In defence of the billable hour!

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.

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.

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.

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).

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.

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.

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.

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

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.

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.

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

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 - 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!

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

the devil ... by the hour

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

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.

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.

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!

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".

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?

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

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.

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.

"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.

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

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.

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?

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?”

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.

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.

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!

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!

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.

Now that I am in full disclosure, I would like to point out that my comment was not meant to be insulting; rather it is just the truth. If you are terrible at what you do, you want and should continue to bill by the hour. If one the other hand, if you value your professionalism, believe that what you do has value to your customers, and are good at it, why would you want to bill by the hour?

In the interest of driving the debate forward I offer the following list of the ten characteristics of firms that value price:

1. They do not use timesheets for pricing, productivity assessment, or cost accounting.
2. They have fixed price agreements for a fixed scope of work in place with all customers.
3. All prices are agreed to in advance.
4. They use change requests as the basis for work which is outside the scope of the original agreement.
5. They align their KPI's to the success of the customer.
6. Their compensation system rewards innovation not effort.
7. They develop leaders in their organization, not just super-billers.
8. They offer a 100% money back guarantee on all work.
9. They have made pricing a core competency at their firm.
10. They insure that the value they create in customers is more than the price the customer pays for the service.

I challenge the "billable hours’ people" to refute any of these and to list their fundamental beliefs.

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!