only too well. The only ones to be fooled by timesheets are the time recorders themselves.

There really is no argument - Time recording simply HAS to go!

Hugh Williams - Life without timesheets
Hugh - I have now read your book and it is persuasive and I would really like to make to step. I do inevitably have questions and wondered if you would be in a position to answer these? I do think timesheets are the 'old approach' and I see them as the problem therefore I am over that hurdle. I just need to make sure the solution to the problem is right.
Thanks in anticipation!

Dinna fret, Paul Scholes, help is at hand!
Paul asks two questions: 1) How do you sell the concept of value pricing to a client? and 2) What is the value to the client in changing?

If it's not unethical to do so, may I suggests he reads a copy of my book "Life Without Timesheets - The freedom to charge what you are worth", where he will find not only the answer to these (and other questions), he will also find a step by step guide to ditching timesheets and switching to value pricing.He (any reader) is free to copy exactly what we did ten years ago. Our little firm has since won three national awards, which would NEVER EVER have happened if we were still trudging along with the dreaded time-recording system.

If he, or anyone, is interested in acquiring a copy (£20 inc p & p), go to www.stedwardspress.co.uk and download an order form. Credit cards taken and sales on credit readily available. And if you want a recommendation, read the review on Amazon.

End of sales pitch!

Hugh Williams

who is it that makes work for idle hands
the devil ... by the hour

You can read it in your bath
Thanks, Paul.

My book is short (70 or so pages and, yes, one reader read it in his bath). The value (the £20 price tag) is justified by the value you are highly likely to get if you follow the templates at the back.

As for a review, it's had lots of good ones. The easiest to reach is the one on Amazon where it gets a five star rating.

It also comes with the guarantee that, if, having read it, you think it's a load of codswallp, send it back to the publishers and you'll get a full no-quibble refund.

This is the tempter signing off!

Hugh

Eric (& Hugh)
Many thanks for your responses.

Firstly, given how long ago they were, I think I should summarise my earlier contributions to this topic.

I have been value pricing for years applying it to individual clients or individual pieces of work. Treating the timesheet as “gospel” always made me uncomfortable and so the revelation that there was an alternative and that it followed normal business practices, ie “the price we charge for that is £X” was like a breath of fresh air and most clients jumped at it.

Having said however there are other valued clients and pieces of work where the billed hour/day still seems to fit, where I can use “value pricing” in the rate that I quote and where I can calculate the estimate and bill using this and the valuable hours I put into the piece of work. So, as with so much in my life, I have found that the best course is often to take the best bits from opposing practices.

My questions therefore were (and are) not so much about the principles or benefits of value pricing but rather is it right or safe to replace one certainty/religion/cult with another?

I am about as atheist as you can get and sense a strong religious fervour in the proponents of the “anything but timesheet”, and as with many evangelists, the original question or doubt is soon lost in babble.

Eric, in response to a straight forward question about switching a client over you referred me to a page on Verasage’s website with over 3,000 words most of which seem to debate the hidden depths of the “how to” question revealed in your previous response. Sorry if my question was answered somewhere later on the page but I never made it that far.

If you read my question, I did not ask “How to” but rather “How would you” there is a world of difference. I know how I do and am interested how you do. Unless we ask that sort of question, in this sort of forum, how else will we learn and share our knowledge and experience? (That’s a rhetorical question by the way). Oh yes, the page mentions Tiger Woods not ever asking “how to”, did anyone check that with him first?

Hugh, on the other hand, professes to have the answer to my questions but tells me that it will cost me £20. Even though I can’t find a summary or review of his book, nor how many words I’ll have to read before getting to the Holy Grail, I am far more tempted………get behind me Hugh.

Time for me again to leave the debate, the real world calls.

Atheism is not a religion
At the risk of going off on a tangent, I would disagree with Eric's comment about atheism. It is not a religion, rather it is the absence thereof. Atheism existed before religions were invented.

Jesus Christ did not advocate charging by the hour
I sense this debate about religion has taken our eyes off the real issue, so may I bring us back to the subject by introducing a genuine link between the Bible and the way we bill? Matthew Chapter 20 gives Christians a clear guide on how they should think.

But this Divine guidance apart, if you think about it for only a few seconds you will see that value pricing is how the rest of the world behaves. Value pricing is the grown-up way of doing business and it's high time all professionals grew up and followed suit.

I have used this analogy before but it's a good one. Billing on the basis of time spent is like riding a bicycle with the stabilisers attached. When you are that stage you say to yourself "Help, I could never balance this machine if these supports were removed". Little do you realise that it's the stabilisers that are holding you back from going so much faster, doing all sorts of new and exciting things and, equally significantly, having a great deal more fun.

OK, it might take courage to ditch the whole time recording system but as soon as the whole ghastly thing is in the bin you will never look back. We certainly never have.

One last point. When we interview new staff we always make a point of telling them that we don't keep timesheets - you should see the way their eyes light up! When that happens (when people really want to come to work for you and not for your competitors) you know you are getting it right.

Let's make 2008 the year we all ditch timesheets.

Hugh Williams

PS Well done Rob, you've started a great and important debate. Thanks for that, even if you still seem to be on the wrong side!

Theocratic Pricing
So, let's see if I have this right -

The Devil works in billable hours - see 1 Timothy 6:10 & Ecclesiastes 10:19

God works on a Value Price basis and receives a fixed price in souls whether his investment is measured in minutes or a lifetime - see Acts 8:20. The client agrees to receive salvation.

There is an aspect of eternity to this which expands the cost/benefit equation beyond my event horizon so lets not overlook Proverbs 15:6 too quickly either [yea, verily Proverbs is a treasure trove of accounting related wisdom].

Did big G converted to Value Pricing? The Old Testament looks to me more like regular invoicing for sins done compared to the New Testament's promise of everlasting added value. Therein lies the way? The letters of the apostles precede this post.

Apropos closed minds, surely God had to come first in order for non-theists to reject him or her. After all, it was only a few weeks ago it was announced the chicken came before the egg in order to be able to lay it.

And you don't need a bible, our temporal Big G [Google] will sort you out. And as for the Editor, surely he should take note of John 19:30... "It is finished".

Religion
Yep must also agree. Religion is the belief in a superbeing(s) and the worship thereof. But having said that the term has developed to describe devotion generally eg 'football is my religion'. Therefore in this looser (modern?) definition religion is seen as a set of beliefs - thereofore although atheism has at its heart non belief in something that in itself is still a belief.

Am i making sense?

How did we get here from billable hours?

Hi Eric
Well said, you’ve renewed my interest in this.

I have been accused (OK I’m guilty) of instigating change when none was needed and so, in my practice, the fear and resistance to change will tend to come from clients. How would you sell your concept to a client who has always been happy with billable hours/days?

Following on from that, unless the change results in less or the same fee as they have been happy to pay, and we have been happy to receive, over the past 10 years, where is the value to the client in changing?

Not sure I understand “metrics” but can you expand upon the “Customer Results” policy to value pricing. Is this just another way of saying that you use “value to that client” to gauge the best price for the work, ie £X for client X and £Y for client Y for the same piece of work?

This simple policy works for me/us but as part of the fee valuation process. When thinking of “Customer Results orientated” and your specific gauges of Satisfaction, Willingness to Refer and Results Achieved, I get the message that you are wholly client satisfaction focussed, ie bend to any shape to match the client’s needs. For me, the client’s needs are perhaps 60% of the equation, the other 40% being my and my firm’s needs.

Hope that all makes sense

The law of unintended consequences
Accountants are of course only one type of "service provider" and are not the only ones drawn into debating their pricing models. The ramifications of changing pricing model are deeper than might first meet the eye.

Here is what has happened to advertising agencies over the last 25 years.

In the beginning they earned 15% commission on the cost of placing the advertising, regardless of how much time it took to research, plan the media, create the ads and manage the advertising process. The more an ad was run, the more the agency made - sort of success fee and value pricing. Agencies who did well could attract the best people and pay them accordingly.Clients didn't like it as they felt it didn't measure value so pressed for a change to...

Time based fees. The ad agencies don't really like time based fees as clients second guess how long things should take to do and who should be doing them and the payment is the same whether an ad is mediocre or brilliant. The market is oversupplied so agencies are also bidding down their margins much to the delight of clients. Needless to say, profits have declined over time. Some say the industry is now not able to compete for the best graduates. Clients are also changing agencies more frequently. So there is now a debate for a change to...

A mix of time based and success fees. The problem that this is surfacing is how can the success of an advert be measured. More to the point, if sales don't respond as hoped, is it because of the ad agency or the product or client, or the economy, or the competition.

My take on the value versus time based debate for accountants is that no basis is perfect and you tinker with the status quo at your peril.

Long live the timesheet!
The proponents of value billing think the timesheet is your enemy. It is quite true that the client couldn't care less if you took 4 hours or 40 hours doing their accounts - they are interested in the product 'the accounts' and they expect a certain price. By all means bill on this basis.

However it is folly to abandon the timesheet. it is a vital source of management information. Where firms go wrong is that they treat it as a billing decision, where in fact it is product costing. Without it, how would we know how what our product had cost? How would we know who the time-consuming clients are? How do we know who the more productive staff are? How do we measure fair use?

How do we set this 'value price' anyway? Those of us who have been employed in practice know that the senior partner always underquotes for work, having little idea how long the job will take.

If one of your clients, a widget manufacturer came to you and said "we are abandoning our costing records and will just charge what we think the market will bear - we will not actually know how much our product costs" as accountants we would consider them reckless. Why are professional firms' costing records any different?

The timesheet is your friend.

Value pricing
"The unscrupulous supplier will charge as much as they can get away with" - er yes, actually that is the fundamental point about value pricing. The value of a service is unrelated to the number of hours taken to perform it. Under value pricing, the value is negotiated and agreed between the client and supplier before the service is performed. If the client does not agree with the value placed on the service by the "unscrupulous" supplier, he is free not to proceed with the engagement and to find another supplier.

"The billable hour is a token of independence" - er no, actually it isn't. It is a very rough and ready costing tool. Value pricing is every bit as compatible with professional independence as the billable hour. Billable hours are not "a logical way of charging what is in your head"; a price freely negotiated in advance of the work is far preferable and leaves both parties knowing exactly where they stand.

And I am sure that the average car mechanic takes a degree of professional pride in his work which is similar to that of the average accountant.

Response to Ed
1. The billing policy of airlines is not necessarily based on a value billing/pricing strategy. Yes they will charge what the market can stand - but does the customer beleive he is getting value? i recently flew to Edinburgh and paid £90 return - others will have paid more or less for the same service - but my decision to buy was not based on percieved value it was based on practicality and who flew the route. A business has a plethora of choice when looking for an accountant - particularly for compliance work - and thus is not restricted in his choice. And yes it probably is dubious to charge markedly different fees for the same service.

2. Hourly billing in most cases will involve a 'price up front'. It is rare for a client not to ask for a quote/estimate - it would be daft to say 'well actually we will have to wait and see what the WIP says'. You give an estimate and use the WIP reports with this estimate to gauge the eventual fee. Timesheets will also indicate where additional billable or wasted time was spent.

3. Of course knowledge can be billed by the hour - it may be a little crude but it does not make it defunct. Many knowledge based employees have a per hour value in the work they do. Using the hour billing gives you a frame of reference - otherwise you are stabbing in the dark - and sure your aim may get better over time but you are still involved in guesswork.

4. Yes knowledge has value but why can't this be measured in time? i am putting a 'value' to my knowledge by having a hourly charge out rate. This rate can of course vary depending on the type of work being carried out

in summary i use timesheets as a guide and not rigidly and in conjunction with this i do assess the value obtained by the client - but i will not have a policy of billing 'what i can get away with'

And i did this without yelling Ed

Clients are human...are we?
Mark gives an excellent example with A & B clients and one I have faced many times. In that example he is absolutely right. Like many of us however Ainsley, voices his discomfort at being free to bill £200 or £500 for the same tax return.

Client A is quite capable of doing her own return but there’s always something more interesting to do and so gets me to do it at her limit of £200. Client B hasn’t a clue and is over the moon paying me £500. On the face of it there is no problem until they meet one night and get chatting.

My experience is that whilst these examples make perfect sense they disguise the fact that there are 100 possible type As & type Bs.

Going back to Mark’s example I have had a client A who, having asked the question upfront, was unwilling to pay for my 8 hours of research and another who would rather pay me £150 for my one hour’s knowledge than pay 3 hours at £50 for someone less experienced, for the same result.

Therefore, unless we only attract robot client there is no perfect answer so first you value the client then match the method.

Billing by the Hour
I have no axe to grind with either fixed fee or hourly billing. In this practice we use both.

With regard to to hourly billing I understand that some USA accountantants have 50 minute hours. Anyone like to comment?

Ron Baker Responds
Let me start by inviting you to Las Vegas, Rob.

There's much to contest in your article, but I've written 5 books on Professional Knowledge Firms, and three books for the ACCA, available for free at: http://www.verasage.com/index.php/resources/C55.

Ever heard of a black swan? Most people thought all swans were white, until black ones were discovered in Australia. We don't know what we don't know.

There are black swans in your own country, in New Zealand, Australia, Canada, and the United States. These swans are the firms that 100% Value Price, don't have timesheets, are quite ethical, offer excellent service, are profitable, and profoundly professional.

You can deny the black swans all you want. But if you were intellectually curious, you'd seek to learn how they do what they do. For a list of Trailblazer firms that have not timesheets and Value Price visit: http://www.verasage.com/index.php/trailblazers.

But I understand we are guided far more by our beliefs than our knowledge. There is nothing wrong with having the wrong beliefs. There is an enormous problem in letting those beliefs stay wrong.

As John Maynard Keynes, said: “When somebody persuades me that I am wrong, I change my mind. What do you do?”

Amazed
What drug was Rob on when he wrote this? There's no logic in any of the arguments or empirical evidence to support his ideas.

I cannot believe that in a knowledge economy Rob seriously thinks there is an adequate defense for the billable hour. Where is the reward for skill, service, value added if the only tool at my disposal is one based on Marx's theory of labour value?

But above that, Rob's a writer, not a practitioner who has experienced the tyranny of the timesheet.

Time -v- Value
I disagree.

Clients want to know what their annual spend will be. They do not want to be put off asking questions for fear of the clock ticking. They do not care whether it has taken you 3 hours or 3 days to prepare their annual accounts; they place no value on your time they place value on the benefit to them as a client. I have run a business before and my accountant billed everything - if he had given me a fixed fee option I would have jumped at the chance, simply for cash management and clarity.

Furthmore, there is always the temptation for some to take the foot off the gas when billing on a time basis.

The billable hour is INdefensible
I should declare my interest at the outset; I am the author of Life without Timesheets (pub. St Edwards Press Ltd) that Mark Lee has already kindly referred to.

Ron Baker (the great Ron) recently published a list of the books he had recently acquired. He gave a maximum five stars to Prof Woods 2005 book "How The Catholic Church Built Western Civilization". Intriugued by this gold-plated recommendation I bought a copy and discovered, to my joy, that it contains virtually a whole chapter (Ch 8) devoted to the evils of the billable hour.

If I mention just one extract "Those who..price by the labour, costs.. (expended) are GREATLY IN ERROR" (my emphasis added), you will understand that those who still bill on the basis of the lies they write in their timesheets, are under notice to not just seriously research this matter but to go further and abolish the whole business of time-recording forthwith.

In case anyone reading this wants to switch to value pricing and is wondering how to get rid of time- recording in their practice, I like to think that my book shows exactly how we did it - and have never once looked back.

Anyone is free to copy what we did, blow for blow.

Switching is far easier than you might think. I mean, if we did it, anyone can!

Objective reality
This is for Rob Lewis, jon griffey (lower case letter his, he clearly is in a rush to get back to his timesheet and holding down the Shift key is clearly inefficient), and John Toppin.

If you suck at what you do, bill by the hour!

Get on with the work
There seems too much hot air here on both sides. Surely value pricing applies to both fixed fee quoting and hourly rates. Or, in other words, the unscrupulous supplier of hours will charge as much as s/he can get away with per hour and the very unscrupulous supplier can overstate the hours as well, whether by design or by working through a hangover.

Re the garage analogy; my garage charges £X for a standard service & £X per hour if I present them with a mess or a “funny knocking noise”. So too in my BUSINESS I have been mixing and matching billing methods to suit the relationship for years now and it works. I use fixed fees or hourly rates to suit us, the work and the client (in that order).

I have never understood why, for billing purposes, we should hold ourselves up as being any different to any other business.

Mark - converse?
I am not convinced that the client A & B example is the converse of my argument. My £200/£500 related to basic compliance work - no research, just input data into software and print out the Return - but bill differently due to client percieved value.

In fact the client A & B scenario is where the timesheets take a back seat for billing and the 'fair value' approach is taken - as i outlined.

The use of timesheets does not preclude value billing.

In the client A & B example the value was actually set by the timesheets for client A when billing client B!

A few questions/comments for Mark and Ainsley
1. Do you think it is wrong for any business to charge different prices for "essentially the same service?" If so, what about airline pricing?
2. There is a difference bewteen "value billing" and "value pricing." Billing is in arrears, pricing comes beforehand. Most restaurants provide a bill after the meal. However, prices are still set ahead of time. You probably think I am debating semanitics, and I am, but it is an important point. The biggest problem with hourly billing is it does not set the price upfront.
3. The whole example is a great illustration of the problem - we are not providing a service, we provide knowledge. Knowledge cannot be billed by the hour. What you are saying is that the smarter you are the less you get paid. How dumb is that? You will no doubt say that as my knowledge increases my rate will increase, but in the example Mark gave the difference was five times in terms of time! Have any of you quintupled your rates recently?
4. Once and for all - NEEDED KNOWLEDGE HAS VALUE NOT TIME! <-- yes, I am yelling.

Logic?
Those that defend the billable hour often do so out of ignorance of pricing methodologies. Let's be clear - pricing is poorly understood and value pricing is not easy the first few times around.

It has a strong scientific basis but it's important to understand the principles. Rather than go over it all, best to pick up on Ron's books. A couple are available FOC via ACCA.

Rob's argument has invoked 'hot air' because it doesn't hold any semblance of logic, neither does it have any basis in fact. It is pure supposition and not the sort of thing that professionals ought deal in.

Billable Hours with lashings of value
We use timesheets and these are used as a guide in billing and as an internal management tool. When billing I do try to gauge the perceived benefit/value the client believes he/she has obtained. In standard compliance work an estimate will generally have been provided in the early stages of the client relationship and the fee would need to reflect this and the value element would take a back seat. In non compliance work it there is clearly more scope for value billing and I therefore place less emphasis on the timesheets when billing for this work and more on the percieved value from the client's point of view.

For compliance work I suppose the key is how that fee estimate is arrived at in the first place - this is often intuitive and not based on hourly rates etc (or pehaps my intuition has developed based on hourly rates!)

I do not believe that in modern practices there is a great deal of difference in billing methods. There may be practices out there that bill rigidly according to timesheets but my guess is that those that use timesheets also have a significant value billing element to their charges.

I would feel unhappy charging one client £200 for a tax return and another client £500 for substantially the same work just because I had assessed their percieved values for the work at different levels.

Mechanics of value pricing
Corporate finance often use % of deal as a basis of determining value, some cost saving accountants use % of savings made - or lawyers might charge a % of settlement agreed, many use timesheets etc etc.... these are valid mechanics used to try and establish a value.

Question. Apart from looking at a client in the eye to guess how much they might be willing to pay, how does value billing work?

Mark - almost agree!
I think we almost agree - i am not advocating binning timesheets but using them in tandem with value billing - it is not that i do not feel brave enough to bin them - i actally feel they help even in value billing (and as a management tool despite how they are abused)

Its simple...
...the issue is risk.

For billable hours, the client takes the risk; on fixed price, I assume the risk. What's your choice?

Touch feely does it for me
Allan, if all this was simple we’d not be in this stalemate of opinion. The client only takes the risk on billable hours if you tell him/her up front what the cost is likely to be based on quoted rates & likely hours.

On the subject of pricing knowledge you can do this either at job level or hourly level but the latter can be messed up by other factors.

I increase my expertise & experience and so the job or advice takes me half the time next year, so do I double my rate? Then there are the non-knowledge factors, I mentioned my hangover earlier but how about when we become more efficient through our own efforts and do the job in half the time, who should get the benefit of that?

I am still of the view (similar to Ainsley) that you can use timesheets as a guide & management tool (especially on monitoring non-client time) but it’s the individual relationship and client goodwill value that makes the final difference to the method and amount and, as long as we and the client are happy with the service & price, the rest is just numbers. Perhaps that’s why accountants spend so much time in this debate?

Risk
In value based pricing, risk works both ways. It's shared.

well well
"The unscrupulous supplier will charge as much as they can get away with"

it seems that this is intended as an attack on "value pricing" are you saying that unscrupulous people do not exist amongst time sheet preparers - Ahem!

Emperor's new clothes?
As a practitioner, what has always amused me about the hourly billing debate is that, in reality, very few firms actually use it. From my earliest days at Thornton Baker through a variety of small firms there has been a consistent practice by partners and those issuing bills: they look at the WIP printout, then bill what they think the job is worth, which is probably what they billed last year plus inflation.

I have worked for/with several partners who appear to be carrying 6-12 months of unbilled time on their WIP ledger, simply because they keep hourly time records, but actually bill by value (and never write off the "losses")!

So let's get real guys - in most firms no-one ever DID bill by the hour, so let's just drop the notion and embrace what Ron Baker is saying.

Quality of clients
A lot of people here comment that if you are poor at what you do then charge by the hour.

The fact I see is that it is how good or bad the client is at recording, responding, comunicating etc that defines how long it takes and thus how big the fee gets. Not the skills of the adviser.

It therefore seems correct that if it takes twice as long to complete a task because information provided is incorrect or incomplete that said client should pay more that an identical business with an efficient owner.

The problem is that most clients when you first see them say they have a great accounting system.

Response to Ed
It is a shame Ed feels the need to be so defensive as in 'get a grasp of economics'. We all have an opinion on this issue and Ed's reasoning (when he is not being insulting) is valid and I can see the merits. But my opinion is as valid as his.

I reiterate - I use timesheets but i aso flex these for value i feel has been given to the client and for the value the client may perceive. I do not however 'bill what I can get away with'.

I often give an estimate or a quote before an assignment and i do say that routine enquiries are included in this for the reasons Ed has outlined.

Timesheets are valuable (in my opinion) to gauge staff compentence and efficiency and for understanding why a job has taken less or more time than expected.

aah but..performance matters
Ainsley - I'm sure Ed is perfectly capable of defending his own position but there is an angle on this you might not know. Firms I've seen that use value pricing tend to perform at least 6% above the norm. The best performers I've seen are 18% above.

These same firms make extensive use of technology as a way of driving down costs that can be 'mechanised.' So yes - they understand cost, but they understand value far better.

The fact is that staff are a standing cost, therefore the hourly rate argument doesn't make sense. The reason most firms have a difficult time with this is because they act as though it is a variable cost and don't see it as a sunk cost. You still have to pay staff whether they're 100% occupied or 0%

In regard to over/under recovery, that's not a function of time, it's a function of the work undertaken.