By now, it's likely you've read a blog, article or Twitter feed dedicated to the "New Firm" values and those innovative CPAs who are changing the profession by defining a new way to do business. This cadre of progressive accounting professionals is working to motivate other practitioners to redefine their firms (and lives) by ditching the traditional business model. They are also pushing a new value-pricing model approach in their mission to help others develop the "New Firm."
Many professionals still feel the pain of the billable hour -- putting in countless hours to meet firm requirements and client demands. I'm here to tell you that there is a better way. We have the technology available today to create highly efficient and, more important, effective firm operations. Technology allows us to communicate in real time internally and with our clients.
The time has come to stop billing by the hour and sell our firms based on the knowledge and experience we provide. It's not about how many hours it takes to complete a tax return; it's about delivering expertise to the client -- explaining new laws, showing the client how to mitigate their tax burden, and coaching clients year-round on making informed, sound business decisions. How do you put a number of hours on this level of service? You don't. And that's why it's called "value pricing."
At the core of the new firm is the value-pricing model. However, before delving into the intricacies of this model, it's critical to understand the criteria that define that model:
1. A fixed price is set before the engagement begins.
2. Fixed prices are the same for similar customers with the same expectation of risk and scope.
3. A value price is based on a particular customer's perception of value, not on the accountant's or the market's perception.
4. A bill is sent after the work is completed, based on the fee originally agreed upon. It's important to understand that this differentiates value pricing from simply offering an estimated price up front.
5. Time-keeping is not the process to manage other firm knowledge workers.
LOSE THE TIME-CLOCK MENTALITY
For firms still in the time-keeping mindset, consider this question: How do you bill for two minutes? The fact is, work doesn't always fall into neat hourly timeframes. There are plenty of tasks that take only a few minutes here and there. Do you overlook these tasks and not bill for them? Of course not. Instead, you cover yourself by selling your resources and your expertise under a fixed fee, and ultimately charging for that expertise. For example, your price of $500 covers the scope of work agreed upon. You "sell" your expertise, not the final delivered product.
When you are married to a billable-hour model, you are constantly tasked with selling time, and that's a lot of work. Consider that you have to monitor time, enter time and bill. Add up all the time you spend billing by the hour, and trust me, what you will find is that you will never recoup these costs. Also, consider client inquiries into billed hours. We've all been there. Clients see your hours and call for an explanation. There's more time lost, or written off anyway. It's time to stop playing the time game.
Value or fixed pricing means no more time-tracking and no more client inquires, because the scope of work and cost are agreed upon up front. Ron Baker, a noted thought leader on the topic of value pricing, has been evangelizing this model for more than 20 years.
What is relatively new is that the profession now has the technology to support highly efficient, digital workflow processes that allow firms to perform more work in less time and with fewer resources. In other words, we have figured out how to perform client work faster and create a work environment where information sharing has increased exponentially, allowing us to output deliverables markedly faster.
So does that mean we charge less? No way. It simply changes the focus on value from the delivered product to the expertise we deliver. Under this model, we can focus on offering the service level the client wants and needs from their trusted advisor, and not just on the data. We can help the clients with critical business decisions and judgement calls, which have a higher perceived value. And all of this means we need to value price!
Another point of note is that the time-clock mentality works against a culture of true learning. When staff members are tasked with measuring time, "competency" then becomes associated with the amount of time spent in the office or on a particular project. This also perpetuates micro-management (yuck!), and poor micro-management at that. The bigger issue is that time-tracking deters staff from innovative thinking and team work, in addition to detracting from the most important aspect of the client experience - interaction with their accounting expert. This is a detriment to firms because I truly believe a culture of true learning is a key differentiator in recruiting today's progressive professionals.
The core point to be made here is that pricing is a critical piece of a new CPA business model. Embrace the value of value pricing!
Jody Padar, CPA, MST, is CEO and principal of New Vision CPA Group, as well as an adjunct professor at Oakton Community College. She speaks nationally on various technologies and taxation.
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