There’s a lot of discussion in accounting circles about the death of time-based billing and the need to focus more on value. Most partners of accounting firms recognise that time cost billing has lead to an unhealthy focus on the chargeable hour by both staff and clients.
Unfortunately, the current polarisation of the argument in favour of value pricing has not really been accompanied by a practical discussion on what pricing options are available and when they should be used. This has only served to muddy the waters further in the minds of many accountants in public practice.
Stuart Dodds, author of Smarter Pricing, Smarter Profit, The ContinuumTM, has presented a handy practical guide for firms wishing to engage in some rational decision making on this subject.
Originally written for legal firms, the ContinuumTM provides the first clear view of the different types of fee arrangements arranged by level of engagement with the client.
For example, time based billing requires no real communication between firm and client other than the signing of an engagement letter outlining scope of work and fees and the presentation of the invoice. It’s a straightforward arrangement, based on an objective measure of outcomes. Clearly, it’s suitable for work where there’s no obvious value added beyond the hours taken to complete the work.
At the other end of the spectrum, value based pricing requires significant, ongoing communication between the firm and the client before, during and after the engagement. There’s clearly more effort involved in communicating the value of work within a value-based arrangement, but the returns should be significantly greater. Unfortunately, many firms remain reluctant to charge the true value of the work they complete, as a result of lack of courage and confidence in actually communicating value.
In between time based billing and value based pricing, Stuart Dodds outlines a multitude of potential pricing options based on the level of client engagement, including
Is this confusing the picture further? No, it’s actually opening up the potential opportunities to let accounting firms consider other options based on (a) the level of value they know is in the work and (b) their ability to communicate and deliver value.Volume
- Flat (transaction)
- Success / Bonus
- Risk Collar
The days of one-option-fits-all are gone. Every accounting firm should have a clear policy on pricing based on the type and value of work being completed. The decision on which pricing policy to use should not be made by one person within the firm, but by a group of people who are willing to invest in developing client relationships through transparency in scope of work and confidence in delivering value added outcomes. Every accounting firms needs a pricing committee.
Train your team to have the courage to charge what they’re worth!
This October 2 part online training program will outline:
- ALL the fee arrangement options you should consider
- A step by step guide to using the best option for each type of service
- Practical considerations that should be considered when establishing a fee for service
The session will be recorded and made available to all registrants who are unable to attend the live session.
Dale Crosby is the managing director at Training Beyond Accounting. Visit the website to find out more about visualising your client information here: Training Beyond Accounting
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