Art of Accounting: Time-Based Pricing
IMGCAP(1)]Back in 1980, I got a pretty large client and quoted a fixed annual fee to start, which would cover the routine regular work.
After about three months I was asked to suggest some methods of compensating highly paid managers and to present them at a meeting in two weeks. I put together a memo with a few suggestions. When I showed up for the meeting, there were four other “groups” who were given the same assignment. One was the client’s law firm, one was the personal accountant for the client’s lady friend (who later became his wife), another was an insurance agent, and one was an employee benefit plan specialist.
I felt blindsided. While I became extremely nervous, the only one I was really concerned about was the other accountant. I did not look at the others as a threat since it would reasonably be expected they were experts in this field, but I did not want the other accountant to outshine me. As it turned out the client accepted all five of my recommendations, along with one from the insurance agent.
On some level this was extra work—even the submitting of the recommendations should have been billed since I was part of a “contest.” But it all happened so quickly I really did not have time to consider how or how much I would be paid. The client asked me to flush out my suggestions with all the details listed and then had me meet with a graphic designer who was going to dress it up. In the meantime, I was told my proposals would be presented at a meeting at a California resort with the management group (about 50 people) on a Sunday morning in three weeks and that I would be expected to arrive sometime Friday and get to know some of the people then and on Saturday.
After I made my presentation, I received a standing ovation. A few weeks later I met with the client and said I would like to discuss my fee. He asked what it was and I said it was quite high, giving him the amount. He agreed that it was high but said he did not want to spend any time discussing it and I should give the bill to the controller. I received the check three days later.
Considering everything I did—the time requirements, my needing to drop everything to attend to this project, the trip and the drawing on every morsel of experience I had—I do not know how I could have set fixed fees in advance for each facet of the project. In retrospect, if I would have quoted a fee for the initial proposal, knowing the client, he probably would have told me to skip it since he already had other people working on it. Once I started there were defined projects at each step of the way, but they were all parts of the overall goal of presenting it to the management group in California. While there I played golf with the controller and two other people. (P.S.: My score stunk, but I got a birdie on one of the par three holes. That I will never forget).
Also, I spent the entire Saturday night after dinner in my room rehearsing my presentation, was a nervous wreck, felt intimidated with the group, and hardly slept that night. What fee would I have set in advance for that?
After that, my fee became a strict time basis fee with the initial monthly billing continuing, but with six-month time bills being submitted and collected within days. I traveled all over the world for this client, got involved on his behalf with some very interesting projects, grew professionally, met some very influential and well known people, and the fees made him my largest client by double for many years, until he sold the business to a NYSE-listed company, for which I handled the negotiations.
To this day I don’t know how I would have been able to set fees in advance for each of the many things I did. At the end of the day, the client felt the value was there and I was fairly compensated.
Edward Mendlowitz, CPA, is partner at WithumSmith+Brown, PC, CPAs. He is on the Accounting Today Top 100 Influential People List. He is the author of 24 books, including “How to Review Tax Returns,” co-written with Andrew D. Mendlowitz, published by www.CPATrendlines.com and “Managing Your Tax Season, Third Edition,” published by the AICPA. Ed also writes a twice-a-week blog addressing issues that clients have at www.partners-network.com. Art of Accounting is a continuing series where Ed shares autobiographical experiences with tips that he hopes can be adopted by his colleagues. Ed welcomes practice management questions and can be reached at (732) 964-9329 or email@example.com.