VeraSage

Trailblazer: Kim Foard, CPA & Company

On January 9, 2010, I received an email from Kim Foard, CPA from Billings, Montana that created an HSD for me—High Satisfaction Day—as we like to say here at VeraSage:

Your book, Professional’s Guide to Value Pricing, improved my client’s happiness and my success. While the financial rewards have been fun, the improved relationships are priceless!

Pricing on Purpose is next.

Kim Foard

Kim was kind enough to provide us with a case study for our Trailblazers section, reprinted below.

January 16, 2010

What We Want

As a door-to-door Cutco© knife salesman in my freshman year of college, I learned that people buy what they want; not what they need.

When asked for several knives to sharpen, one couple would present broken blades so dull soft butter was a challenge. While giving me hearty nods of approval that they were in need of knives and enjoying the presentation of tricks performed with the sharp knives from my sales kit, they would politely say, “No. No, thanks; we don’t want what you’re selling.”

The couple in the next house would struggle to find any dull knives in the sets of fine cutlery displayed in their kitchen. As they apologized for not being able to play along, I would make a little conversation, reluctantly begin the show, and then quickly navigate my way through the script.  Without even asking for the order, my focus was on an exit strategy. They would reach over, touch my arm and exclaim, “Yes! We want to buy the biggest set!”

Only years later, when studying one of the greatest salesmen, Zig Ziglar, did I learn, “You can get everything you want in life, if you will just help enough other people get what they want.”

This is my story.

The days of my childhood were spent horseback in a sea of cowhides with a Dad who knew the way to confidence was by doing what others said was impossible. The evenings were spent in epic tales of adventure with a Mom who knew the portal to opportunity was by learning from the stories of others.

After high school, I turned down scholarships to pursue my dream of being a cowboy. Fifteen months later, I knew I didn’t have the same love of horses and cows as my dad! Yet, all of those years living the notion, “Where there’s a will, there’s a way” came in handy for a poor kid with a “new dream” of going to college. In the course of managing my fledgling business as a twenty-something entrepreneur, the counsel of an older client friend cut short my whining as he said, “Kim, your problem is not that you were born poor. Your problem is that you were born with ambition. Many are born poor and stay that way. You want something else.”

The “something else” was finally discovered twenty years later in a book written by Ronald J. Baker, Professional’s Guide to Value Pricing (with CD), Edition 3, published by Aspen Law & Business, 2001 [now out of print].

By starting with one client in a little Montana town of 2,500 population, appropriately named Roundup, the cowboy in me was enjoying the gathering of a small herd of loyal clients. They understood from the very beginning: I was in the business of selling dollars. I didn’t understand Value Pricing; I did understand the importance of finding 5 to 10 times my fee in benefit for them. In the early years, there was an Exit Conference with every single client to explain what had been done. That made quite an impression and they would say, “No one has ever cared enough to spend time with me, like this!” Spend time?  Heck, no! I was investing time with them; I wanted a long-term relationship!

Then, one day, time had taken its toll on a ranch family and they were in the process of transitioning the next generation into the accounting function. I remember the excitement of working with the new twenty-something CFO, as we set up QuickBooks© and enjoyed a day’s worth of coaching and visiting.

In the course of adding families, processes, and infrastructure to the ranch operation, right in the middle of a seven year drought, there was a Net Operating Loss to be carried-back: Many thousands of dollars of benefit for a thousand dollar fee. To my surprise, I received a call from the new CFO, who had questions about the bill.

Remember, this was before Value Pricing, Fixed Price Agreements, Retainers and crystal clear Communication at the beginning of every project.

Sure enough, he was right.  There was a line on his bill, and every other client’s bill, that read: Photocopies and Assembly—$75.00.

Made perfect sense to a bean-counter; we have overhead. After a few years in business, we have a history of expense; we can project that cost into the next year and we can reasonably estimate number of clients and projects for a given year. So, we do the math. $75.00 was a good number, all clients paid the same on any project and it, definitely, was a Fixed Cost to me. Not to the client. He wanted to negotiate that amount, downward.

In fact, he had counted the number of pages, and fasteners, applied the going Office Supply Store rate for those commodities and arrived at his number of $7.50. In his mind, he had been overcharged by a factor of 10. Ah, that “Perfect 10”; yet, this time it was viewed as being in my favor, not the client’s, and it was causing harm to our relationship!

He thought I was cheating him; I thought he was behaving stupidly. We were, both, on to “something”!

The value provided to the family for the last twenty years didn’t matter at that moment. In essence, he was a “new client” and deserved my respect. So, we began at the beginning.

Having read enough of Professionals Guide to Value Pricing to think differently and having found the CD in the back of the book with templates, I approached this “new beginning” with fervor. I had nothing to lose and everything to gain; a relationship hung in the balance!

There must be a better way to build relationships than: work hard; send bill. For twenty years, I had done what I had been trained to do by my accounting mentors. It worked, most of the time: 95% of the clients understood the value and were willing to be surprised by the bill. For a competitive perfectionist, that other 5% was the challenge, and at that moment I had one very irate customer on my hands, and my mind!

Change nothing; Nothing changes.
Insanity is doing the same thing over and over, expecting a different result.
Easy is hard; Hard is easy.
We get what we allow.

It was time for a change.
The insanity was tiring.
A new path was needed.
I had created this mess.

A single line on a bill was the proverbial straw that broke the camel’s back.

One more witticism became the mantra of the day, “Fake it until you make it!” At the time, all I had was a page of script titled, “Questions You Should Ask The Customer During The Fixed Price Agreement Meeting” and a burning desire to find a better way.

Today, those questions have been customized and internalized until they are at the center of every new beginning, and potential client relationship.

They look like this:

• What do you expect from me?
• What are your biggest worries?
• How do you see me helping with these challenges?
• What growth plans do you have?
• What role do you want your CPA to play in your business?
• How would you define quality service?
• Is a 100% Money Back Service Guarantee important to you?
• What would you consider as timely response to your accounting and tax questions?
• Why are you changing professionals?
• Are you concerned about any, one, issue that I should give special attention?
• Were you referred to me by someone?
• Are you Able To Pay for guaranteed exceptional value?
• Are you Willing To Pay a retainer in advance and the balance upon completion of services?
  

Forget about Perfect 10s; these are the Lucky 13!

As accountants, we will eventually need, and want, to answer this question:

• Are we Relationship Builders, or Paper Shufflers?
  

Paper, as a commodity, is cheaper by the case.

Relationships are priceless.

For those who want to debate whether the glass is half-full, or half-empty, handling commodities might be an excellent career choice. For those of us who wonder why so much attention is given to “half” of anything, “Creating and Capturing Value” is quite a noble profession!

Wholeness comes from tapping into the Universal Principle of abundance; our real potential is unlimited. Yet, this isn’t about us.

Communication is what the listener does. Are we listening to our clients? Do we really hear, and understand, what our customers want?

Oh, sure, they will grudgingly accept bills for the compliance work they “need” to have done. When they understand how much we care about them, demonstrated by how we actively listen to their dreams, they are open to new ideas. As they consider all of the many menu choices available to them, with a clear pricing structure designed to express the value of each one, and ultimately commit to partnering with us, the “want” is palpable!

Yes, that new CFO in charge of the family ranching heritage understood the Value in the Price (when I covered up the detail of the bill) and wanted me to understand that he wanted more of that simplicity. Why did it take me so long to get the horse in front of the carriage? Answer: Good judgment comes from experience; Experience comes from bad judgment!

Disciples of Value Pricing never hear “The check’s in the mail.” In fact, because “the checks are in the drawer”, we manage risk, schedule our days, attract quality clients, stumble into opportunities, enjoy open communication, reap financial rewards, and tie “Ribbons and Bows” around each and every project on our way to building relationships.

I have learned a deep respect for one of Goethe’s couplets:

Whatever you can do, or dream you can, begin it.
Boldness has genius, power, and magic in it.

In our world of technological advances, “www” has become the gateway to infinite possibilities. If we will decide “What We Want” and, then, offer that with passion to others, the result is guaranteed to be a “Win Win Win”: for Customers; for Us; and, for the Whole Wide World!

Best regards,

Mr. Kim Foard, CPA

It’s rare to get cowboy poetry from a CPA, so thanks again Kim for making our day.

More importantly, congratulations to you for having an open mind, looking for a better way, and contributing to the dignity of our profession by doing the right thing for your customers.

Reading Kim’s story was another HSD!

Trailblazer Update: Integrity Wealth Pty Ltd

Michael Stewart, Director of Integrity Chartered Accountants & Business Advisors—one of our Trailblazer firms—sent me an update on his firm’s progress since trashing timesheet.

What’s great about this update, which Michael is so graciously allowing me to publish, is that it is a compilation of the firm’s team members’ attitudes to operating in an environment without timesheet. Regular readers of this site know we believe that one of the major impetuses for driving the change to Value Pricing and no timesheet is the competition for talent. Increasingly, knowledge workers understand the value they create for their firms is not predicated on the time they spend, let alone accounting for every six minutes of it on a daily basis.

This update from Michael is good timing, as I just responded to a letter to the editor from my November 2008 Journal of Accountancy article, The Firm of the Future. Here’s an excerpt from that letter:

My college production management professor back in 1983 stated, “Happy employees are not necessarily productive employees. Many employees are perfectly happy doing next to nothing.”

Most current management experts, outside CPA practice management experts, teach that you get what you track. If you want productivity, you have to track productivity.

Here’s part of my reply:

I was in college in 1983 as well, where I learned the same “happy employees are not necessarily productive employees” axiom. But the article wasn’t about happy employees, it was about effective knowledge workers, who are less effective when they are micromanaged, and demoralized when they must engage in a low-value activity such as tracking every six minutes of their day.

The letter further asserts “you get what you track. If you want productivity, you have to track productivity.” But this is nonsense. We don’t change our weight by weighing ourselves more frequently, or accurately. We must look at the root causes, and processes, which timesheet emphatically do not do.

We at VeraSage do not advocate trashing timesheet in order to make employees “happy,” but rather to remove an incredibly low-value activity from their routine. It’s all about increasing their effectiveness, though we will admit happiness seems to rise as well.

Which leads us to Michael’s update. Here are the words of his own team members on functioning in a no timesheet environment, allowing you to judge for yourself if this firm is comprised of more effective knowledge workers. I have included some commentary (in bold) below some of the comments.

Samara, Accounting Division Manager

The way accounting firms set a job budget based on last year’s fee always seemed to me like a recipe for failure. Last year’s fee probably had a write off, so basing this year’s fee budget on last year’s puts you behind from the start. The only way to avoid taking a write off is not to record all your time on a job, but then you’ve got a problem finding enough chargeable hours to make productivity.

Alternatively, if you want to try to justify charging the time instead of writing it off, you have to sell the value of the work you did by preparing a fee narration that goes for 2 or 3 pages, and the time that takes isn’t chargeable, so then you’ve got to stay back later to try and keep your productivity up...And so it goes—madness.

Take timesheet out of the equation, and your perspective really shifts from yourself to your clients. I’m still busy, but I’m busy working for my clients rather than trying to figure out how many extra hours I need to work to make productivity this month, or any of the other ridiculous time-wasting activities you find yourself engaged in when you’re trapped in timesheet hell.

You can be so much more proactive with your clients when they know there’s no clock ticking when they call. They’re more likely to call us before they rush into anything, which gives us an opportunity to do more special work for them as well as saving time and hassle (and sometimes tax dollars) at the end of the year. We also have the luxury of time to spend looking over our clients’ financials so we can provide more value-added service to them.

The biggest challenge I’ve found with life without timesheet is the idea of stopping work on a job when the scope changes. Under the timesheet system you just recorded all the time you spent, so if the client sold some property or his GST was a nightmare to reconcile, it was there in the timesheet and you’d explain in the fee what extra work was involved and why it cost more. When you don’t keep a timesheet and you’ve already quoted a price upfront, you need to down tools and talk to the client as soon as you realise the job isn’t what you thought it would be. It’s a difficult habit to form but you just have to train yourself to look for the signs as you go.

Contacting the customer when scope creep arises is a difficult habit to form, especially since we’ve all been taught to just do the work and worry about the bill later. But this is a prescription for an unhappy customer, who need to be kept informed on the price, scope, and payment terms of their jobs. I have faith that if auto mechanics and contractors can be taught to use Change Orders, so can accountants.

And consider this from the customer’s perspective rather than our own inward looking, myopic view. Shouldn’t they know before hand that you are performing more work that will cost them extra? Isn’t the moral and ethical course of action to communicate with them up-front? Isn’t that what we’d want from our service providers? The Golden Rule applies to professional relationships as well.

Mark Stewart, Director

Things that bugged you about using timesheet?

Trying to remember what you had done in a day/week. Often, especially as client contact/practice management duties increase, timesheet would be an after thought. Therefore they were rarely accurate as they weren’t done consistently at the time of doing the work.

How you felt when a partner used to “write off” work before billing?

This really indicated to me that the price was in fact set in advance anyway. I would love a dollar for every time a partner said “we can’t recover that”.  The sad thing is that when I became responsible for preparing invoices, I found myself saying the same thing. 

What’s good about not having timesheet?

There is a freedom to your day without having to remember what every 6 minutes consisted of. Things such as marketing & training are done without the pressure of thinking that it is affecting your “productivity”.

What is harder without timesheet?

The main challenges are from a management point of view—controlling scope creep, planning the workflow and assessing team member performance via different measures. However meeting these challenges is far better than the alternative.

Has your job changed or do you have a different focus with/without timesheet?

Job has changed in that the focus is now on managing the challenges mentioned above. Also though, with the introduction of fixed pricing, more frequent client meetings/calls has allowed more cross selling of other/additional services.

Has it changed the conversations you have with clients about billing, prices, etc?

Absolutely. Gives us the “upper hand” in that no work is done until client agrees to the price negotiated. I have found clients far more accepting of price when the conversation is in advance of work being done or as problems are encountered on the job.

Sunny, Intermediate Accountant

I used to work for a firm using time sheets before I joined integrity. I had to spend at least 2 hours every week to prepare my timesheet which reduced my time to work on client work. Also, I was worried about the “write off” all the time. The pressure can be quite high when I see a partner have to “write off” my work before billing.

Having no time sheets but monthly budget makes me feel far less stressed and I have much more control of managing my work life. Now I can focus more on client work rather than preparing timesheet. I feel much happier to come to work everyday.

Barbara, Receptionist

I found timesheet to be inaccurate because they were not an accurate record. Specific time was allocated to me to type a covering letter, sometimes this went way over as an ATO portal investigation needed to be carried out which wasn’t recorded on the time sheet.

Filling in the time sheets were extremely time consuming and time was not allocated for the time I spent filling in time sheets.

Denise Gibbons, Managing Director

I learnt fairly on when I became a principal of an accounting firm that I needed to discuss pricing for work that I was going to be doing for a client upfront. When I didn’t do this with new clients or even current clients for additional work, I would have great difficulty having the discussion at the end once the work in progress report was printed. Invariably it would end with resentment either on the client’s part at the price or on my part because I believed I had undersold my services. I am sure that I lost clients because of the process.

I would say to myself that I needed to have these discussions but because of my indoctrination in big and medium accounting firms my mindset was still focused on the timesheet and billing method after the job was complete.

It wasn’t until I met Ron Baker at a conference that I knew I had to find another way.

When I looked at how I was using timesheet in my firm, I realised that I was really only using it as a guide anyway. I never really used them to monitor team members or the performance of the firm. I had budgets set on overall income and expenses and I had client analysis that showed me that I could meet the income targets so long as I maintained and grew my client base during the year.

I also knew that I spent many hours agonising over the billing sheets to invoice my clients and invariably I would come up with a figure that I thought was reasonable and fair anyway.  In some cases, I would make myself quite ill because I knew with the price sensitive clients that I was going to have to have a discussion on the fee that I was going to charge anyway.

The worse aspect of the timesheet model was that I felt guilty at the start of the relationship with a new client because, in my head, I would be thinking about how I was going to bill for this and really cutting short the “getting to know you” phase of the relationship because I couldn’t really charge for it. Now without timesheet I don’t worry about the time and I focus on what the client needs and in my head I am already pricing the work to be done.  I don’t disclose this to the client until I have discussed it with our value council but I advise the client the process of engagement agreements and that I will contact them to discuss the price. 

It may be that we have to have further discussions about the price, but I know the figure that I am prepared to do the work for and if this does not suit the client they can seek assistance elsewhere.

So the best outcome of doing away with timesheet has been that I have much more time available to spend with my existing clients or new clients to discuss the work they require and when they require it by. I am also spending more quality time focused on the delivery of service and keeping the clients happy to remain clients or our firm. This is because I am not spending hours every week recording my time, reviewing work in progress reports, discussing performance on jobs with team members, agonising over invoices and having awkward conversations with clients.

I am sure that all of this applies to the team members as well.

The difficulties of not having time sheets are identifying things that timesheet otherwise made obvious—training needs, current work in progress, scope creep and indicating where there might be inefficiencies.

Which is why we advocate excellent project management skills, After (and Before) Action Reviews, and Key Predictive Indicators.

In any event, Integrity has made fantastic progress. It’s obvious to us that environments without timesheet are far more effective at servicing customers. It also makes for happier team members, and what’s wrong with that?

Postscript

After I posted this, Michael sent me another email with another critically important point regarding Value Pricing: Its effect on customers:

Ron, a couple of points I meant to add and if you can add to the article if you’d like:

1. Since quoting prices upfront, we have not had one complaint about prices. Not one, in 18 months. Previously probably at least one per month.
2. On the occassions we have written to clients regarding scope creep, on every occassion they have written back with acceptance, no objections.
   

Ron, thank you for listening to us and for your help. I hope our contributions continue to spread the message—the profession, and more imprtantly their clients, need this change.

Michael

Thank you Michael; looks like happier team members and customers!

Trailblazer: Littlefield

Wow, another day, another HSD (High Satisfaction Day).

For the second day in a row, we learn of another Trailblazer firm that has trashed timesheets.

David Littlefield, president and CEO of Littlefield advertising agency in Tulsa, Oklahoma sent me this progress report today:

Ron,

With encouragement from you and Ignition Group’s Tim Williams, our agency has been moving more and more in the direction of value pricing the past two years. In an effort to “burn the ships” and move more aggressively in that direction, we symbolically torched a paper time sheet in December at a staff meeting and announced we are no longer keeping detailed time sheets for billing purposes going forward. (High fives all around!)

There are several reasons we have embarked upon this course.

First and foremost, we want to send a strong message to our people that we value their thinking and talent, not the physical hours they take to accomplish a task.

Second, the old, time-based way of billing clients flies in the face of how people normally buy things. Do you really care how much time it took to build the car you want to buy or the perceived value to you of the purchase price? We now scope the work, quote a price, and unless the scope of work changes, we live with our quote.

We bill 1/2 of the quote upon initiation of the job and the balance when the job is completed. Ongoing services, such as brand strategy, PR, media or research, are scoped and quoted as an annual fee. We then bill 1/12 of that number monthly. This approach will greatly simplify billing and make it easier for our clients to reconcile their budgets to our invoicing.

And finally, we believe this approach will force clients to sit down with us to better establish the metrics we will use to define success, which will really help them see the value of the services we are going to provide.

It is too early to measure the success of this effort, but we are committed to this brave new world of value pricing and don’t plan to go back.

Next up?  Performance-based compensation—but first things first!

Best regards,
David

David’s “burn the ships” reference is to Hernán Cortés, the Spanish conquistador who ostensibly burned his ships in dock so his men would have to fight to the death with no chance of retreat. That is the total commitment that is required when you embark on pricing on purpose and getting rid of your timesheets.

Congratulations to the entire group at Littlefield for having a better vision of the future. We look forward to hearing your progress down the road.

Trailblazer: Brains on Fire, Inc.

Another HSD at VeraSage as a result of this email Dan and I received from Brandy Amidon, CPA, from Brains on Fire, Inc., which has trashed timesheets as of January 1, 2009:

Good morning Ron & Dan,

Just wanted to let you both know that we have abolished time sheets starting this month! We are a Word of Mouth and Identity company in Greenville, South Carolina.

Our CFO read the article in the Journal of Accountancy and our eyes were opened!

We are still in shock that we didn’t think of this sooner! Just finished reading The Firm of the Future as well. REMARKABLE!

We wanted to thank you both for all your hard work in spreading the word about time sheets and mind blowing innovations in our profession. Of course, I’ll email you with progress reports as we go along.

Thanks so much for all the resources on your website. It made making the switch so much more comforting!

Check out our blog. The creatives gave me reins for a day to post our good news.

Thanks again!

Brandy Amidon, CPA

You can read Brandy’s blog post on trashing timesheets here. Be sure to read all the comments as well.

Congratulations to the entire Team at Brains on Fire. You are blazing the trail that others will eventually have to follow.

We look forward to your progress reports.

Trailblazer:  Integrity Wealth Pty Ltd

I had a great conversation this week with Michael Stewart of Integrity Wealth Pty Ltd, outside of Brisbane, Australia. 

I’ve known Michael since his days with Results Accountants’ System under Paul Dunn and Ric Payne.  Then he was with Principa, and now is with Integrity as General Manager.

As of October 1, 2007, the firm eliminated timesheets.  More empirical evidence that this is the wave of the future if firms are serious about operating effectively in an intellectual capital economy.

During our conversation, I asked Michael to provide me with a case study on his firm’s transition to becoming a Firm of the Future. 

Here is his first installment, as he wants to add to the story in the future to inspire others:

Hello Ron.

Thank you again for speaking with me during the week. As is always the case when interacting with you, or your material, I left feeling further inspired; and also somewhat humbled—there is still much for us to learn and implement as students of pricing and value.

As agreed I’m sending this email now and if there is sufficient interest from the VeraSage community I’ll follow up with a more detailed case study. While getting rid of timesheets was just one step in an overall strategy to change our firm, it has proven to be a critical one. Not being an accountant myself I’ve never had to record my life in 6 or 10 minute units (and if I had I probably wouldn’t have lasted very long). So in some respects I don’t think I can really convey some of the differences it’s made to individuals within the firm. But I do know what it’s done for our mindset, how we promote the firm, and how both clients and team members react to a no timesheet model—and it’s all positive. Perhaps in a future email I’ll get one of the team to write their thoughts. As an example, Denise Gibbons (Partner) said to me recently “I used to make myself sick preparing bills for clients”. We don’t have to worry about that anymore, which in itself has to be a major win.

As a summary:

Practice Profile:

• 2 partners + 11.5 FTE (includes our financial planning division)
• 2006 revenue $645,000
• 2007 revenue $735,000
• 2008 revenue $1,180,000 (growth approx 50/50 acquisition/natural growth)
• Approx 400 clients in Accounting division
  

We are located in Clayfield, Brisbane, QLD, about 10 minutes from the heart of the city. Over the past 18 months we have been working to redesign the business on many levels in order to create a place that will attract team members. The partners, Denise & Mark, were very keen to implement many things but like most firms were struggling to balance client work with internal goals. I joined full time in October 2006 with my focus being on establishing the strategy and infrastructure that would attract team members and allow us to grow. For a firm of this size to hire someone who does little or no client work was a significant decision, both financially and in terms of mindset—the partners were agreeing to hand over the day to day running of the overall business so they could focus on client work and development of the team.

We made the decision to abolish timesheets as of 1 October 2007. We had been talking about it for at least 9 months prior to that and had committed in writing to the team we would do it. There were many discussions on whether we should keep timesheets at the same time to make sure, well, to make sure the sky didn’t fall in I guess; or whether we should still record total time on the job to identify scope creep. Finally common sense prevailed, we chose to back ourselves, we took the leap, and haven’t looked back.

How it works:

• All clients now receive an engagement letter with a fixed fee and a date for when their work will be completed. Typically the fee is based on last year + 10%. We review each job and the scope of the work before determining the price. Mark, the partner of the accounting division does the initial review. We then sit together and as Chief Value Office I challenge anything that has not seen a minimum 10% increase. (This is in addition to a 10% increase last year for most clients). Mark is right on the page with value pricing so he identifies any special work or areas in which we could add significant value. Though for most work it’s very similar year in year out.

• We must receive the signed letter back from the client before work begins. Naturally there are some long-standing clients where we respect the relationship and we haven’t bothered trying to force an agreement upon them. So long as they agree to the price we’re happy.

• We now ask for payment of invoice immediately upon completion of work, instead of 14 day payment terms. New clients often have to pay $1,000 upfront for us to review their work, then we quote on the scope and price of the work that needs to be completed. Again, the client must agree to all terms in writing before the work begins. We haven’t worried about moving to bill existing clients upfront. Instead we have focused on workflow—if we can get the job out the door quickly then we can invoice sooner. Then of course you need a system to chase debtors (receivables for our international colleagues).

• We initially set a minimum fee of $1,000 for new clients. We have since moved that to $2,000 and will soon be increasing to $3,000.

• We currently have just one KPI that has replaced timesheets—a monthly invoicing target. The entire accounting team are responsible for ensuring we make this target. I have set the budgets for the firm, Mark then looks at all upcoming work and selects the jobs to be completed each month. Then we just get on with it. If we make target, we know those jobs have been completed. Nice and simple.

• Monthly targets are based on a combination of what we have invoiced for the same period in previous years; what the firm would have achieved on a hours x rate x productivity model; plus any price increases, allowances for special work or value priced engagements etc. In a firm of our size it’s pretty obvious if people are working hard or not. If productivity or workflow is lower than we believe it should be, it’s usually more to do with planning, getting the right people doing the right work, and resourcing, than it is a lack of effort by the team. In other words we believe people come to work with the intention of working hard; we just needed to get the planning and infrastructure correct so their efforts turned into outputs.

  To ensure I was happy with the monthly targets I conducted a financial analysis using Principa’s FirmPlan—I think it’s the best tool I’ve come across in relation to looking at the financial performance of a firms that record time. Within it I compared our numbers to some benchmarks, ran some what if analysis on impact of price increases etc. From there we picked an annual revenue figure, divided it by 12, made some adjustments to each month based on seasonal fluctuations, and targets were set. We have 15 years of history on what price our clients will pay for most of our work and how much work we can do in a given period—so even if that is based on a timesheet model it is a well established precedent and provides an easy starting point for getting rid of timesheets and quoting a fixed price before the work begins.

• It’s important I point out how helpful our team, in particular our admin team, have been in adopting this change. For the professionals it has made life easier. Though for Barbara (admin, reception) it has created work. Who gets engagement letters; who doesn’t; changes to the system every other week as we learn new things; extra work in preparing engagement letters; updating the workflow system etc. We continually communicate why we are doing these things and we are very grateful that all of this has been handled with a minimum of fuss and we are a better firm as a result.
  

Ron, there will be many other things to discuss and share: strategy, vision, client selection, pricing, marketing, recruitment, post job reviews, successes, failures, things we have no idea how to approach, examples of value pricing successes, and comments about “accounting utopia” (more on that story in another email). This email is to get the process started. On behalf of Integrity I’d like to say a massive thank you to everyone who has shared their ideas with us and myself over the years. We hope our contribution is helpful to others who are heading down this path.

Ron, please feel free to publish my contact details in case anyone would like to contact me.

Michael

Michael Stewart
General Manager
Integrity Wealth Pty Ltd

Integrity Chartered Accountants & Business Advisors
http://www.integrityaccountants.com.au
http://www.integrityfp.com.au
Tel: +61 (7) 3262-3533

Thank you, Michael, and we look forward to more details on your firm’s transition.

Congratulations to the entire team at Integrity for blazing the trail for your colleagues—and all of those reluctant consultants—to follow. 

This is truly Firm of the Future 2.0.

Trailblazer Fred McBreen of Base52 Ltd

Congratulations to our newest Trailblazer firm, Base52 Ltd in Hertfordshire, outside of London (the same city as O’Byrne & Kennedy).

Fred McBeen is the Director and Practice Manager of Base52.  I was privileged to meet him at a talk I gave for CIMA last June outside of London.

Here is Fred’s email reporting on his firm’s progress since our meeting:

Dear Ron,

I hope that you are well.

You may recall we met at a UK conference a year or so ago and exchanged e-mails after this.

I was enthused by your presentation and by your book, The Firm of the Future and implemented some changes to our practice after reading this.  You asked if I could send you an update after 6 months or so and let you know how things are going, so here goes:

Broadly, things have gone quite well.  We are a relatively small practice having only started a few years ago.  In the last financial year we grew revenues and profits by about 35% and a good proportion of this growth was due to “Value Pricing” measures we implemented.

We scrapped timesheets about 6 months ago now and I don’t think we have missed them.  We set work completion targets every month and track these every week so as practice manager I have a good feel for how work is progressing.  Being less hung up about hours has meant that we focus on quality even more and ensuring that we do a first rate job.

I mentioned in my previous e-mail that we had secured a contract with one customer and I had followed value pricing principles and priced this 2 or 3 times higher than if I had used my normal “hourly rate” method.  I am so pleased that we did this as the work has been problematic.  Nevertheless we have made a good profit on the contract and have done what we said we would do.  On our old pricing methodology it would have been very hard slog for very little (if any) return which would have been demoralising for the whole team.

My conversion rate for signing up new customers has dropped from around 70% to nearer 25%.  The prospective customers we have not signed up have not been prepared to pay the higher prices I have quoted.  By and large I am satisfied that they would not have been the right customers for us.  In a tough market, we are finding it more difficult to pick up new customers but for now I am holding my nerve and looking to compete on value and not price.

I have been a bit less tolerant with customers who do not fit our ideal profile.  Again it is a tough call but I expect to give notice to a couple of customers shortly who have repeatedly ignored our advice and do not seem to appreciate the work we do for them.  This will mean a short term hit on revenues but will hopefully will be for the longer term good

I have taken on board the views in your book about building capacity before taking on new business.  We have invested in training, systems and a bit more space so feel ready to expand with the right customers.  We are only a small team and I am hoping that I can retain my key team members for the immediate future.  If I can do this, I think the prospects for growth are very good.

One of the biggest changes in my own attitude has been self belief and confidence that what we offer is good value and we don’t need to be apologetic about this.

So to summarise the progress report.  It’s so far, so good.  Our target is to grow profits by another 30% or so this year.  I will let you know how it goes..

Thank you again for your advice and support.

Best regards,

Fred McBreen
Director
Base52 Ltd

Fred makes many excellent points here, probably the most important being that you’ll never be paid more than you think you’re worth. 

Also, it’s nearly impossible to implement Value Pricing with the wrong customers.  I’m a bit concerned, Fred, about your acquisition rate dropping from 70% to 25%.  This may be just a temporary drop given your new pricing strategy. 

If it persists, however, it may be a indicator that you are not effectively communicating value to prospective customers, since customers aren’t as price sensitive as they are value conscious.  If this continues, you may want to develop a “stripped down” version of your services at a competitive price (pricers call this a “flanking product"), which will allow you to acquire some of these customers and then as time goes on they will purchase more from your firm.

But I don’t want to take away from your incredible accomplishments in the past ten months. 

Congratulations again, and please keep us posted on your progress.

Trailblazer:  Mark Chinn, Chinn and Associates, PLLC

A few years ago I received a telephone call from a guy who wanted to talk to me about my book. 

I remember the call well, as I was sitting in a New York hotel when we finally connected.  He began by telling me how much he enjoyed my book, Professional’s Guide to Value Pricing, along with a lot of flattery I’m too embarrassed to repeat. 

He also told me about a pricing success story he had had, which obviously convinced him to become a Value Pricing convert.  Since then, we’ve exchanged occasional emails, he has written a fantastic book, How to Build and Manage a Family Law Practice, and a White Paper, “Dumping the Billable Hour:  One Lawyer’s Experience.” He’s also written other recognized books.

Well, I finally got to meet Mark Chinn at the Atticus Value Pricing Workshop in Orlando, Florida.  He told the entire group that he’s made over $500,000 more utilizing Value Pricing than he would have made billing by the hour, in the last couple of years.  He knows this because he still maintains timesheets.

I said it was time to take the training wheels off, as Mark’s firm, Chinn and Associates, PLLC, has obviously made pricing a core competency, along with the practice of family law.

He said he was going to go back and trash timesheets.

Mark is an incredibly nice man, and I’m honored to have had the chance to meet him.  Though I’m sure I’d never want him in the courtroom against me, he is a true gentleman.  Poke around his Web site and you can see for yourself his accomplishments, philosophy and purpose.  He even has a description of Value Pricing.  All very impressive.

Family lawyers are litigators.  And to all those attorneys out there who think litigators can’t offer fixed prices, Mark is empirical evidence they can.  There are now other family law practices out there doing the same thing.  So much for “it can’t be done.” Usually, people who say that are being bypassed by people who are doing it.

I’ve always had tremendous respect for attorneys.  I do believe it’s a noble profession.  The lawyers I’ve had the privilege of working with are smart, well-read, excellent debaters, have respect for abstract ideas, and cogent thinkers.  I always learn much more from them than I impart to them.

Congratulations, Mark!  Your Team’s progress has been amazing this past couple of years.  I am honored and humbled to have played a role, no matter how small. 

Who knows, after a while living without timesheets, we may see your picture on the Fellow page of this Web site.

I hope so.

Trailblazer Update from Down Under

Matthew Tol began to correspond with VeraSage back in November 2006.  He made the decision to trash timesheets June 30, 2007.

He recently sent us an update on his progress, which has been fantastic.

Ron,

As we corresponded early last year, I though this might be a great time to update you—we have thrown out timesheets, moved all clients on to fixed agreed fees with monthly billing and direct debit, all new projects and work is priced and signed off when it comes in and before it gets started and we’re going along very well!  Talking with a number of my colleagues around Australia, they just don’t seem to “get it” and haven’t the guts or courage to make the move that is required to move them in to the 21st century.  They get frustrated but the terror of the unknown is bigger than their level of frustration.

Just had an interesting discussion with one of my colleagues in town this morning—whining about how much time he didn’t have. Issues with staff and he did not sound at all happy.  He is still on paper files, no scanning that works, no systemised process for bringing in, processing or sending out work, timesheets that take up a heap of time, client fee resistance,debtor problems and I think his cashflow would be dead.  I spoke to him about what I’ve invested in over the past five years—we may as well have been comparing different businesses (sorry, my business and his corner shop)!

Keep up the great work—I’ve tried it, gone through the issues and have “seen the light"—to use the phrase from “Mr T” in the “A Team"—"Pity the fool” who doesn’t have the guts to change that which isn’t working.

Trust you and yours enjoyed a wonderful festive season and the new year is a terrific one for you.

Kind regards,
Matthew

Matthew Tol
Principal
matthew tol + associates
24 Doveton Street North,
Ballarat Vic 3350
http://www.mt.com.au

Congratulations Matthew.  More evidence that trashing timesheets is the wave of the future that can be done—if firm leadership is willing to pay the price of casting off yesterday and embracing tomorrow.

More from Aries Technology Group on VP and TTT

This post was written by the folks at Aries. it tells an amazing story.

Aries Technology Group LLC has been looking for ways to engage our customers on a fixed/value priced model since summer 2006. In order to do this, we had to break our old, comfortable habit of viewing the value of our business and embrace our customers’ view of the value of our business. We finally made the jump to fixed/value pricing earlier this year. 

One of the obvious truths in invoicing customers based upon billable hours is that the value of the invoice is arrogantly determined solely by the invoice-er, and not determined by the solution to the invoice-ee. Once this fact was understood and digested, we became increasingly uncomfortable with the billable hour model.

But before taking the plunge, we wanted to know what our customers wanted. One of the tenets of this value pricing model is to offer the customer what they want and discard what the customer does not want. So we asked them, face to face, what they wanted when engaging our services and tapping into our expertise. We told the owners and major decision makers that we wished to move away from billable hours to fixed pricing. The response we received the most: relief!

Among our biggest supporters were our oldest clients: in some cases, clients we have maintained relationships with for over a decade. One owner in particular, a manufacturer of PVC pipe, told us in our meeting that he had actively instructed his staff not to engage our expertise in solving problems. His reason: not only would he not know up front how much time the solution would take, but he would also have no idea how much our invoice was going to be. He didn’t want to risk the invoice coming in greater than the value in solving the issue. Now he can budget our services and understand what he is spending his money on (value to him).

In addition, we made the decision to trash our timesheets. Here is what our staff had to say about this experience:

Amy Shaver, sales and administration: From the administration side of things: it has been great for me as the company administrator not to have to spend any time harassing our consultants to give me their time sheets. And, I don’t have to spend time with them determining the actual amount of time they spent on a support case, project, etc. Back in the billable days, we spent a tremendous amount of time going over all of the time entries, making sure not only that we were charging the customers correctly, but making sure we were capturing all of the time that was spent on projects. I can now focus on making sales and follow up calls to our customers, and not worry about having to explain our bills when I get the customer on the phone!

Tammie Slagle, consultant: As for me, being on the technical support side, I love it! I now don’t have to worry if a client is going to be upset when they see a bill from my company. It always seemed that the client would question the time we billed them for. And also, I don’t feel I am keeping them on the phone too long when I may need some extra time finding answers. It also helps me because I am not hurrying myself along and I now know they are getting my full and as long as needed attention.

Mark Boyd, consultant: Two bullets sum up my favorite things about trashing billable time.

• Spending less time at a client, yet creating more value that they are willing to pay for.
• Not having to keep track of anything but your progress on the project you’re working on. Rather than having to worry if you billed enough hours to make the “boss” happy, you can concentrate more on the job at hand which, results in a faster, more accurate project.

Michael Boyd, consultant: My entire career has been spent in the consulting industry; each company had used billable time. Of course we all now agree that tossing billable time is a good thing. I’ve got a few very specific issues which arose under that model that I’m pretty excited to be rid of.  These items range from inconveniences to downright shady business practices.

The first was, shall we say, shifty time reporting. If you tell a client you’ll charge them 40 hours a week, but in reality you work 70 hours a week, what time do you record? The Management team only wants to bill 40, the consultants then can only record 40. Employee Paid Time Off is calculated on billable time, this means the consultants will lose 30 hours a week. Not fair to the consultant. On the other hand, clients agreeing to 40 hours a week, there may not be that much work to do, so we could actually work on 2 projects. In this case the client was overcharged for time. Many consultants I have known felt very morally challenged in these situations, many of those had quit over such concerns. It’s hard to sit in front of a client every day knowing full well what you’re doing.

Secondly, the more complex your assignments are (especially when working on multiple projects at multiple clients) time management and expense reporting becomes increasingly time consuming. At one point it took roughly 4 hours every week to record all my time on every project, then print in triplicate (office, client, personal) copies of every document and route those appropriately. In addition the introduction of time reporting systems such as SAP simply make the process that much more challenging as they have to track an even greater amount of information, and may not always be available while on the road.

Third, in some situations the client could use an improperly recorded time and expense sheet to withhold payments to a vendor. In these cases one overworked employee out of a 20-person team, could accidentally give the client the ability to withhold payment for months at a time. This situation, while great for the client, is not so good for the company.

Moving away from billable time, to me, means that you can create a better relationship with your clients as everyone knows from the beginning what the financial terms of the relationship will be. This allows you to do business without being concerned about price. Secondly the time spent by both the consultants and the clients in writing, reviewing, and tracking time, can be spent actually working on the project at hand. This to me is a much wiser use of everyone’s time and energy.

John Shaver, Partner: Doing away with billable time means that I can do more of what I enjoy doing: managing people and not managing time. Managing people is much more rewarding than simply checking metrics from last month’s time sheets.

Company morale has increased exponentially after getting rid of the timesheets since all of our team recognizes that everything is built on trust. Everyone in our company reminds me regularly that they actually enjoy coming in to work now!

Our customers are happy because they are actually in control of their budgets. They spend more and are happy to do it because they know the value of everything up front.

We have been able to do away with something that was a totally negative experience for everyone involved (customers, employees and owners) and turn it into a totally positive experience for everyone.

Another Trailblazer:  Aries Technology Group LLC

In May of 2006, I was privileged to conduct a Value Pricing Boot Camp with Ed Kless and Rob Johnson of Sage, at its annual Insights conference in Nashville, TN.

One never knows the impact you have on any participant, unless they go back to their firms and change their behavior.  All we can do in a seminar is work on changing attitudes and theories, but the real test is will that lead to changing behavior.

This makes the following email Ed, Rob and I received from John Shaver today even more sweet.  Another HSD—High Satisfaction Day—for VeraSage and Sage.

Ed,

I would say that you, Ron and Rob have made a definitive difference in our business.  We reached the point in doing business by the traditional means (discounting, billing time, etc.) that we were really looking for a fresh and rewarding approach.  The value pricing boot camp at the Nashville Insights was instrumental in opening our eyes to a very new way of doing business (I know Ron says these ideas are not new in reference to Peter Drucker but new to us!).

You guys provided us with the tools to inject new life into the business.  Even a burned out old veteran like myself is now excited again about moving our business forward.

What’s most exciting to see is the way all of our team members have totally embraced the value pricing approach and how much they love not keeping up with timesheets.  When we first brought them on board they told us we were crazy for not sticking with the traditional rules of consulting.  Now they can’t imagine working any other way!

Thanks!

John F Shaver

Aries Technology Group LLC

phone:  (865) 342-4300 x23 or (800) 990-6646

e-mail: 

web:  http://www.ariestech.com

Congratulations to John and the entire Team at Aries Technology Group for being one of the early adapters in their profession, inevitably blazing the trail for the rest to follow.