Why the old way of pricing is unethical

value pricing Jul 18, 2016

Why the old way of pricing is unethical

Actually I don’t just believe that the old way of pricing – time-based billing – is unethical. At times I think it actually borders on negligence.

But why?

A few years ago AVN founder and head of research Steve Pipe and I were involved in a research study that looked at more than 150 accounting firms to find out what the most successful were doing differently.

As part of the study we looked at what proportion of errors those in the survey found that a previous accountant had made when they took on new clients.

The results were staggering. 45% of firms found mistakes made by the new client’s previous accountant. 42% found things the previous accountant had missed.

Such figures are worrying.

And, whilst you may not think you make mistakes, perhaps one day ask the same question of accountants that have won work from you. You might be surprised.

So why does it happen?

It’s not like we don’t have the knowledge. We boast accountancy qualifications, degrees and years of experience working with business owners.

And of course we don’t mean to be unethical or negligent either.

But the old outdated business model of pricing, based on time, sometimes means that happens.

In the mid-90s, when I was a manager, a job would come in, the accounts be made up and eventually they would come to me for a final review before the client meeting to finalise the accounts.

In those days we religiously recorded our hours on time sheets. I would request the work in progress report to see what was on the clock and often realise we had little time left to play with. A write off was required.

Some years ago a benchmark study showed that in the UK average write offs, or recovery rates, are roughly around 92%. Indeed some gurus used to say that was a good benchmark.

That’s absurd!

Why should we have a benchmark of aiming to make a loss on jobs?

But it’s what happened. We’d see that the time on the clock had already exceeded what we thought we could bill. Subconsciously at least we would think about the need to get the client meeting over and done with as soon as possible.

Time-based billing systems focus us on being quick, not on the result

But rushing is when mistakes are made. And it also gives us little time to think about a client’s business on a deeper level.

Where we really change people’s lives is when we use our years of business knowledge to identify how a client can improve their business. How they can sell more, make more margin, improve their profits, their tax position and their cash balance.

It’s when we can make their lives easier rather than simply doing their accounts.

Consciously think about how you can make a client’s life better

Just imagine what you could come up with if you sat, undistracted, with a client’s affairs in mind for two hours and really brainstormed how you could improve their business.

I can guarantee that you would come up with dozens of ideas.

Yet we don’t do that. We’re in too much of a hurry. We’ve focused on time and being efficient. We miss things.

But the new accountant, the fresh eyes on a fresh piece of paper doesn’t. They see the things we missed because we were focused on billing by time rather than value.

Switch to a value-based approach and that means the more we change people’s lives, the more we make a difference, the more we can charge. The client wins and you win.

That’s how it should be 

Find out more about why the practices of time-based billing borders on negligence in the video here.

 You can watch the video here.

Every month I provide free online training helping accounting professionals get results from value pricing. If you want to get access to that free training click here to register your place on the list of people I invite.

 Wishing you every success on your pricing journey

Mark Wickersham
Chartered Accountant, public speaker and #1 best-selling author of
Effective Pricing for Accountants

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