As more CPA firms transition from a traditional hourly billing model to pricing on purpose or a value-pricing equation, they are also repositioning themselves from providing services to clients to providing knowledge to clients.
The firm of the future will change the means of production, said Ed Kless of Sage Software, who moderated a panel titled, Moving From a Professional Service Firm to a Professional Knowledge Firm, at the AICPA Information Technology Conference, here. Currently, in services firms, the means of production is owned by the firm. In a knowledge firm, it's owned by the employee. It takes the focus away from revenue and moves it toward profitability.
Greg Davis, a partner at Kennedy & Coe in Salina, Kan., said his firm is now 25 percent modeled on a value-pricing structure. To adopt that practice, the 230-person firm terminated roughly 30 percent of its clients, but that accounted for only 10 percent of the revenue.
We took a look at [the clients] and found the revenue for those under the VCA [value pricing] went up 25 percent, and the ones under the hourly billing fell 1 percent," he said. "But its not just taking a client from hourly to fixed pricing, its focusing the conversation on what the client wants.
Tim Shortsleeve, a partner at the 15-person Bonn Shortsleeve in Rochester, N.Y., told session attendees that 100 percent of his practice is pricing on purpose, and it has also moved to a results-only work environment, meaning that the employees can work wherever and whenever they want as long as they complete their required projects. To ensure that happens, his firm developed a proprietary solution that captures both employee and firm goals and individual targets, and evaluates them three to four times per year.
Jason Lawhorn of Lawhorn & Associates said his firm now value-prices about 10 percent of his engagements. We found that once we value-priced an engagement, we more than doubled the engagement, he said. It gave us an opportunity to sell more services.
