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'Burn your timesheets' says practice guru Baker

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26th Feb 2005
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US practice development guru Ron Baker flew into the East Midlands last week to tell accountants to "burn their timesheets".

Baker is the champion of "value pricing" and came to the Hilton East Midlands to explain his philosophy to a Mercia Group conference.

The point of Baker's inflammatory time sheet command is that clients should be the judges of the value that professionals provide.

"Value pricing is the maximum amount a given customer is willing to pay for a particular service before the time of delivery. Firms should charge the customer only for the value received from our services. If we don't provide something of value then we have no business being in business," Baker said.

When Baker set out to tackle profitability in accountancy practices, he set three objectives:

  • To raise hourly billing by at least $10
  • To grade customers A, B and C and ditch all of the Cs
  • Offer customers fixed fees on all services

    But he soon learned that clients would not get better - by improving their grades from C to B, and so on - until he did. He did more research on why people buy and how much they will pay.

    "Price is an issue that all businesses grapple with every day and it is one of the most complex components of marketing," said Baker. While accountants have become relatively sophisticated about promotion and other aspects of marketing, they have largely ignored price.

    "We have let price be determined by the number of hours that we spend working on various projects," said Baker

    "You need to challenge this 40-year-old practice of hourly billing. By applying the rigorous economic theory of price and value to your practice, you can begin to understand the risk-reward trade-off you have made using hourly billing. In exchange for a minimum floor you have placed an artificial ceiling above you head."

    According to Baker, adopting value pricing means firms can leave behind the 16-hour days for which they charge eight hours and generally get paid for four.

    "We spend our nights praying for the ability to charge monopoly prices and we spend our days engaged in the very activity that drives those prices downward - that is increasing the market supply of our services. It is time that we start to receive what our customers already believe we are worth."

    Mercia Group director John Welsford was an ethusiastic supporter of Baker's message. "When I joined Mercia 19 years ago, I was delighted at not having to record or charge for time. On leaving the profession I suggested to a number of firms that they should move away from the chargeable method of fixing fees. The suggestion was generally treated with scorn so I decided to keep quiet at that point. Now of course, fixed fees and value pricing are very much the modern approach," said Welsford.

    Mercia urged accountants in practice to agree prices with clients before work is undertaken as part of a change process. This approach would force practitioners to give greater thought to the value of theirwork - which demands skill on their part.

    "The greater the skill, the greater the reward," said Walsford. "The client values your work and is prepared to pay, as there are no hidden or unexpected costs."

    This article was first published on AccountingWEB in 2002

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    Replies (11)

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    avatar
    By dclark
    09th Mar 2002 08:32

    View from Softworld
    Thank you to all those who visited us at Softworld.

    It was clear from the comments made to us at the show, that professional organisations all have different billing cycles (once a month, weekly, periodically)and different contract values (fixed fee, hourly rate, daily rate). However, the common comments that did come across loud and clear were

    1 timesheets are still needed
    2 easy entry of time and notes is key
    3 utilisation stats are wanted
    4 easy over\under charge write off proceedure (to match fixed or agreed fee billing) is a bind in most legacy systems
    5 can a timesheets solution map to any number of accounting systems

    Not suprisingly we offer a solution !, but I thought it would be useful for readers to have some of our feedback......but not all !!

    Regards

    Daniel Clark
    Ryba Macaulay Ltd
    [email protected]

    Thanks (0)
    Nigel Harris
    By Nigel Harris
    28th Feb 2002 13:14

    A real-life example
    We routinely request copies of paid cheques as part of our audit work. This year one bank charged twice as much for providing 12 cheques as they did last year. When queried, we were told that it took a bank employee much longer to find them this year so they charged us twice as much!

    Did we think this was good value? Were the cheques worth twice as much to us because they cost twice as much? - or because they took longer to find? Were we happy that the bank had unilaterally run up a larger bill without clearing it with us first?

    We don't enjoy being on the receiving end of this type of billing - maybe we should consider how OUR clients feel ...

    Thanks (0)
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    By Accounting WEB
    28th Feb 2002 14:40

    Builders need job costing, why don't we?
    Having read Ron Baker's books, I totally agree with value pricing but this doesn't mean we can get rid of the timesheet.

    Like most firms we act for a large number of building clients and generally speaking those that operate a sound job costing system are more profitable than those that don't.

    The reasons are simple. If you cost every job out you learn from the successes and from the failures. To coin a phrase from Results Accountants who promote Ron Baker widely, "What you can measure, you can manage"

    Thanks (0)
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    By ahdossani
    27th Feb 2002 16:52

    Make practicing accountants utilise resources efficiently.
    I agree with Baker. Customers should be aware of how much each service will cost. The customer should not pay for inefficiencies, or for work carried out by senior staff with a higher chargeout rate, which could easily be done within the same number of hours by a somewhat junior staff, with a lower chargeout rate.

    There should be no hidden or unexpected costs for the customer. The pricing should be done after obtaining all information about the scope of the assignment and the data / information available to ensure profitability.

    This will make us accountants in practice utilise our resources efficiently and effectively. Generally, in Pakistan, as our customers are very cost conscious, we agree the fee in advance. Barring circumstances, where we are able to demonstrate that the time spent was significantly higher than anticipated, and was also due to problems of which we could not have reasonably been aware of at the time of the initial negotiations; we may be able to renegotiate the fee.

    However, to keep the customer job costing information, for statistical purposes and if necessary to justify renegotiation, we should maintain timesheets. We should be able to assess not only if we made an overall profit, but also if we made profit on the individual jobs. This will help us reanalyse our costing and quote proper pricing in the future.

    [email protected]
    http://mmdk.com.pk

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    By AnonymousUser
    27th Feb 2002 23:11

    I have always believed in Fixed Price Pricing

    I think it is time that the profession in UK whether it be Accountancy, legal, medicine etc should adopt fixed price per job pricing. The customer should know in advance how much is he expected to pay for a piece of job.

    You go to a Solicitor he may quote £2,000 but when you look at the total cost it is something in the region of £10,000. Surely, the customer should not be taken for a ride by unscrupulous professionals/cowboys. Plumbers would be proud of such practices!

    If you can't quote the price of a particular job then you are not fit to be in practice! End of story!

    Regards,

    Thanks (0)
    avatar
    By dclark
    26th Feb 2002 18:11

    Don't forget productivity and profitability
    Ron Baker's ideas are perfectly valid and whilst I did not attend his piece and can only go by this report, I can fully understand his points.

    However I would contend that the article is talking about one part of the process - what value you bill.

    The other part of the process is understanding internally if 'what value you bill' is profitable or not and how productive your staff are. That is entirely different from saying this job has a value to the client of 1,000 and understanding these concepts

    A good time recording system should record chargeable (time spent on clients), non chargable (your time in the office not spent on clients) and unavailable time (time not spent in the office). I'm using the word office to represent 'being at work' where ever it is. You must record all three components to create the useful stats for each timesheet user on their activity, ultilisation, revenue, etc, etc. After all, WIP is purely the chargeable time not yet used to create a bill. Whether that bill is the total of that chargeable time or a fixed fee (however it is arrived at) is a different issue, but by tagging this time and comparing it to what you bill produces the key stats on chargeable profitability, the key factor in understanding which job types or clients require attention.

    We offer accounting and timesheet solutions to SME's and will be at Softworld, Stand 538. If you want to see some solutions, come and see us !!

    Regards

    Daniel Clark
    Ryba Macaulay Ltd
    [email protected]

    Thanks (0)
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    By AnonymousUser
    27th Feb 2002 13:04

    Not getting the message
    We abandoned timesheets 2 years ago and have no regrets at all.

    I am not convinced that timesheets are even a useful cost-control tool, as some of the other posts suggest. Your salary and overhead costs are fixed in the short to medium term. Allocating them to jobs based on hours spent is of no relevance.

    If, like us, your practice is very quiet in March, and staff are scratching around for things to do, what is the cost of generating an extra £1 in fee income?

    [email protected]

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    By JDBENJAMIN
    27th Feb 2002 13:46

    Beware gurus
    Like most of what gurus say, this is old stuff rehashed. He is just saying charge what the market will stand, not what it cost you plus a little extra. The problem with that is that it ignores competition. If you charge significantly more than cost, you will just get undercut. That is one reason for using timesheets, i.e. to ensure competitive pricing. I would have thought this point to be obvious.

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    By ChaseBuckley
    27th Feb 2002 14:24

    All well & good
    The sentiments are laudable.

    However, if there is ever a dispute and the matter goes to Court or arbitration they immediately look for time sheets and charging rates.

    Sad but true.

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    Richard Murphy
    By Richard Murphy
    26th Feb 2002 11:41

    Right - in part
    Ron Baker is right, in part.

    Which means he's also wrong.

    Value pricing is good news, liberating, and a key component in modern practice management.

    But so too is good cost control. You need to know whether the "value" you sold was generated at a cost less than the sale price to determine whethe you want to repeat the exercise. Which means time sheets have a critical role in the world of fixed value added pricing - because they provide the feed back loop to check that you got your judgement right.

    Without that feedback loop value added pricing can easily become sure fire loss making. Which is not what Ron Baker is setting out to achieve (unless his plan for monopoly pricing includes a subtle plan for eliminating the competition!)

    Thanks (0)
    Nigel Harris
    By Nigel Harris
    26th Feb 2002 13:47

    Hourly billing is the problem, not timesheets
    I think the article's title detracts from Baker's message, which is that selling services based on hourly fees is not the best way.

    Timesheets are certainly one costing tool, but I know if I've made a profit when I compare my fee income and my expenditure, I don't need a time printout to tell me this. In fact, when I look at the WIP printout it seems to imply that my staff are more profitable running up non-chargeable time, because that doesn't get reflected in an under-recovery on a bill!!

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