Posted February 16, 2017

How Value-Based Billing Helps Firm Culture

This article was original published in the February 2017 CPA Journal, The Voice of the Profession, a publication of the New York State Society of CPAs. It has been posted here with permission of the Publisher.

Tax season has long been a rite of passage for staff and management alike. Staff must put in the billable hours to prove to the boss that they are deserving of their jobs. The author’s firm, however, is trying to turn this concept of hours and time on its head, focusing instead on the amount of work that can be done.

Productivity and billable time are not the same; in fact, they are quite the opposite. The traditional practice described above encourages staff to be unproductive and bill as many hours to the client as possible. This has caused a requirement during tax season to work a certain number of hours to meet some made-up goal that supposedly proves the accountant is a hard worker. The author’s firm has gotten rid of time sheets and focused on what really matters—profitability and client satisfaction. A side product of this strategy is greater team member satisfaction and less onerous work schedules during tax season.

Getting Rid of Timesheets

One of the first big improvements of abandoning billable time was client satisfaction. Not only did the client know what the fee would be up front (because they were quoted a fixed price), but the work began to get done faster. With no time sheets or mandatory hours, the team completed the work completed faster because they weren’t worried about how many hours they had to spend on a project. The new system also removed the problem of not starting a project because mandatory hours hadn’t officially begun in the office. The firm also became more productive because less time was spent on keeping track of time. In addition, invoices became simplified—just one line containing the price.

Profitability also increased, because the firm can charge what the service is worth to the client—how much value the client places upon it—not how much time it takes to complete it. Imagine going to a nice restaurant and ordering a steak. No one takes a bite of that steak and says, “Man, this tastes great—I’d like to pay based upon the amount of time it took for the chef to prepare it.” People value goods and services based upon the quality of what they receive. A master chef can prepare a world-class dish in a few minutes, whereas it might take a young, inexperienced chef four times as long to create a dish only a quarter as good. Traditional accounting firms charge their clients more for a substandard dish and less for a world-class dish.

Now the firm can price each client based on an assessment of the client’s perception of the value of the tax return. This is extremely difficult to do at first, because it requires adjusting to a different conceptual framework. And determining value is always going to be an ongoing process, but over time people learn how to perfect pricing. For each of the last 3 years, the firm has seen a roughly 10% increase in revenue year over year and has stayed relatively steady on its services and client base.

Client satisfaction and profitability have increased, but most importantly, team morale has increased. The focus for the team members has shifted to their actual work instead of distractions and administrative functions such as keeping track of time. The weight has been lifted off of everyone’s shoulders. The work is now the most important thing, not face time in the office or the total number of hours worked on a project or during a tax season. Team members can come and go as they please, as long as they get their work done. This has led to increased morale on the team and happier employees.

Removing a Barrier to Communication

One of the biggest questions the author hears about getting rid of time tracking is how do you manage your team if you can’t see what they are working on? The rebuttal to that is that one cannot effectively manage from a timesheet. Those are numbers on a sheet of paper that can be easily manipulated. Managers must manage by actually talking to staff and communicating with them about what they are working on. The time sheet is a barrier and an excuse for not having conversations with people. With that barrier gone, a whole new form of communication is opened between management and staff that actually increases productivity and improves management quality.

The billable time system of accounting is archaic, and it’s time for firms to start moving to a value-based billing system. Not only will it improve the bottom line and make the staff happier, but it will strengthen the firm and position it for sustainable growth in the future.

By Jason Ackerman, CPA, CFP®, CGMA