You Are What You Charge: Revisited

A response to You Are What You Charge, which reported on the value-billing strategies advocated by Ron Baker, author of “Pricing on Purpose.”

by Ed Mendlowitz, CPA
WithumSmith+Brown
CPAs and consultants
New Brunswick, NJ
emendlowitz@withum.com
[Comments?]

I have read most of Ron Baker?s books and recommend them to colleagues, have heard him speak, and spent many hours with my partners discussing his methods and rationale for them.

Additionally, I have been using the value pricing model as described by Ron Baker in some form at least since the mid 1970s (before I ever heard of Ron Baker).

At one point, in my practice history we had most (over 80%) of our clients on fixed and value determined fees. For many years we have found that the fixed fees were more comfortable for us, and our clients.

However, experience and practice have had us reevaluate this method and we have found that in most situations time based fees and billings are better reflective of the appropriate charges. We have also found that a billing method is not an all or nothing approach ? in some cases different and novel methods are more useful and better reflective of the fees we should charge and what we should earn.I do not wish to debate or criticize Mr. Baker on which method is better since I have a very high regard for what he is doing. I think he is performing a valuable service in changing CPAs attitudes toward the value of what they do and how they should charge.

All through my business history I have kept time sheets even when we were mostly ?value billing.? I have also been asked why we still kept time sheets when we were value pricing. We kept the time records for a number of reasons. Just because time records are kept doesn?t mean you can?t value price. Following are some of our reasons:

? The time records are a method of keeping track of our ?costs.? We enter the information at standard ?billing? rates, but discounting it makes it into a cost system.

? We used the information for future scheduling; for determining if the work is done at the proper skill level; to see if anyone not scheduled on the client does work on that client and then why they did it; to determine if work was done that is not part of the prior agreed upon engagement; or to just see if the physical work somewhat matches the fees.

? We also use the time records to measure the type of work that is done in ?non productive? areas such as answering tax notices, preparing extensions, or redoing work where we didn?t have all the information when we started.

? Time records are also a way to monitor client satisfaction by measuring work done correcting errors or on work that was redone.

Some specific benefits of keeping time records are:

? Disclosing that a low-level tax department staff person worked on quite a few clients that he had no reason to work on. When we looked into it we found that he was continually asked tax questions by mid level audit staff because they got the answers they needed quickly, while the higher level tax department people pushed these requests aside.

? Found out that a high-level tax manager decided to lump all his tax return review time into one account. We not only lost unrecoverable billable amounts until we set him straight, but it also showed us that he ?didn?t get it.?

? Time summaries also helped us find considerable time spent on low fixed fee tax returns because the clients decided to engage in hundreds of day trading transactions that year, which we were then able to partially bill for.

? Revealing considerable time on extra services such as fixing up erroneous transactions; finding errors in a bank reconciliation and comparing it to the client?s check book entries; helping a client fill out college loan applications; and sometimes a lot of time is spent ?listening? to a client?s ramblings because the staff person didn?t want to be discourteous.

? Noticing that a small client would always stop by the office to pick up her payroll and sales tax returns. Since she was in here, she asked if someone could help her by showing here where to sign and who to make out the checks to. Well it seems the person that was usually in the office was our tax partner who would spend forty-five minutes to an hour with her also answering other business questions, since she was there already. In one year this unallocated and unscheduled time amounted to sixteen hours. We reviewed this with the client and were able to get some extra billing for it (not too much, but more than we would have had if we didn?t see this when we did the realization schedule).

? Client and staff realization is also charted. It helps us with scheduling and maximizing our resources by always assuring the right level person is working on a client. The realization information also shows us which staff is good at downward delegation.

We also ?know? most of the things that we see in the time records but looking at the time run forces us to focus in on it in a manner that we don?t take the time to do when we are in the middle of ?getting? client work out.

Posted at March 28, 2006
Filed Under BSG [CPA TRENDLINES] |

Comments

One Response to “You Are What You Charge: Revisited”

  1. Dina Beach Lynch, Esq. on April 15th, 2006 8:28 am

    Ed and Rick,

    Thank you for making and posting such a rich response to the discussion of value pricing.

    I’m interested in this topic because I advise mediators and other dispute resolution professionals on how to make their practices (businesses, actually) more profitable. One of the most challenging pieces to convey is the need to move from an hourly rate to value pricing. Your comments are helpful in meeting that challenge.

    Ed, I’m also interested in the process you and your firm used to evaluate your systems. You derived a great deal of valuable data about your firm and how it functions, both in theory and in practice. Ombudsmen (or Ombuds) also seek to identify trends and improve systems within a workplace.

    An Ombuds can also identify and resolve internal issues with staff and management. As a confidential resource, an Ombuds can help employees resolve issues internally that might otherwise lead to unfavorable actions such as litigation or increased turnover. Ombuds can help create a collaborative, respectful environment that attracts clients and talent alike.

    Thanks so much for sharing your experience.

    Dina Beach Lynch, Ombuds
    http://www.WorkWellTogether.com

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