How do you charge?

I used to spend time preparing timesheets. The results were usually depressing because either I hadn't completed sufficient work or I didnt dare charge the client and the differences was written off.

Like the accountant in the article most jobs are done in a day or thereabouts. A £ a minute is £400 on a good day. My overheads are fairly constant so without much trouble I can gauge how I am doing. If someone is getting a large tax refund or can afford more I add a bit and if the client is struggling I charge the client less. Generally I charge 5% more than the previous year and always charge for extra work.

As the fees are not a great deal more every year I have no complaints about fees and have never lost a client by overcharging.

I think a lot of time is wasted in preparing timesheets. If you have looked at 20 different jobs in a day its too much trouble to allocate time to each one.

A good summary.

 I’m not sure of the legal firm analogy.  Many clients of legal firms come for one piece of work, once or on a handful of occasions over several years.  Their client relationship is not the same as ours and so it is presumably more difficult for them to use value based billing? (as with many of our colleagues though I suspect it could also be down to “that’s the way it’s always been done”)

 I’m firmly in the value based camp. I dropped timesheets in April 2008 and my world is still turning.

 The element that nagged at me over many years of doing & reviewing timesheets was that they are 100% based on our side of the relationship, ie there was nothing in the hours or £s per hour that reflected the client’s needs or expectations or their long term value to the firm, which is why, in the majority of cases, they end up as a guide with sums being added or subtracted to end up with a “valued” fee.  So why go through the hassle of writing down all the time and guessing at charge out rates, just think of the figure you think is fair and reasonable for the piece of work or annual service.

 Mark Lee’s A&B client scenario works fine for me and can be taken further, i.e. I may charge Client A £500 for a piece of work (because she could probably do it herself) whereas Client B would be delighted with £750 for the same piece of work because he hasn’t a clue and thinks I’m a genius.  I’ve spoken to accountants who see this approach as underhand, and say I’m just billing what I can get away with.  No it’s not, I could probably get away with £1,500 with client B for one year, but I value him and so charge what I feel is fair.

 All in all though, whether value based or time & £s per time (+/- thumb in air), there is nothing to say that my fee will be hugely different to that charged by a timesheet based firm however having tried both methods there is no way I’d go back to using timesheets to bill a client.

 As mentioned above and as debated in a thread a few weeks back http://www.accountingweb.co.uk/anyanswers/what-fees-should-you-quote-prospective-clients there is a hybrid camp that fixes or values fees but still maintain timesheets for internal monitoring purposes.  I went through several years of this, saying that I felt it more important to know what we were doing when not involved on client work, but again, the timesheet is a blunt tool and, in reality, most people just dump non-chargeable time to whatever box feels right.  There are far better ways to manage staff and yourself, the problem is, and I think this differentiates the two main camps, getting touchy feely and not having a spreadsheet to run your life can be really scary.

...so I apologise for inadvertently re-igniting this old favourite! I'm sure that for the vast majority of accounting firms there is no debate, in the sense that very few bill on the basis of a WIP printout nowadays. Whether by accident or design, most of us offer de facto fixed fees. What we actually end up arguing about is the efficacy of timesheets for internal management purposes.

In my opinion (and I admit I am a committed fan of Ron Baker and the whole value-pricing ethos) the biggest hurdle to overcome is a widespread misunderstanding of what is meant by value pricing. Demonstrably saving a client £100,000 tax with 10 minutes' thinking and charging him £15,000 is the ultimate manifestation of value-based pricing and its superiority over a time-based method but is pretty rare for most of us and directly equates value to tax £s saved. That's where many accountants lose interest - where's the £ value of accounts done or a tax return filed? But the "value" part of "value pricing" in the everyday accounting practice doesn't mean £s in most cases - it refers to those things the client perceives as valuable in an accounting service and for which, if he receives them, he will be prepared to pay. It is up to us to question the client to uncover these value drivers and to make sure we put them in place, make it obvious to the client and charge accordingly. Bog standard examples could be guarantees, agreed upfront prices, etc.

The concept of moulding one's service provision such that the client's value boxes are ticked is hardly controversial. It's the phrase "charge accordingly" that causes difficulty, and is where, in my view, the disparate paths of time-based billing (measure time) and value pricing (uncover value drivers, introduce them) come together again at Fudge Juction. Both methods need to result in a £ figure. For one we multiply hours by what is, in truth, an arbitrary rate. For the other, we somehow convert a concept like "perceived value" to a £ figure on an invoice. I'm comfortable that in my practice, we make an effort to get the value drivers in place so I'm happy to be relatively expensive, but I make no claims to scientific method when it comes to adjusting the values in our menu pricing software. Value pricing is about service provision, not magical calculations.

Mind you, I still envy those lawyers.....

So do the value pricers tell their clients how they "calculated" their fee?" Well you got a higher tax rebate so I thought I would charge you more! "You made a bigger profit so I charged you more". "You made a loss, so I charged you nothing!"

If a client saw this thread do you think they would say that they agreed with your methods?  Value pricing is based on what the person billing the job perceives the value to be, not what the client would. If value billing works and is the best way why dont accountants say; "How much would you like to pay me, how do you value what we have done for you". I would say in 9 out of 10 cases if you asked the client they would say words to the effect of "No I would not value it as highly as you would". So what happens if your client turns around and says;" no, sorry I am not paying that I will give you what I think the job was worth"?

I am sure most accountants still feel undervalued when compared with other professionals and service providers, I know of mechanics, plumbers, carpenters, personal trainers and even window cleaners that earn more than most accounting subbies, and charge more per hour why is that? 

The government are largely to blame for some of our value based issues. Since the government introduced self-assessment the message to the nation has been "you can do it yourself" "self-assessment doesn't have to be taxing". As we all know the corporate and income tax systems are considerably more complicated than in 1996.  Many small business owners still believe that we are glorified tax collectors and they only use accountants because they have to, they are not interested in the skills we have that can help them prosper, how do you convince this type of client about the value of what you do?

The discussion with the client should take place before any work is undertaken, not after.  So if the client's assessment of the value of work to be done does not meet your expectations, he can go elsewhere.  Ideally the discussion should take place each year, so that the most recent experience can be part of the client's (and the accountant's) assessment.  In practice, if the same work is being undertaken this year as last year, then a modest % increase would normally be agreed, as with non-value billing.

As practiced by donfisher, I provide the quote for the work or period's service upfront.  Geoff, what is being proposed here is that we act like 90+% of the business world and say to our customer "that will cost you £X".  If I take my watch to be repaired and they tell me £50, I am unlikely to ask how do you arrive at that unless I've had 2-3 other quotes and found this one way out. 

In the unlikely event that clients ask me where the fee came from I am honest and tell them that in a range of likely fees their's falls midway or at the top or bottom, because etc etc.  Unlike the times when I had to say "that took me 15 hours....Gulp!" I have no guilt about explaining the value I now put on a piece of work and (again like most other businesses) if it doesn't meet the client's value judgement they will ask me if I can "do better" or even, and it's happened, told me it's not enough for the work they anticipate they will want from me.

And if we can't agree (even after I've done better) then we part company before any work is done.

I have some experience of this from the legal world and note times (no pun intended) are changing there too.  Also there is a danger if we assume that one way is best all of the time. Even in the legal world there has always been some elements of work where price is fixed for a particular task e.g. conveyencing fees have always tended to be fixed fees.

Also consider the terminology used, for example we use the term 'value' based billing when in fact we are generally talking about production of specific outputs 'outputs' based billing. It is generally much easier to agree on what the ouputs should be than it is to try and agree/justify time spent.

I am generaly a fan of output based billing/contracts as these are less prone to fraud/error however the trick is in making sure the anticipated outputs are clearly specified at the outset so that there is no dispute that what has been paid for has been delivered. If the client specification changes at any point then the contract/price can be re-negotiated around specifics.

Another anology occurrs - if you are customer in a shop do you expect to pay more for an item if the sales assistant spends more time with you? The answer obviously is no. From the shop's perspective the better sales assistant will recognise that it may be worth spending more time with a customer even on inexpensive items as that might encourage the customer to return for repeat purchases (which might include purchasing a more expensive item in the future). The overall customer experience is important to generating/maintaining future sales. This is perhaps where the idea of 'value added' comes in. Some of that value added can lead to a justifiable higher price but some is just 'investment' for the future on the part of the supplier. The key is that the customer needs to know what they are getting for their money up front so that they can make an informed choice.

Regards

Neil Tyson

www.gntfraudsolutions.co.uk

www.linkedin.com/in/ntyson

 As regards non recurring work it can be very difficult to judge the time required, but the work can be very valuable.  Taking something like financial due diligence - are other people prepared to work on a fixed fee basis and if so what happens if the transaction aborts before the work is completed?  I personally favour a time basis but will consider other options.

David Lewis

www.camroseconsulting.co.uk

I think Neil has hit several nails on the head. With regard to “one way is best all of the time”, I have made the point on previous postings that maintenance of time sheets was brought in during the middle of the last century and so, when I started training, the older senior partners refused to keep them as they regarded them as too restrictive, i.e. they preferred to stick with billing what they considered a fair price for the work.

The focus for service provision in the voluntary/public sectors for a number of years now has been on “Outcomes” rather than “Outputs” and this is gradually filtering into the commercial world.  In reality we may end up describing the same thing but “Outcome” indicates a consideration of both sides of the relationship and thus, for me, better describes the process of ascertaining what is required, what I am capable of and what will be the result for both me & the client, now and longer term (eg more business & referrals).

As Neil sets out the trick (or art) is to reduce the risk of misunderstanding and gaps between expectations and outcomes on both sides. This can be extremely daunting, especially when you have always relied on A hours x £B = £C, but with a systematic approach, research over new or non recurring work and confidence that you are worth the money, it is a far healthier way to do business.  Yes, there is still the risk that you’ll get it wrong, but odds are that you will get it wrong + & - and that after a year or two the +s start to overtake the –s.

David, if you feel there is a risk that work may be stopped prematurely then you can breakdown the quote into stages or even set out terms to cope with this sort of eventuality.  The worst case obviously is where you feel the client has caused the stoppage whereas the client may regard your actions as having caused it. In such cases, regardless of value or time based fees, this will be resolved by negotiation.