Does hourly pricing serve either accountants or clients well?

The timesheet versus value pricing debate has raged across the accountancy sector for decades. In the past, there was the sense that accountants needed to track client time to maintain efficiency and ensure jobs weren’t eating into profit margins. It was also a good way of analysing which clients and services were the most profitable.

But as accountants are moving more and more into the business advisory space, timesheets have become – to some – anachronistic. Spending valuable time with a client and getting under the skin of their business is a crucial part of an accountant’s role, as is relationship building and many other ‘soft’ skills. Translating all this into timesheets could therefore give the false impression that the service was running at a loss in some instances. By their very nature, timesheets fail to take into account the intrinsic value accountants bring to their clients and the overall client retention rate.

Not everyone agrees, however. Many firms still use timesheets as a way to justify cost and to keep track of employee productivity yet operate a value pricing or a fixed fee model in the main. Others may use timesheets and hourly billing for transactional jobs but use value-based and/or a fixed fee model for advisory/consultancy services.

The main pricing and billing models include:

• Time-based with a set hourly rate.
• Fixed fee – the client is charged a set cost for a specific service.
• Value pricing – a fee is agreed prior to service delivery, based on the value a client places on the service.
• Value billing – the client is charged based on the value the firm places on the service.

We asked accountants for their views on timesheets and hourly pricing structures and which pricing model they favoured.

Value pricing can have a transformational impact

Bob Evans, accountant and business adviser at Robson Laidler

For accountancy firms wanting to move away from hourly rates and are considering fixed fee billing, the new model should be approached in an open and collaborative way where both parties accept that fees will be reviewed with experience. For example, if the actual amount of time spent in preparing a set of accounts is less or more than originally anticipated, then the next 12 months of fees will be adjusted accordingly.

Similarly, for bookkeeping and payroll charges – there should be more frequent reviews based on monitoring the volume of transactions as they fluctuate up or down.

Fixed fee billing has pros and cons:

• Fixed fees can provide peace of mind of the client as prices are fixed for at least twelve months.
• Fixed fees can improve cashflow for both clients and firms: firms can collect fees in advance of preparing year-end accounts and tax returns and clients won’t be surprised by one large bill at the end of the year.
• Fixed fees are an open and honest approach which can be reduced or increased in line with transaction volume and/or complexity. It builds trust between the accountant and their client.
• However, if the initial estimate of work is wrong, the client may be either over or undercharged.

Value pricing on the other hand focuses, unsurprisingly, on value. Ultimately, in the economy, if markets are working as they should, prices are set not by cost-plus-profit but by value. If prices were simply set by cost-plus-profit, no business would ever go bankrupt. But businesses go bankrupt all the time because they don’t produce things people want & they don’t offer value.

Next steps: For an accounting firm wanting to implement value pricing, they should hold a ‘value conversation’ with the client to ascertain:

• What the client is trying to achieve
• What is their end objective.

The focus should be on making a transformational impact. The highest point of value is taking a customer from where they are to where they want to be.

Verdict: Value pricing can help accountants make a transformational impact on their client’s businesses.

Value-based models enables accountants to provide an exceptional service

Fiona Westwood, partner, MHA Monahans

Timesheets are a brilliant management tool. They help employers keep on top of employee workload and understand the profitability of individual clients. However, they don’t take into account the nuances of everyday working practice. In addition:

• Timesheets don’t consider whether an individual has gone above and beyond the scope agreed with the client.
• They don’t show whether work has been turned around quickly.
•  They don’t consider the output of an employee, instead focusing too much on ‘time spent’.
• They may drive unwanted behaviours: an employee may worry about making an account or client unprofitable so additional time worked may not be charged for or staff may simply stop going above and beyond.

Clients can be a considerable hurdle to jump when switching up fee models. If their expectation is that firms charge for time, switching to a model which may be viewed as more ‘arbitrary’ may cause friction. Clients will often ask for summaries of hours spent or rate cards and so on.

Next steps: no business has got it exactly right, but there are steps to take to get this change off the ground:

• Leaders must work together to agree on pricing structures, then train staff to think about fee costs more laterally.

Agile thinking and customer awareness are critical in determining pricing

David Owens, CEO South West England and Wales, Azets

Accounting firms can find themselves wrestling with what they did last week and how to recover time costs – but the industry wants to move to a brave new world of pure value propositions. We require pioneers to make paradigm shifts in business modelling thought. Consumer preferences have also changed, and clients can impact dynamics as they re-evaluate what they need. Therefore, we should ask how strong our relationships are before we determine what price sticks.

Next steps: If professional service firms want to resolve practice economic conundrums and move towards smart recoverability, it won’t be enough to transform MI and modelling; agile thinking and customer awareness will be critical. The suitcase of KPIs and old ways are out of date. Instead, we should evolve into a growing ambitious profession, where the future will belong to those most interested in it. The opportunity is to create an industry where the charge out rate features less so and we deliver quality services on the money.

Verdict: Agile thinking and customer awareness are critical when it comes to pricing structures. Ensure all team members are on the same page with value-based structures – it will avoid any discrepancies which, if found out by the client, could cause serious issues.

• Create a pricing ‘menu’ to help standardise certain practices and take the headache out of individual pricing per client.
• Review rates regularly. Ensure you’re consistently sharing profitability statistics amongst the team, and across the whole firm, focusing in on where margins might be able to be, realistically, increased.

Verdict: Value-based structures frees up accountants to focus more on advisory, value-add services rather than focusing on time and budget constraints. 

Price should be based on value not just time

Eunice Onyema, ENO Accounting

ENO Accountants has always adopted a fixed price method for our clients. I find that it makes pricing easier and gives clients peace of mind especially as they are mostly small businesses and start-ups. Our prices are fixed based on the value provided to each client and not time-based. It helps me remain competitive even though for some services, the profit margins are small. In order to be profitable, I concentrate on services that provide more value to the client and are not readily available.

Next steps: I think accountants should price based on the value that we provide. An hourly pricing structure limits us.  We often help with financial projections and growth, not just recording figures, and in that regard, we can be partly responsible for our clients’ success, so we should charge accordingly.

Verdict: Hourly pricing structure can be limiting – price should be based on value.

Annie Makoff is a freelance journalist and editor.