In case you missed my last post: Do you have a longer-term virtual strategy to compete? Businesses are slowly opening up again. Except not everyone wants or will be able to come back just yet. And if/when they do, it will likely be on different terms than before. Do you have a longer-term virtual strategy to compete in that world?
On to this week: In honor of what my INSIDER guest will be talking about on Friday, I thought hourly pricing was a good subject for this newsletter. (Priming the pump, so to speak.) That guest is Tracy Coenen, a forensic accountant and expert witness who charges fixed fees for her litigation projects. And she’s going to tell us how she does it.
Here’s a simple fact. As we get better and faster at what we do—because of accrued knowledge, acquired experience, and aggregated technology—we are able to accomplish far more … at a higher level … in less time.
But increases in our productivity do not equate to equivalent increases in our hourly rates. Because of this, over time, hourly billing almost always leaves someone feeling screwed. If not us, then our clients.
However, if we create an asset that generates revenue, saves taxes, builds value, quantifies losses, or calculates damages for clients—on the order of magnitude of what I know practitioners like us do—why would they care how long it took us to create that asset? Whether it takes us 15 minutes, 15 hours, or 15 days, clients are paying us for the impact our asset will have on their lives, their businesses, or their worlds.
If we charge by the hour
First, the final tab will be unknown because the hours are not known until the work is done. That normally leads to unpleasant surprises. Like higher than expected bills or larger than expected write-offs. Particularly because we don’t do a great job of keeping clients or partners informed during engagements about our unfavorable hours-in-progress variance.
[Before I went solo, I was a partner in an accounting firm. I remember offsetting a rather large write-off for one project against smaller write-ups for several other projects for almost a year until it was erased because I was too afraid to tell the managing partner.]
Further, when clients pay us by the hour, they tend to obsess over what we’re doing instead of the net-effect we’ll have on them. That often leads to unreasonable expectations and the desire to micro-manage the relationship, which I have experienced.
And through my experience and talks with colleagues, I’ve found the dynamic is influenced greatly by the size and maturity of the businesses that hire us—with the smaller ones often being the most strapped for cash and wanting the greatest proof that every hour is all present and accounted for.
It’s also difficult to scale our personal efforts when we work on an hourly basis. On an individual level, we can only work so many hours before we implode. So, the only way to scale our hourly work is to raise our rates. And often there’s a psychological cap for certain services. Not to mention the even bigger factor of our self-limiting beliefs when it comes to raising rates. You know what I mean.
And if we have plans to grow our practices based on hourly billing, we must balance the problem of finding and compensating top talent and having the demand for hours to bill. We’ll also spend more time tracking and reporting time, so the administrative burden ramps up as even more clients will want detailed proof of work and justification for every hour billed.
If we price by the outcome
None of the above is relevant. We scope out the work, we agree upon a fee upfront, we create and deliver the asset, we get paid the agreed-upon amount.
And when we base our work on an agreed-upon outcome, the social dynamic between our clients and us becomes looser. There’s no need to justify what we’re doing every hour. Just make the promised outcome happen in the window we agreed to and everyone is happy.
And if we want to scale, at the personal or firm level, the demand for projects priced to achieve outcomes will likely exceed supply of hours we would need to work/bill at rates that don’t keep up with our rising productivity. This makes growth easier to manage.
Here is the message we need to better communicate to clients:
We are not a cost that creates an expense on their income statements.
Rather, we are an investment that creates an asset on their balance sheets.
In real life
Clients who hire us are, in the end, always looking for a certain outcome. They may not know exactly what it is or why they need it in the beginning (but most times, they do). It’s our job to help them define the outcome and associate a value with it. Focus on the outcome, not the hours.
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So if some/all of this sounds good, join us on Friday, June 8 at 1pm ET to learn exactly how Tracy Coenen prices by the outcome in her fraud/forensic accounting engagements.
Don’t be good. Be great.
PS – Whenever you are ready, here are 4 ways I can help you build/grow your BVFLS practice:
1. Join Practice Development ROUNDTABLE
It’s a new Facebook community for BVFLS professionals who are collaborating on how to turn the practices they have into the practices they want.
2. Download this Find Your Niche infographic
The riches are in the niches, as they say. But what’s missing is a process that can help you identify your niche. This infographic is the missing process.
3. Take a free Practice Self-Assessment
I have 10 quick questions, and your answers will help you get a sense of how well your practice is working for you.