Timesheets: Clients don't buy timeby
In advance of his AccountingWEB Live Expo debate on the subject, Reza Hooda rails against the recent timesheets resurgence and argues that clients don’t pay for the minutes you take to do the job.
If you do keep timesheets you’re probably doing so because you don’t have an answer to one of more of the following questions:
- How do I know what to charge if I don’t know what it costs to deliver my service?
- How will I know if I’m making a profit if we don’t track time?
- How will I know whether my employees are working efficiently if I don’t keep timesheets?
At AccountingWEB’s inaugural exhibition in December I will be battling timesheet advocates Alastair Barlow and Lucy Cohen in an interactive debate. Before the final showdown at the Expo, let’s tackle each question in turn.
How can we sell something we don’t know how much it costs to deliver?
Nobody cares how much it costs you to deliver your service. Whenever we buy anything, we do not base our purchase decision based on the cost structure of the supplier.
We do not walk into Starbucks and start working out the unit cost of the coffee beans, the milk, the direct labour, the overhead and then add an arbitrary mark-up to justify our reason to purchase.
We buy something because we can justify the value we’re getting exceeds the price we are paying. Your price, therefore, is the maximum someone is willing to pay to buy your product or service. It has nothing to do with your costs.
Remember your client is not paying you for the minutes it takes you to deliver your advice, they’re paying you for the years it took you to be able to give them the solution in minutes.
How will I know if I'm making a profit on a job or a client?
In a typical practice that uses timesheets, time costs will be allocated between the clients the firm has based on charge-out rates. This includes the profit you expect to earn (a completely arbitrary mark-up that has nothing to do with the value to the customer).
Firstly, you don’t need timesheets to know your firm’s costs: your firm’s costs are fixed.
Secondly, no matter how much you try and slice and dice your team’s costs across clients, what’s important is the return on investment you’re generating as a whole from the cost base.
Trying to work out profit per job or profit per client completely ignores a fundamental advantage we have as a profession – the lifetime customer value.
- What is the value of the referrals you could potentially earn over the lifetime of a loyal client?
- What is the value of additional revenue through client growth and expansion?
- Where is the profit calculation over that timeframe?
Looking at a snapshot at one point in time and ignoring potential lifetime value distorts your decision making.
So what if we spent more time talking to a client because they had a particular problem this month. The timesheet might have said they are unprofitable, but isn’t that what you want your team to be doing?
If we are really the trusted adviser we say we are then why are we putting our team off talking to clients for fear of running a ‘loss’ on a job? It all goes back to not understanding pricing.
We think that because price is a number that there must be a calculation we need to carry out to arrive at our price. Our analytical minds obsess over costs and mark ups to determine what a reasonable price should be.
But when you have a pricing model which is based on what is important to your client, what they value and the outcomes you deliver then that is what will drive your profitability upwards.
How do I know whether my team are working efficiently?
As pricing guru Ron Baker said, you can be efficient with things but you need to be effective with people.
That means understanding better what our people are good at, where their gifts lie and what frustrates them. Some people may take longer to do something because they may be more thorough or they are having a bad day or the client is not providing the information or there is a problem with the internet or software.
There are myriad reasons why something may take longer on any given day and timesheets don’t give you any of that context. What’s important is not how long it takes but whether we get it done on time.
What’s the point of knowing that a job took eight hours if it sat on the shelf for three weeks? What’s important is managing deadlines and that means managing capacity.
By all means use time to project ahead and plan when things are going to be done and by whom. That is capacity planning and project management.
If you hear the same job is appearing week after week then you have the opportunity to ask questions that will help identify whether it's a process issue, a client issue or a software issue. You can then decide what steps to take next, such as more training, improved processes or reviewing your pricing.
Timesheets focus employees on the wrong things
Inevitably, getting employees to complete timesheets will focus their minds on the inputs instead of the outputs.
So long as they have clocked their 37.5 hours a week they’ll feel like they’ve done ‘work’. But how much of that time was effective? How much of that time resulted in a positive outcome, solution or result for the client?
Instead, get your employees minds focused on what’s important to the client. Turnaround times, proactive calls, managing expectations, delivering great client experiences; these are all things that are important to your clients and make them stay with you.
That’s why you should focus your team on getting results, not clocking time. Most businesses in the world operate just fine and profitably without using, so why do accountants and lawyers think they can’t do without them?
Looking forward to the healthy debate on this topic at AccountingWEB Live Expo on 1-2 December in Coventry - see you there!
Reza Hooda will be speaking at AccountingWEB Live Expo on 1-2 December 2021 alongside such guests as Rebecca Benneyworth, Peter Rayney, Paul Aplin, Anita Monteith, Carl Reader, Steve Collings, Reza Hooda plus representatives from HMRC.
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Reza Hooda is a practice owner, coach and mentor to accounting firms worldwide. He can be found sharing weekly video insights on Linkedin and has an active YouTube channel with bite size practice growth tips and strategies. Over the last 13 years he has quadrupled turnover, raised net...