Last year I’ve been in Norway, speaking at Visma’s ‘Accounting Forward’ event, to help convince the firms who attended to move away from time based billing. Around 95% of AOs (Accountancy Offices) in Norway and across Scandinavia, still charge on time and this creates a range of problems, including one BIG one that is often overlooked.
Charging based on time may seem logical but it backs your firms into a corner, limits your ability to grow and positions your value in the wrong way to your clients.
But to really understand the problem, you need to know what your clients really want by understanding what their goals are. Without knowing that, you can’t properly serve them anyway.
ONE OF MY FIRST GOALS
One of my first goals when I went into business was to be able to take my little boy too and from school. Most business owners will give all manner of arbitrary goals but for me it was simple. I had this image of Leo and myself coming back from school on our bikes and stopping off at the park on the way back.
The reason you need to know this as an accountancy firm is that you need to understand WHAT I’M WANTING TO MOVE TOWARDS and WHAT I’M WANTING TO MOVE AWAY FROM.
Too often, accountants love with their products and services more than they love their clients and helping them to solve their problems.
If you know what I’m wanting to move towards (getting Leo from school) and move away from (doing my bookkeeping) then now you know the real problem you can solve for me.
You’re not selling me hourly bookkeeping services, you’re selling me the freedom to do what I want, with who I want, when I want and the value of that is tremendous.
Your value in the world is directly proportional to the size of the problems you solve.
Solve bigger problem and you’re more valuable.
So why use time to limit that value.
But that’s just the start. There are many more problems which charging based on time causes, including the BIGGY!!!
10 PROBLEMS WITH CHARGING ON TIME
#1 It restricts your earning potential
There is a perceived ceiling on what you can charge per hour as an accountancy firm in your country or your sector. Charging based on time reinforces this ceiling and therefore limits your earning potential. Why? The value you provide can be significantly more than even the highest hourly rate.
#2 The only way to grow is with more people
The biggest problem you’ll encounter in your accountancy firm without doubt is employing people, because people are awesome and people are awful and everything else in between. Finding them, training them, keeping them…. nightmare!!! And the only way you can make more money is dependant is getting more of them….. double nightmare!!!
#3 It rewards slowness
The longer it takes you to complete a task, the more money you make. This is nonsensical. And the longer a task takes to complete, the longer it will take for you to fit it into your schedule. A 10 minute task could be completed today. A 2 hour task may take a couple of weeks to be scheduled in. This really starts to impact your client’s businesses. Your goal should be MAXIMUM EFFICIENCY (said in an Arnold Schwarzenegger accent make that sound more impactful.) The faster you can complete a task, the sooner the client has the information to act upon. That’s where the real value is
P.S. I know you went back and read “MAXIMUM EFFICIENCY” Arnie styley didn’t you?!?! Comment below if you did 🙂
#4 It’s damaging to your client’s cashflow
So you say on your website that you’re going to help me to manage my cashflow, and then the next thing you’re going to do is to charge me random amounts every month based on underdetermined amount time you’ve spent on my account, so I have no idea what my expenditure will be from one month to the next. Brilliant…. where do I sign?
#5 It causes you to be judged on time
Accountancy firms become frustrated because their hourly rate gets judged against another firm’s hourly rate. This is unfair because the value you provide, quality of your work or speed you work at isn’t considered. You then also have clients questioning you on how long tasks took to complete. But you created these rules. Always remember, business is a game, your business is your game and you make the rules. So create rules that at least allow you to win the game.
#6 It reduces your profitability
If you charge on time, there is no incentive for you maximise efficiencies or introduce technology to make tasks quicker to complete. So your profitability will always be limited. We want to MAXIMISE profitability whilst MAXIMISING the value we provide.
#7 Clients don’t care
One of the reasons accountancy firms don’t change is because they think their clients care. They don’t…… at all. I left my previous accountant because he wanted to sell me more time, where in fact I wanted better technology and more value. And then went on to spend 3 times as much with my next accountant. You’d like to think they care about you, your firm and your services. They don’t. They only care about themselves, the value they’re getting and how that helps them to achieve their business goals and in turn their personal goals.
#8 It creates a lose-lose situation
When you charge on time, EVERYONE loses. You lose for all the above reasons and the client loses because you’re not incentivised to get their work done as fast as possible. But beyond that, because you’re not making as much money as you can, you can’t legitimately invest in your team, your systems, your training, your marketing and in providing incredible, world class experiences. Create the win-win.
#9 Five minutes isn’t five minutes
If you speak to me for 5 minutes, it’s not actually 5 minutes I’m getting. It’s all your training, your experience of working with hundreds of clients, your mistakes, your successes, your own business knowledge, every book you’ve read, every seminar you attended, every coaching session you paid for, every video you watched and a million other factors. Van Gogh never sold one painting in his life because they said his paintings only took him half an hour to paint (painting then still has a time based mentality attached to it.) He would explain that it didn’t take him 30 minutes to paint; it took him 30 years to paint and 30 minutes to realise it. It’s only now that we see the true value of his work. You need to communicate the value of your work BEFORE you’re dead.
So that’s 9 reasons why you need to move away from time based billing, but there’s a bigger reason, a MUCH bigger reason and here it is…..
#10 It reduces meaningful conversations
If you charge based on time, your clients know it and they will never want to call you because they know the clock’s ticking. I spoke with a client last week and he had a tax question, but his accountant charged on time. So rather than call him, he called his friend instead. This is damaging because not only might the advice be incorrect, but mainly because the extra conversations didn’t happen. They never got to find out that his daughter is about to start university, or that he’s about to take on a senior member of staff or that he’s looking at investing in new premises. If you had a correct method for charging in the first place, then you would have factored in these calls, the meaningful conversations would have taken place and the extra value exchanges would have been identified.
Your pricing methodologies must allow you to:
- Maximise lifetime value
- Maximise your profits
- Open the channels of communication
- Maximise efficiencies
- Invest in training
- Invest in our team
- Invest in providing incredible experiences
HOW DO WE CHANGE IT?
So first of all, don’t be daunted that you’re going to have to figure out an entirely different pricing methodology, reprice EVERY client or rip up the time recording system you’ve invested in.
We have the correct pricing methodology preloaded into GoProposal for you. So sign up for a free trial, run an existing client’s pricing through our system and see the new price you get. Even if GoProposal isn’t exactly right for you, you can still steal our pricing methodology and it won’t have cost you a penny 🙂
You don’t have to reprice EVERY client. Go for 3 – A new client, the worst client you have and your favourite client. That’s it. Explain what you’re doing and why and then once you’ve priced those 3 you’ll know whether you need to tweak your methodology or carry on with the next 10.
You don’t have to rip up all of your time recording processes. You still need to record the time you’re spending on tasks, it’s just that we’re not going to charge based on it. Now we’re going to use it to determine how profitable your clients are, your staff are and certain services are.
WINTER IS HERE
The season of time-based billing is WINTER. And as technology improves further, the winter will deepen. It may be a long winter but it will never end and many firms will freeze in the process.
But if you fully embrace value pricing or a fixed pricing method, then you move into SPRING and the future become very exciting and highly prosperous.
And when I say fixed pricing, I mean fixed based on specific parameters such as client’s revenue, No. of transactions, industry type, level of support and quality of record keeping….. NOT on time.
I spoke with one firm who claimed to have fixed pricing in place, but when I challenged them, they said “We DO have fixed pricing!!! We have one hourly rate across all of our clients which is fixed!!!”
Hmmmmmm…. not quite what I meant.
TIME TO START
Making this transition will have its bumps in the road. Not EVERY client will like it. Not EVERY member of staff will embrace it. It WON’T be perfect when you start it.
But you don’t have to have all the answers to start this… but you do have to start this if you want all the answers.
Version one is better than version none.
It’s time to start.