How We Finally Saw the Light of Value Billing and the Larger Light of Life Without Timesheets
Perhaps my conversion to value pricing and the trashing of timesheets was easier than most because I never had much of a love affair with the “billable” hour. I tried never to define myself by how many hours I put in at the office, and I always tried (usually with success) to have a family life even during busy season. I defined success more by the time spent with family rather than time spent at the office.
Don’t get me wrong; I did plenty of work, but I tried to do it more efficiently and in less time so I would have more family time. As many of you can imagine, this did not always go over well with employers who lived and died by the billable hour (I had one employer tell me that while they liked my work and while I was efficient I just did not produce enough billable hours for them to continue my employment).
Consequently with only four and one–half years of experience, I founded (along with another person) my first firm. At that time I sort of started practicing fixed pricing. Of course it was not formal and of course the clients had no idea what I was doing. I just knew that the price of a tax return never went down no matter how efficient I got at preparing it! Of course I still kept timesheets because—well because I was an accountant and you couldn’t be an accountant if you didn’t account for your time.
I bumbled along using this “sort-of” fixed price system and faithfully filling out my timesheet—mostly to satisfy my partner at the time that he was putting in more hours than I was. I’m not sure he ever figured out how I could work less hours than he, be the administrative partner, use less staff time than he and still bill as much or more than he did. In the late 1990s another former partner (this one was an intelligent fellow who had moved from our area) suggested that I read Ron Baker’s book on Value Pricing. I was guilty of reading part of the book and never finishing it—I was just not sure how I was going to get my partner to go along with it. However, it planted a seed for me that took a few years to grow.
My first real glimpse of the LIGHT came in June of 2000. I attended a session presented by Paul Dunn of Results Accounting Systems at the AICPA Practitioners Symposium. Here was someone who was talking a language I could understand and get excited about (and let’s face it, Paul is very good at using language). I immediately went home and told my partner we needed to attend the Accountants’ Boot Camp. After looking at me like I had lost my mind, he finally agreed when I told him we could both go for the same price. Even before we attended the RAS Boot Camp, I had an opportunity that seemed perfect for a fixed price agreement. I asked for and got a template from RAS for a fixed price contract, filled in the pertinent data and took what had been a $5,000 a year client and turned it into a $3,000 a month client. That client is still with our firm today and is one of our biggest advocates! We were suddenly engaged to do work that meant something to the client and that we enjoyed doing. Yes, we still had to prepare a financial statement and tax return for the client, but our main job was to help that construction company go from near bankruptcy to high six figure income in two years. Now that was value added services. I was sold just signing the client up, but my partner thought it was a one time shot.
At any rate we attended Boot Camp, came home all excited and wrote to most of our clients that we were offering more services in their tax return and or financial statement preparation packages. We also told them we would give them up–front pricing and a money back guarantee if they were not satisfied with our service. Since the prices quoted were substantially higher than the clients had been paying, we of course lost some of them—two to be precise. We increased revenue from these clients by more than 20% and lost only 2 clients! You see the client’s perceived they were getting more (unlimited phone calls and a money back guarantee) and were not upset about the price increase; in fact they liked the idea of being able to contact us without the nickel and dime charges. We liked it because the customers were likely to call us before they did something rather than just letting us deal with the aftermath of their decisions. We also found that when customers called with a question that question might well lead to an additional fixed price engagement.
Another very good thing that came out of our attendance at the Boot Camp was that a previous employee we hated to see go to industry heard about the changes we were making and decided to rejoin our firm. That employee—Karl Pfieffer whom I think epitomizes what the accountant of the future should be—recently bought out my interest in our current firm. But I digress. Within a year or so of our attendance of the Boot Camp, it became clear to Karl and me that the other partner in our firm was never going to embrace the concepts we wanted to implement in the practice. Consequently, on July 1, 2002, I made the split with that partner and founded Value Enhancement Group, Inc. along with Karl and one other person.
By this time we were thoroughly convinced that up–front fixed pricing was the way to go. We were also starting to grasp the fundamentals of value pricing—the concept that some services are just more valuable to the customer regardless of the time put into them. However, I was not quite ready to trash timesheets for the entire firm (although my timesheets had become very sketchy) because I agreed with Ric Payne, formerly a partner in RAS and currently the leader of Principa, that you needed timesheets to determine the cost of the services you were providing. Even though both Paul Dunn and Ron Baker were making good arguments for not keeping timesheets, I just couldn’t quite let go.
About a year later, after we lost our part–time office manager who input all of the time, it dawned on me that I really hadn’t looked much at time reports for the last six months. So why were we keeping them? Both Karl and I were never good at accounting for our time, so we quit filling out timesheets all together. But we had to make sure the rank and file were toeing the line so we had staff keep timesheets for a while to track their “efficiency.”
Another year went by and we realized we still weren’t looking at time reports because all the work that was assigned was being done in a timely manner. Obviously timesheets were an antiquity for our firm. We weren’t using them as a pricing tool (everything was fixed price); we weren’t using them as a costing tool (we had put other measurements in place to determine our profitability); we weren’t using them to measure team efficiency (we found if you have the right people, give them meaningful work to do, and treat them as equals, you don’t need the timesheet efficiency models).
It was time to trash timesheets. Only one small problem—our team members had grown to like the security of timesheets. That is, they had accepted the traditional thought that you could point to the number of hours you worked and your chargeable hours percentages to prove your worth. This obstacle was overcome when we explained that we wanted our people to be free to have time to think about our customers and our firm, and for them to be able to come up with ideas to help all of us. Knowledge workers should not be tied to efficiencies measured by chargeable hours. If they are, they do not have time to think and you are losing the number one thing you hired them for in the first place.
After talking with Ron Baker at this year’s AICPA Practitioners Symposium where he stated that Google encourages their employees to spend 20% of their time just thinking, we instituted a new program amongst our team. Although we don’t require 20% of their time to be spent thinking, we do have bi–weekly brainstorming sessions. These sessions usually have a theme but all thoughts and ideas are welcome during the session regardless of their relevance to that session’s theme. This does encourage some time to be spent in thought—a concept that would not be possible if team members were tied to productivity measurements related to timesheets.
All in all, I would sum up our conversion to value pricing and the trashing of timesheets as a slow evolution. There were a few blinding flashes of the obvious (to borrow a term from Paul and Ron) such as attendance at the Boot Camp and the realization that we weren’t using the data provided by timesheets. But mostly it was a series of small “ah-hahs” that led to our conversion.
Perhaps it’s just listening to people who have already done things. Or maybe it’s just keeping an open mind to new ideas and not starting with the premise that something can’t be done or that it should be done just because its always been done that way.
I do know that the rewards are amazing. We have happy team members doing work they enjoy. We have a requirement that no one works more than 50 hours per week even in busy season. We are more profitable than ever. Our biggest challenge now is our customer selection criteria because not all potential customers are worthy of the services we provide.
Value Enhancement Group, Inc.
Grand Junction, Colorado