Opinion - Value-based billing.
How do you set your hourly charge out rate?[QQ] It may not be a complex question, but it is one about which accountants are uncharacteristically shy. Most practices use hourly billing on an equation of, roughly, overhead plus desired profit. What is actually going on here is a tacit negotiation. Firms are offering intellectual property at a price over the required cost. Clients in their turn accept that they are paying at more or less the going rate.
What firms of accountants actually need to do, is stop billing by the hour and start billing by value. So argued Ron Baker at a Managing Partners’ Forum lecture last week. And it was an argument that held the attention of some 50 senior professionals for nearly four hours.
Baker, a CPA and founder of Californian think tank the VeraSage Institute, believes that practices would be more profitable if they priced on value rather than time. ‘I promise you Bill Gates did not get where he is today through pricing by the hour,’ said Baker.
Price should be based on external value. Your clients do not care about the level of internal effort that a task takes. They care about the task itself. So next time you sit down to present your charging structure consider leaving the time sheet out of the discussion. You’ve nothing to lose but profit.