Posted by Rob Lewis, AccountingWEB features writer.
Ever heard of the VeraSage Institute? The institute is hosting an event in Las Vegas this October (which I almost certainly won’t get sent to), for which you might have received some of the promotion. VeraSage is a US-based not-for-profit (NFP) organisation that advocates value-pricing, or at least that’s how it appears to me. It describes itself as “a revolutionary think tank for professional knowledge firms”, and was founded by Ron Baker and Dan Morris. Dan I don’t know of, but Baker is a pretty busy conference speaker who was at the CIMA members in practice conference earlier this year.
The value-pricing argument isn’t a hard one to understand. Instead of billing by hourly charge out rates, you guesstimate how much your service is worth to the client, and add or subtract an amount proportionate to your imagined risk. This, the argument runs, will earn you more money. For a few accountants it probably would - why something that simple needs to be propagated by a dedicated global institute I cannot say.
Anyway, back to value-pricing. The billable hour is accused of being inefficient, of arousing suspicion amongst clients, and even of being intrinsically unethical – actually, maybe that’s why I have this strong sense of identification with it. Let’s face it, the billable hour can be all those things, but the proposed alternative, if you ask me, isn’t any better. Actually I think it might damage the profession, and that makes value-pricing and the VeraSage Institute a topic of some importance.
The people who are accusing the billable hour of being unethical are essentially advocating a pricing model whereby the supplier takes the risk. In reality, the unscrupulous supplier will simply charge as much as they can get away with. While that might be frank and open, it isn’t necessarily professional. Professionalism requires independence. The billable hour is a token – but an important token – of that independence. Yes, you might do better work if you’ve agreed a whopping great fee in advance, but conversely, get your sums wrong and you could be working on a loss maker from the start, and how de-motivating is that?
VeraSage believes we’re entering a knowledge-based economy. Why then does it advocate a billing strategy based on a service-based economy? If you’re really being paid for what’s in your head, billable hours are a logical way of charging for that. It suggests that you’re not simply “doing the accounts” or any other task-orientated goal, you’re applying expertise to a problem, and that expertise is what you’re trading off and how you let the market judge you. “Quoting someone happy” (or unhappy) devalues all this. In this context, the average car mechanic has a greater sense of professional self-respect than some accountants. Try getting a fixed-fee up front from your local garage.
“Customers don’t want hours,” say the cheerleaders for value-pricing. Ah, yes, the customer. The customer is everything. That’s a business mantra, and I’m not arguing against it – it’s perfectly alright by me. But it’s hardly a professional mantra. Not much independence in that philosophy, is there? Actually, it doesn’t sit too well with Baker’s client-base optimisation argument either: the customer is everything until you tell them to bog off completely, at which point they become nothing. No, a billable hour for all comers, that’s professionalism. Troublesome customers use up more hours and thus earn you sufficient recompense, so you don’t need to deny anyone your services, which is unprofessional in itself. There’s an inherent nobility in it, I’m telling you, which is the way it’s supposed to be.
The ramifications for the bigger picture aren’t too good either. What would happen if VeraSage succeeded completely in its aim, and all accountants did value-pricing? You could get a rush to the bottom or, as happened in the US, price fixing – the Supreme Court banned fixed fee schedules in 1975. Neither of those would be good for the standards of British accounting. The campaign to save the billable hour starts here.
Rob Lewis
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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.
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.
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.
The advocates
Huw Williams, who runs a Chartered Accountancy practice HM Williams in Devon has long been an advocate of trashing the timesheet. Coincidentally he has an excellent article on this subject in the current issue of Accountancy magazine.
I was very proud to be asked to write the forward for his recently published book 'Life without timesheets'. I explained my own view, which can safely be summarised as, 'balanced', in an article on my blog last December .
I also recall an extensive discussion on Accountingweb about this issue following Ron Baker's visit here last year.
In Huw's Accountancy article he claims to have asked audiences of accountants whether they complete their timesheets accurately and gets a consistent response. No.
Having spoken with numerous smaller practitioners in recent years I would note that an increasing number are quoting fixed or semi fixed fees and, if they complete timesheets this is very much as a management tool rather than for billing purposes. There is no doubt that clients don't like paying by the hour and more and more are seeking out and finding accountants who will quote upfront fees for the work they do.
Mark Lee
Blog for ambitious professionals
www.BookMarkLee.co.uk
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!
Not enough space in 200 words for all the points!
As one of the founders of VeraSage and having dropped time billing well over a decade ago it is amazing to me the vast lack of sensitivity in this article. In fact I wonder of Rob has ever run a practice and had to deal with customers and their true sentiment toward hourly billing.
So, here it is Rob; Customers HATE being charged by the hour. They hate it with a passion. They LOVE knowing what they will pay for what they will get, PERIOD! I know, they tell me so, usually in a comment like "Wow! I never could stand getting those bills for 6 minute bits. I love this!" I even have had clients who left me when I was on the hour for some cheaper hourly rate come back and make that very comment.
I eat hourly billers for lunch EVERY SINGLE DAY. I get their best clients the ones who are business savvy and know that what is being charged by the hour is never related to value received. They want their problem solved not just to pay you to spend "time" on it.
Anyone out there who wants to get and keep great customers, give up on the time tracking and start communication meaningfully with your customers about what great things you are going to do for them, let them name a price and if it is fair go for it. You will never look back! Have the guts to be a real entreprenuer and take the risk off the customer, you will get rewarded if you do.
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!
In Defense of the Billable Hour
Ron Baker has written 5 books, addressing the exact concerns that Rob Lewis has enumerated. Mr. Lewis’ objections to value / fixed pricing arrangements are sophomoric and easily dispelled, but not in 200 words. To address the ‘high points’ of his blog:
Value pricing is not a ‘guesstimate’, unless of course you harbor an inherent desire to go broke. It is a contract negotiated prior to the work being performed, which certainly is much more ethical than blind siding your client with hours after the work has been performed. Risk is not ‘imagined’. It is very real and necessarily estimated. Not all engagements requiring the same number of billable hours are equal. Would you have charged the same amount to Enron as you would to Microsoft if it took the same number of hours? There are multiple variables, beond hours and rates, effecting the 'value' of an engagement
“Professionalism requires independence”. You’ll likely hear from attorneys and consultants on this one. Not to mention, I was shocked to learn that providing customer service is ‘unprofessional’ and compromises independence, as you seem to be stating in your next to last paragraph.
Come to Las Vegas, Rob, but read Ron’s books first. We can learn much from dissent.
Dead Wrong!
I feel that Rob Lewis is looking at value pricing as a scam of some type. He seems to think that all value pricers are somehow underhanded and are out to fleece the public. BUT...how can that be if prices are known before the consumer makes the buying decision...and thus can choose not to buy as well as to buy? Seems to me the more likely fleecing happens through the hourly billing process when the consumer has no control over what price he is charged.
On another note, assuming that there is gold buried on a large tract of land, what choice would Mr. Lewis make...to pay the person holding the map an "agreed upon" price or simply pay the person(s) with the shovels by the hour to begin digging. Seems to me the gent with the map (intellectual capital) has more value....but how do you measure that since it takes no labor hour(s) to produce the desired information/product. I guess no gold for anyone! Or maybe Rob likes to watch people dig! EFFORT AND TIME DO NOT EQUAL VALUE.
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.
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?
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.
The converse of Ainsley's argument
This is an observation I make in my talks about Making more money from your tax work:
Client A comes in and asks for advice on a subject which you need to research. You do this, write a letter and then bill him by ref to the ten hours in total you have spent on the matter. Both you and he think that's fair for the time, advice and value you have provided.
Next day, Client B asks for advice on the same point. The research you did for client A is still fresh in your mind and it takes you just two hours to respond. What do you bill?
Do you go back to Client A and say you've overcharged him as the research time should be spread between the two clients? Of course not.
If the bill to client A was fair then why shouldn't you charge client B the same? Ah. Your time sheet only records the 2 hours you spent preparing the letter to client B. So you 'can't' bill him anything more than a fee directly referable to those 2 hours. Sorry, but that makes no sense to me.
A similar point is made below by reference to digging for gold with the aid of a map (the recent research). I haven't encountered that analogy before but it certainly makes sense.
Mark Lee
Blog for ambitious professionals
www.BookMarkLee.co.uk
What Value Pricing Really Means
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.
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.
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!
My apologies Ainsley
I seem to have misinterpreted your earlier comments. It seems we agree after all.
Mark
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)
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.
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
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 Alec and Ainsley
A few items:
1. Alec you have hit on yet another problem with the billable hour – it promotes poor communication, both up front in a relationship and during the course of the engagement. The former happens because the “so-called” professional is eager to begin billing; the latter because the customer is afraid to call because the meter will begin to run. I know, I know, I hear the response already, “My clients (not customer’s Ed, don’t you know anything) are not afraid to call me because they know I won’t charge them for a five minute call.” The problem is your client does not know if it is a five minute call or a five hour call before they make the inquiry. As a result they don’t call you and don’t communicate with you.
2. The 200-word limit does not allow me to properly address Ainsley’s response to me. Suffice it to say that it is my suggestion that he should read the second most important document of 1776 – Adam Smith’s Wealth of Nations – to try to get a basic grasp of economics.
3. Three cheers to Nigel, Nicholas, Dennis, and Allan. The pints are on me.
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.
aah but..define performance
Dennis, know it was directed @ Ainsley but it would help if you gave a little more info on what you mean by performance and who or what is norm?
Are we just talking fees over costs or are there less "numeric " indicators involved? For example I have performed above my earnings generating norm this week, granted it's probably not up to the dizzy heights of 118% of norm, but my back's been bad.
But then I wonder how does my norm compare to yours (that is assuming you have one), do you feel as knackered as me? How about your clients do they think youv'e achieved above norm this week?
Anyway let us know where the yardsticks & numbers come from and we can see whether we match up.
Good w/end to all however you bill
Dennis - fixed cost
Hello Dennis - we all know the fallibility of statistics - lies, damned lies etc. As Paul said what is the norm, what is being measured, and what other variables are there that could affect the outcome.
I do see staff as a fixed cost and timesheets are a way of measuring how well that fixed cost is covered. The output achieved from this fixed cost is in fact variable - efficiency, wasted time etc - and timesheets (and i know they can be abused) are a way of providing information to make decisions regarding this fixed cost so it can become more efficient. I do not mean to de-humanise staff by talking in these terms - I am just looking at basic principles.
In defence of the hour
Expanding on earlier comments, I agree that we do not sell hours; rather we sell what we can do in those hours however, whilst some work by its nature is easy to value as a package based on the market, client need etc etc, other open ended work is not and so, “as per” Ainsley, my value pricing then goes into the rates used and the client is given an estimate based on likely hours.
Also when assessing peoples’ performance, working methods etc it is an advantage to have a record of the time they spend and on what. Finally, without some idea of how we have used this vital resource I would find it difficult to forecast likely healthy capacity in the future and match it against clients’ requirements, practice management and personal development.
So whilst our time recording is less complex than it used to be and many clients don’t actually know we record their work in this way, I would find it difficult to run the business without it.
I am interested to hear of other methods (working rather than theoretical) to achieve the same results.
Last post (from Ed anyway)
First, thanks Dennis for the interesting numbers.
Second, Ainsley, I like you already. I completely understand that I am a loud-mouthed Yank, Hey, I was born in Brooklyn, NY, it is in my blood. Seriously, my ribbing is in good fun and in the spirit of G.B. Shaw and Churchill.
Third, (here I go again) you are entitled to your opinions, but not your facts. The fact is and the flaw in your logic is that you can't tell me what a cost should be. If something is supposed to take me 6 hours and I do it in 4, am I smart or did I cut corners? If it takes me 8, am I dumb or thorough? You will say that that answer depends on what the result looks like, and you would be right and that is the point. Economically, effort does not equal results, whether you are measuring price or costs. To say you don't bill by the hour, but still need to measure hours is inane. If you don't have time for Adam Smith, please read Ron Baker's Trashing the Timesheet.
Fourth, any further comments should be directed to http://www.verasage.com/index.php/community/comments/accountingweb_uk_launches_defense_of_the_billable_hour/ . The 200 word limit is making me crazier than I already am.
Thanks Ed
I will keep an open mind and have already started reading Huw Williams book on trashing timesheets. Ed, as GB Shaw said about the English and Americans - two peoples separated by a common language!
aaah but...
@Paul S: I'm not going into details over a public forum. Sorry.
The norm as I find it in practices is 30-34% overall. The best UK performer I've seen to date is 52%. All based on gross fees-total costs. Those figures are reflected in what I've seen in the US though others with more experience of that market might say different.
My cost profile is very different to most so my margin is much higher than the norm I see. My biggest costs are travel and telecomms as I work 'virtually' about 85% of the time.
Well done to you Rob Lewis
I have never seen so many comments posted to an Accounting Web article. Well done to you Rob Lewis for attracting so much reaction to your controversial article. A huge boost for the value pricing fraternity. See you in Vegas.
Well done Paul
Well done Paul for a brave attempt to claim kudos for the value pricers. Perhaps Vegas is a suitable place for form over substance.
Billable hour vs value pricing Part Two
I define accounting professionalism as the rigorous application of complex processes to an established, objective standard, and this may well be precisely what some clients do not want. So for that reason, my chief concern is that value pricing might accelerate the commoditisation of accountancy. If that occurs, British accountants might have to say goodbye to many of the niceties they are used to, such as self-regulation, principles rather than rules, and, possibly in the long run, higher margins. Admittedly, this is something of a big-picture view.
In the future I hope to write a full-length feature on value pricing elsewhere on this site, and when I do I will fully endeavour to address the subject from a position of neutral enquiry.
Regards to all, and standing correction at all times,
Rob.
PS – This 200 words limit is a pain isn’t it?
Billable hour vs value pricing Part One
I confess the interest this blog has generated has not passed me by.
I’d like to thank all who have posted and I extend my gratitude to Ron Baker for his generous invitation to the Vegas conference, although it looks unlikely I will be able to attend. Difference of opinion is a prerequisite for debate, and while I appreciate some members have found my arguments specious, we’ve certainly seen a healthy exchange of views. As a journalist, it’s rare for me to expose myself in this way, and on the whole I’ve been heartened by the response.
I happily acknowledge that value pricing may enrich practitioners through higher fees, provide greater client satisfaction, and do away with the old-age staple of the fiddled timesheet. I wrote as much in my blog. However, I do continue to harbour some doubts. From a management perspective (which was something I didn’t address), I believe timesheets are useful, and I re-iterate my belief that hourly billing is more conducive to professional conduct. Of course, definitions of professionalism differ. For some, client satisfaction may be the sole index. My contention with this is that clients are satisfied by different things.
Ron Baker Responds Again, Part I
I'd like to thank everyone for their comments. I'd also like to point out that there is not one new idea in defense of the billable hour or timesheets that hasn't been refuted, either in my books, or from the many Trailblazer firms shown on our Web site.
I'm always interested in how people can hold on to their beliefs when empirical reality directly contradicts them.
We at VeraSage don't think we know the truth. But we do know that our model is an improvement to the status quo. Maybe there's a better model, and ours will someday be falsified. This is how all societies, and professions, progress.
I live in constant fear my theories are wrong, and I'm always on the lookout for better theories. I just wish the defenders of the status quo had the same scientific mindset. Black Swans are tough to accept, but what is, is.
To Ainsley: I love British wit, but if you are truly saying that VeraSage is form over substance, let me suggest I have written more books on this topic than you have read. Take a look at Paul Kennedy’s substance over form at:
http://www.verasage.com/index.php/Trailblazers/comments/an_essay_on_timesheetspaul_kennedy_obyrne_and_kennedy_great_britain
Regards,
Ron Baker
Ron Baker Responds Again, Part 2
Rob,
Thank you for your gracious response. You are correct, you did generate a healthy debate. The problem is, we haven't advanced any new ideas since this debate started in the legal profession in 1992.
My theories are subject to falsification, the very definition of a true scientific theory (see Karl Popper). The billable hour and timesheets have already been falsified, albeit the new theory has not yet been accepted by a majority of the profession. That's a different issue (germ theory took well over 100 years to diffuse in the medical profession).
I agree with you about professionalism, but the billable hour is unprofessional. I’d suggest you look an all the unethical challenges it raises in the legal profession. Why don’t other businesses have these ethical pricing problems? Answer: they price up-front, not in arrears. What could be more professional that that?
Nothing can commoditize a profession more than believing all it sells is time, priced at an hourly rate. It’s very hard for me to differentiate my time from yours; it also means nothing to the customer. Moreover, the billable hour puts an artificial ceiling on our income potential, and it's self-imposed, not market based.
Regards,
Ron
One Time
Ed & others complain at the 200 word limit, whereas I think it's great. Perhaps they read/write the wrong books on communication skills? If you can not put your point across in the first 50 or so words best not to bother. Similarly, Ed mentions being loud mouthed, it is equally important to be loud eared & eyed as well.
The accountant’s solution to the 200 word limit is to write more than one message…Brilliant?
Trouble is we then face another limit, ie 24 hours in a day, solve that one. Time is a finite resource and our efficiency in its use and the need to sleep or do more interesting things a fact of life......wait for it...
Two Time
The argument for looking at something other than billing hours has moved me and many others to dump archaic practices however (and this came from a client & member of staff) time is still a vital component in the “doing”. Surely when pricing a piece of work you have to give some thought (even if it's 5 minutes) to how long it will take, don’t you?
Also from a punter’s mouth, “if you tell me that will cost £500 it makes little difference to me whether it’s a figure plucked out the air as your perception of the intrinsic value of that work or 6 hours @ £100” (that's why he uses an accountant)
We are only half the picture here and there are too many other variables (over and above spreadsheets dammit) to expect one method to fit everything.
Reply to Paul Scholes
Paul,
I'll try to be succinct. You're point that time is a finite resource: So what? It is for Bill Gates, Richard Branson, everyone. We're all going to die, not exactly a new thought.
The problem is when you confuse time with value, which is known as the labor theory of value, posited by Karl Marx (and others). It has been refuted entirely.
Should you consider time when pricing a project? Sure. But here's the question: WHEN should you consider it? What good is knowing the time (or cost) it's going to take to do something if the client can't afford your price?
What I'm saying is this: price drives costs; what people who bill by the hour are saying is: costs drive price. Both can be empirically tested. Economists have. The former is true, the latter is false.
Timesheets are replaced by KPIs and Project Management. My books, and Web site, explain this is awesome detail. All free.
You can read more about KPIs on this very Web site:
http://www.accountingweb.co.uk/cgi-bin/item.cgi?id=166742&d=1025&dateformat=%25o-%25B
And for project management, our expert Ed Kless has this:
http://www.verasage.com/index.php/community/the_triangle_of_truth/
I suggest you worry less about being pithy and worry more about being right.
Respectfully,
Ron
Especially for The Ron Baker
Didactic arrogance followed by “Respectfully”….give me Pithy every time.
Whilst your manner and tone might have raised a laugh here, I don’t actually have a problem with much of your content. They were not called KPIs when I learned about them 15ish years ago but “Hey” they quack for me.
My concern (not religion) is that by throwing away the billable hour we are at risk of throwing away the hour.
Yes, I do consider time when it comes to pricing a job, it usually only takes me a minute or two (for the cost of a coffee) and if the anticipated time encroaches on time already allocated to another client then this may lead to me charging a premium to make me switch it, or, as you say, if the client can’t afford it, to asking him/her to wait, or go elsewhere.
I think I have laboured (when in Rome) over all this long enough now, so will retire. Good luck in your quest.
Defence of the realm
@Rob: "my chief concern is that value pricing might accelerate the commoditisation of accountancy. If that occurs, British accountants might have to say goodbye to many of the niceties they are used to, such as self-regulation, principles rather than rules, and, possibly in the long run, higher margins."
That's a perfect reflection of the status quo so many fear being disrupted. Even if you set aside the time/value argument, there are plenty of other factors in play that are working to commoditize the profession. Anything that can be automated is bound to drive that process. A good reason in its own right to re-assess how value is created/generated.
Someone PLEASE explain!
I think Paul Scoles and our other commentators deserve a little more respect than has been shown by some of our contributors here. No-one seems to have made any attempt to explain how value pricing can be applied in practice, and those unfamiliar with it are naturally suspicious. I don't see anything wrong with that.
It would help the value pricing supporters' case no end if they could help the rest of us understand how it works in the real world. All we have had so far is theory. Like many, I'm totally convinced on the theory but totally clueless as to HOW to set value prices, and HOW to manage a practice without timesheets. Nothing I have read here has been any help to me whatsoever on these points, so thanks for nothing guys!
In the meantime I have bought Ron Bakers book on Pricing to see is that helps - I'll let you know.
Nigel
http://www.verasage.com/index.php/trailblazers/
Interesting Fear
I find myself coming into this debate late (about 1/2 year late). But it is interesting to read.
The fundemental message, and fear, behind this posting is change. Simple resistance to change.
If the future come about as the article describes, then the article and the posts are also prophetic.... Those who adapt their model to accomodate the changes will flourish and those that stubbornly cling to the older method will get squeezed until the margins no longer support their business. Pricing on Purpose may not be the model that is the most effective. But it has been proven to be more effective than billable hours.
Value pricing is a model we've adopted at our office with no attachment to time sheets at all. Our metrics are Customer Results oriented, (Satisfaction, Willingness to Refer Business, Results Achieved).
I cannot conceive of a way to accurately measure the performance of someone by looking at the time they put into any project. That has a basic assumption behind it - all projects are the same.
If that is truly the reality you find, the industry has truly become Commoditized. If not, then each project stands on its own merits, with its own Value, and its own challenges. Hence each should be Priced on Purpose.
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
Greetings Paul
First - I must say I am impressed you found time and sufficient interest to respond to my very late post. Thank you.
I can answer some of your questions; the others, however, only you can answer. To directly "borrow" a quote from one of our inspiriations, Ed Kless:
" The only answer to a “How to” question is another, deeper question, “What are you refusing to do in order to begin [doing .....]?” "
Only you can answer that deeper question.
I will however, address one "How to" question: your first one.
This firm has been selling the billable hour for 11 years and the fixed pricing for 1 year. Our reveune has gone up and our projects are more profitable. Most telling, we have won deals going up against competation that strictly does hourly billable rates that were "estimated" to be less than the prices we gave. In short, the "unknown" of the billable hour estimate worked as a negative to the customer.
We went around to our customers and met face to face with several before completing the change and the resounding response was relief. We were in fact informed that in many of our customers the staff was told NOT to utilize us because the boss/owner never knew how long the issue would take to be resolved. Therefore he didn't know if it was a $500 solution or a $5,000 solution. With that unbudgetable uncertainity, they struggled through and made mistakes. Now, with strictly fixed pricing, they view us as strategic partners and utilize our services and know, before they engage us, how much they need to budget.
In short, even if you based your prices on an hourly rate, if you cannot guraentee how long you spend and therefore offer a fixed price to complete the work, you are sending a subtle message that you don't know how to do the work or what it takes to accomplish the work.
I would like to correct your interpretation "bend to any shape to match the clients needs". We do not do that at all. We simply are very honest and upfront on how we do business and, during the sales/discovery process, evaulate our potential deals with our customer to see if they indeed fit with our business practices. We have turned down work when it became clear that the customer does not and would never value our knowledge , experience, and problem-solving ability. We believe that Bad customers drive away Good customers. We are determined to not let that happen around here.
A better Response
For a much greater response than I could hope to write, see the following article
http://www.verasage.com/index.php/community/comments/555/
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
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.
Timesheets and billable hours
We abolished timesheets and the billable hour 6 months ago and life here has never been better. The argument against billable hours extends well beyond what a customer does and doesn't want. It reflects on remuneration models, focusing on non-billable activities that grow a firm; appreciating team members on more than 6 minute units and productivity targets (and ask any team member about timesheets, and they'll switch to another firm if it means they don't have to keep them anymore-in the tight labour market here in Australia we win the new team member every time and no timesheets is a big part of that); and for the customer, there is no way they feel that time is equal to value. Hours times rate encourages us to take longer. How does that work in favour for the customer? It doesn't, it can't.
It's also important to point out the difference between value pricing and fixed pricing. 95% of most work within an accounting firm is similar year to year. A client pays $2000 this year, $2200 next year etc. It's not that hard to fix that price at $2400 next year and quote it upfront. Value pricing is for those situations where we create value, whether it takes 5 minutes or 5 days, the price should be relevant to what we create.
If we save someone $100,000 in tax and it takes 5 minutes, surely that is worth more than $50. In reverse, if a simple individual return takes 2 days, it's not worth $1500 - Ron Baker himself will tell you that. Value pricing works both ways, and we take the risk by agreeing to a preset price. When we ask existing or new clients if they want hourly rates or a fixed price, the answer is the latter nearly 100% of the time.
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
Religion - No. Theory - Yes
Hello Paul.
Your response equating this discussion to a religious debate is enlightening. Indeed, for some people, this is not a rational discussion about business management theories and implementations but a "faith" based arguement.
The principle of Value Pricing, or Pricing on Purpose, is that every project is the scope of work is laid out and the results are agreed upon by both parties before the work is done, and the price to accomplish the scope of work is agreed upon by both parties before the work is to be done.
The principle of pricing by the time spent is to agree upon a rate to be charged and a semi-accurate estimate of the amount of time that will be spent. No discussion of results. If it happens to take less time than the estimated time, due to the expertise and experience of the person(s) doing the work, your firm suffers loss of expected revenue. If it takes longer, your customer suffers by spending more than they expected.
This is not about replacing one "religion" with another. This is about defining how you will engage you and your firm in current and future business engagements.
Now, I do need to address a comment you made directly. You made several references that if, in your opinion, there are too many words, you cannot make it through the article. I don't know anyone that can help you if you refuse to open your mind to reading countless word on the subject, both pro and con. Refusing to read is another example of faith-based thinking.
And by the way - athiestism is a religion. It accepts it's own principles and does not allow any intrusive thoughts that counters it's own method of viewing the world and the place of God(s) in it.
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.
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?
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 vs .....
How indeed did we get here?
Religion means many things and not everyone will agree to the precise definition. A few comments down, one poster equated the sides of this debate as "cults" or religions.
In my mind, that post really strikes at the heart of the core positions.
Religion means many things, and encompass many things. But there are a few common threads, including - Faith based belief system that envokes emotional reactions when challenged or contradicted. These emotions can range from anger, to disdain, to fear, to enlightenment.
The debate of what system is the most ethical, the most fair is indeed unending. As human knowledge increases and as understanding expands, new systems, new theories will come around that we have yet to even dream.
The current debate between billing in arrears and pricing up front seems to be obvious to many. How do you buy a car? Do you drive it around for a couple of years and then get a bill? Why do Car Manufacturers have different models priced at different levels? Is the based upon the time the manufacturer has in creating a single car?
We offer our services. The first time we do anything takes us longer than the 10th time or the 100th time. So should the first person to engage us pay more (for more time spent) for us to learn and the 100th person pay far less for our learning? How is that ethical, charging more for our inexperience?
People who cling to the old method fall into two catagories: those who have not been shown a better way and those that have and yet, religiously, cling to their older procedures.
I believe that the Value Pricing model is a superior model to both my firm and especially to our customers. Every project is investigated thoroughly before begining on the project so the customer understands exactly what benefits, what Valus, they will receive to their firm by engaging on the project; every project is priced up front before work is done and the price is agreed upon by both my firm and the cudtomer's firm; every project comes with a 100% money back guarentee if we do not accomplish the results.
Why would any firm do anything different?
who is it that makes work for idle hands
the devil ... by the hour
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!
Compliment from a Yank
The chain of comments that has developed from this article is truly impressive. To give it further life, I'd posted on our blog and referenced to Accounting Web. (Of course my client service manager had to correct my spelling of 'defense' three times until I asked her to quit. She apparently doesn't speak Australian).
Abandoning time sheets was the absolute most beneficial management decision I've made in 30 years.
With this kind of dialogue, I'm convinced you Australians will establish a new progressive business model for service firms based on the tenets of 'pricing'.
Mark Bailey
ps - Sorry I referred to you as "prisoner's" on our blog !www.markbaileyco.com/blog
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!
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!
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
Never look back
Ainsley,
I am Ron Baker's former partner in crime.., uh I mean accounting ;-)
I have been living without time tracking for over a dozen years since he and I decided in our firm that time was only time and our customers were paying for results not time. We founded VeraSage Insttute with Dan Morris for the sole purpose of educating our brethren and supporting them in their breaking the chains of time tracking.
Please visit our Web site, please ask any of us, founders, fellows, trailblazers, and members for help. We all are ready to assist you in making the best change you will ever make in your practice.
Have faith in yourself and your customers, they are coming to you for your expertise not because your hours are the "best". They will pay for the results you obtain solving their problems and they will pay a fair price without regard to the time spent.
They want their troubles lifted. The better you are at doing that the more they will pay. They could care less how long it takes and they will LOVE the certainty a fixed price brings them. That certainty solves another of their problems, a problem professionals have created in using time as the metric to charge for service; "How much will it cost to fix my original problem?".
I know, I have lived it. You need faith more than reasons but reasons help, you will find reasons in Ron's books, you will find faith in the tesimony of accountants and other professionals like me. If a average Joe like me can be fabulously successful without tracking time why not you!
Good Luck and know help is just an e-mail away,
Justin Barnett CPA
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.
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.
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
Three cheers for Paul Scholes (and Rob Lewis)!
Congratulations Paul for taking the leap. The little secret I have to reveal as a Founder of VeraSage is that unlike Baker who, in our practice together, dumped timesheets altogether, I was cautious like you are being. I kept time sheets (in the background) for about a year. Eventually I discovered they were wasting my time and hampering me from focusing on customer service and more important, client perceptions of value. I know you will discover this too. Please know that we at VeraSage are right behind you in this transition. Please call upon any of us if you need advice or support in this transition We expect to win all the profession over, not in some landslide but like this, one practice unit at a time, and we will win, logic, reason, and customers are on our side!
And I have to thank Rob Lewis for writing an article that has fueled your conversion by listing all the illogical and unsound reasons for keeping with the perverse and unnatural practice of charging for something that the customer isn't really buying, time. I'm sure Rob had the opposite intention but I salute him none the less for he has stirred the debate and generated converts who will find themselves rejuvenated in their profession and customers who will flock to them as a result of their refocus on what the customer really wants to pay for; producing results, not spending time! Thanks Rob for proposing defending the indefensible, I'll bet you never had any idea what legs this thing would have.
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.
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.
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.
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).
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.
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.
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.