The Value-Pricing Con Job

Versus the Law of Tax Preparer Time Management.

By Frank Stitely
The Relentless CPA

Let’s tackle my biggest gripe with the value pricing people. “Time sheets suck! Toss your time sheets!”

Who doesn’t hate filling out a time sheet for the entire week at 5 p.m. on a Friday? How could that ever be accurate? It cuts into my beer-drinking time!

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Do time sheets even exist anymore? They haven’t existed since about 1990 at the latest. Some genius invented the memory resident, background timer that lets us track and record time as we go. Our first time-tracking software was Timeslips back around 1990. It had a timer that fed timeslips into billing and reports on a real-time basis – back in 1990.

We never had time sheets. I spend maybe five minutes per day on time tracking. Time management experts will tell you that unless you track how your time is used, you’ll never figure out how to use it better. Time tracking makes people accountable not just to bosses, but to themselves. I am ashamed to admit how often I get to the end of a day and realize I have a whopping three hours of billable time. The real value is then asking myself, “Why?” Most of the time it’s Facebook trolling.

Here’s Frank’s Law of Tax Preparer Time Management: However long you think it takes a preparer to complete a return, it takes much longer. It takes three times as long as you think it does. We’ll get into why some other time, but this is an important little piece of information to know.

If you think you’re making good money on a $500 1040, you are probably wrong. I did this analysis a couple of years ago and found that on returns priced at less than $500, we made basically nothing. We were recycling money. The time to prepare a $500 return isn’t materially less than the time to prepare a $700 return. That has some marketing and client acceptance implications, doesn’t it? Of course, if you have no time tracking information, you won’t be able to do this sort of analysis. You get to continue serving low- or no-profit clients, because you don’t know where the line between profitable and unprofitable lies.

Finally, there is just one appeal of the “toss the time sheets” mentality. People hate them. People hate broccoli, cauliflower, fish oil pills, exercise and flossing. People hate lots of essential things. People in Northern Virginia hate stop signs and generally just ignore them. I would condense the food pyramid down to just beer, if not for the annoying health implications. Time tracking is essential to knowing your costs, and as we know, costs really do matter.

I’ll end this diatribe about the value pricers with some kind words. I once called them the Value Billing Taliban in an article, because they set Google alerts to quash any criticism of their religion. They also hate when I call it value billing and not value pricing. That dilutes their marketing message. I read an article that called value pricing one of the 10 most overrated accounting trends of the 21st century. I imagine they hired a hit man over that.

So, for the kind words … They have focused a lot of attention on billing methods and how to define the demand curve. They have given many firms the confidence to examine their billing methods.

In the grand scheme, they moved us closer to a recurring revenue model that emphasizes subscription-based pricing. For that, we owe them gratitude.

A lot of people crashed before the Wright brothers flew. The value pricing advocates are those people who crashed.

10 Responses to “The Value-Pricing Con Job”

  1. Bill McGovern

    Everyone has a plan on how to make money. I realized early on, working with small firms- 3-25 people- that the worst possible way to prepare a return was sitting in front of the client. Firstly, they only distract you from doing a good job. Secondly, and more importantly, they know how much time you put into preparing the return. Of course, they don’t realize how much time you spent reading up on tax law changes, software changes, hardware upgrades, learning what questions to ask, and all the rest of your expenditures to get to that point.

    Of course, who do you have working on these returns? If you have a CPA sitting there entering total dividends, qualifying dividends, municipal bond interest, you are wasting his/her time, IMHO. Technology is catching up to those preparers quickly.
    Most of that data can be downloaded into tax prep software today.
    The question is- “What are you selling?” I believe we sell piece of mind. Assurance that the government will not send the client any notices. The knowledge that the job was done right. And every client has a different value attached to that aspect. Mostly we raise prices until clients complain. If no one complains, prices are not high enough. Even the ones who complain come back.

    Value pricing is not a scam. It is a bargain between two parties to a commercial transaction. I bought a package of pate for the holidays. $23.99 for about 7 ounces. It was delicious, but on a price per pound basis, cooked pork and pork livers as ingredients versus the tenderloin we had another night, the tenderloin was a bargain. The pate’s ingredients probably cost $3.00 a pound, versus $15-20/lb for the tenderloin. The pate producer was selling the mistique of the product, not just a piece of raw meat, and getting richly rewarded for it.

    Reply
  2. Scott J. Malof CPA/PFS

    In 2011, when I started my own tax practice, I did away with timesheets completely and went to the value pricing model (VP), which included outsourcing the accounting/bookkeeping services to our accounting associates.

    I’ve never been happier and more satisfied with my professional and personal life–more money, plenty for retirement funding, more time, much less stress and more personal fulfillment. But the story of my transition started in 2004 when I read “THE PROFESSIONALS GUIDE TO VALUE PRICING” and “FIRM OF THE FUTURE”. Both books were c0-authored by Ron Baker.

    In the ensuing 7 years from 2004 until 2011, I tried to implement the value pricing model in the larger multi-office firm in which I was a junior partner (Likely the size of Frank’s practice). To say that there was push-back from the senior partner-managers of the firm with the VP model would be putting it mildly.

    And I do understand some of the additional challenges that larger firms do have, or would have, with implementing the VP model.

    However, having worked in larger offices (including the Big 4) I appreciate that timesheets are an effective tool to use to evaluate staff utilization in the larger (more than 1 or 2 member) firms–BUT NOT TO USE THEM IN SETTING YOUR PRICING, UNLESS YOUR STAFFS ARE AT 100% UTILIZATION i.e. annual charge hours are 2000 or more for each staff member. AND PERHAPS NOT EVEN THEN–100% utilization is a rare, if ever, occurrence in most firms.

    So how do we set our fixed price? Based upon a thorough analysis and discussion with a prospective individual client and/or corporate prospect, we set our fee based upon a fixed pricing schedule. Ex. For the “plain vanilla” 1040+1 state our minimum fee is $500.

    We turn away a lot of “plain vanilla” 1040 prospects and tactfully recommend they use TurboTax, or we refer them to other firms here in the Midwest marketplace. Most of our 1040’s are priced and billed at $750+. Corporate return work is similarly set at fixed prices ranging from $1,000 to $3,000.

    At our pricing levels we offer more value than just mere compliance, including proactive advise, year-end tax planning and projections, same day or 24 hour response to phone messages/emails/texts, no invoicing for phone calls of less than 15 minutes, electronic delivery of and 24/7/365 access for clients to their returns with our portal system, electronic signature, online bill pay, etc.

    For those RARE consulting-type projects where we cannot determine a fixed price ahead of doing the work, the current hourly rate is $200; we track those hours in Outlook in the Notes section and on Calendar to track who to bill.

    For those of us who are “drinking the kool-aid,” it is likely futile to argue with Frank. Honestly, I HOPE THAT FIRMS LIKE FRANK’S NEVER ADOPT THE VP MODEL—as we know, VP is a huge selling/marketing advantage for those of us who utilize VP effectively.

    So, in conclusion, for my comrade’s who are using VP or those who want to learn more about it, I cordially invite you to read “FIRM OF THE FUTURE”.

    Because of the inspirations from reading that book in 2004, my professional and personal life changed permanently and were enhanced tremendously. I wish you all a great “Opportunity Season”.

    Reply
  3. Susan Ashe

    While I don’t do taxes, I do regular monthly and quarterly accounting for a variety of clients. When I first started out, I billed out hourly and within a year it was taking me more time to add hours to recurring invoices than I actually spent working.

    I host most of my clients company files on my PC with a few here and there that do work in their own.

    I had a client that discovered the audit trail feature and cut his invoice by 75 percent because he “knew” I didn’t do that much work in his file judging by the times and transactions that showed up in that report. He never considered that my hours included logging into his bank account, looking up all of his checks (he wrote 100s of checks a month), getting it all put together in a format to actually go into his file.

    After I fired him I setup flat rate pricing.

    I like it of course because I know that my income is steady and my clients like it because they know what my costs are and there’s never a surprise. I build in a small buffer for working with their CPA at year end but I charge separately for 1099 preparation and filing.

    I still have one client on hourly basically due to the fact that I know if I put her on a flat rate that would give her carte blanche to call me 5 times a day and know she’s not getting billed for it.

    Reply
  4. Roderick Robeson

    I rarely comment on articles or social media for that matter. But had to comment on this article and the comments on it. The beauty of having your own business is the freedom to decide how it will be run.

    I have a couple of very competent friends that still use billable hours and they are very profitable.

    I do time audits on my processes and on my day to make sure I am being productive, but I do not track time for billing clients. The bigger issue, in my opinion, is that the billable hour approach will probably die or become very rare. Everything is moving to a subscription-based model.

    And like Millennials and Gen Zers that have never seen a phone booth or a TV antenna, there will be a generation of business owners that have never met a business that charged by the hour.

    I even have law firm clients that use a flat fee approach for their services. This social media world is all about the experience. People will pay more when they perceive value and will be happy to have fixed, predictable costs.

    All my clients are ecstatic that I do not charge by the hour but, for my friends that still charge by the hours, their clients seem just as happy to have competent, professional service.

    Both approaches have their advantages and disadvantages.

    Reply
  5. Rhondalynn Korolak

    If value pricers are the guys who crashed and burned before the Wright brothers… who is this guy?

    Very likely the distant cousin of the guy on the Titanic who discovered that the key to the cabinet where they kept the binoculars was missing so he just thought he would wing it and look out for deadly icebergs in the dark fog using his feeble eyesight alone.

    The eyes are useless when the mind is blind…

    The only con job here is on the unsuspecting public…

    Reply
  6. Kirk Bowman

    Frank – I am one of the people who “crashed” (according to you). The hole in the boat, or in this case your article, is it is written about me, me me. Meaning the CPA, not the customer.

    The customer does not care how much time it takes to prepare a tax return. They care about things like was it filed on-time, did I owe any money, will I get a refund? Focus on the customer’s desired outcome and price accordingly.

    At that point, time becomes irrelevant… to anyone.

    Reply
  7. Marian Rice

    I drank the Value Pricing “kool aid” 4 years ago and have never looked back. I am flying high on the doubled profit I am now making thanks to Value Pricing.

    Reply
  8. Justin Barnett CPA

    Frank, how can you continue to be so WRONG? You keep writing these ridiculous articles attempting to equate time with value, and as usual your tone-deaf arguments fall flat.

    People don’t care out how much time is spent, they care about results, the better the results, the more valuable they are to them, and the more they will pay for them.

    Time spent is irrelevant to the equation. Sorry pal, but saying stuff over and over that is not true will never make it so. Keep managing your time while the rest of us fly higher.

    Value pricing since 1994, almost a quarter century of happy satisfied clients, who love knowing what they will get and exactly what they will pay for it (and NO $500 tax returns, are you competing with H&R Block dude?!!)

    Reply
    • Daniel Bengio, CPA

      Justin, I am wondering, you find $500 tax returns laughable. What are your average fees for 1040s or 1120Ss?

      Reply
      • Justin Barnett CPA

        Daniel, working your way up the value curve is a choice, I have chosen to work my way near the top, working with fewer customers, and making more money.

        I have a minimum charge for individuals and corps. I won’t go below that, and if someone is not the right customer I don’t take them on. $500 tax returns are not laughable, they are just at the bottom of the value curve, where H&R Block competes, not where I want to be.

        My minimums are $1,500 for individuals, and $2,000 for corps, but my average is probably 2 times those amounts.

        Reply

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