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:
- Since quoting prices upfront, we have not had one complaint about prices. Not one, in 18 months. Previously probably at least one per month.
- 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!
I was thrilled to learn about the advertising agency Fletcher Martin in Atlanta, Georgia. They have implemented many bold—and all too rare—strategies, such as stopped doing “pitches,” offer a full money back guarantee based on results, do not get compensated by the hour, and trashed timesheets.
Andy Fletcher, President and CEO, was kind enough to write-up the following case study of his agency’s transition to what we at VeraSage call a Professional Knowledge Firm. Here is Andy in his own words:
About two years ago I began to wonder if there was any hope left for the advertising agency industry. Really. Any hope at all?
It seemed to me that our industry was in a freefall nosedive and we just weren’t strong enough to pull up and out of it. Agency/client relationships had slipped to an all time low of less than three years, major advertisers had relegated the agency selection process to search firms and our compensation was put in a queue in the purchasing department. Agencies had finally become interchangeable. Surely not a commodity, but all too close for comfort.
Obviously I had become a bit overly dramatic. Our industry is as alive and well as most any could be considering the current economic climate. More importantly, I have realized it will do me or my company very little good to try and change the entire industry.
My agency, Fletcher Martin, is located in Atlanta. We are majority owned by a holding company somehow headquartered in both Toronto and New York. Of the multiple entities that make up the MDC Partners dynasty, we are somewhere in the middle in terms of size. When it comes to fame, we pale by comparison to our wildly successful big brothers in Miami and Boulder. Crispin Porter + Bogusky casts a long and foreboding shadow throughout our corporate family and the industry at large. For this I am surprisingly grateful. The attention they garner on a regular, if not daily basis, has allowed my agency to embark on an entirely new approach to our business. Our success will provide a possible template for other MDC agencies to explore. Our failure (perish the thought) would cause no over arching financial effect.
In a nutshell, we changed everything about our business model. We weren’t stupid or even fool-hearty. For our existing clients, we continue to operate under the terms and conditions that were in place at the time they selected us as their agency. To expect them to adopt our new approach after the fact would be both unfair and ungrateful. We hope, however, that some will explore that option as our success continues to mount. For this particular discussion, I will focus solely on our new approach to compensation. It is not entirely new or totally unique, but it is nonetheless rare.
There were five critical factors that shaped our new compensation plan. First, our steadfast belief is that clients actually don’t value “free” even though they may seemingly ask for it all the time. We took a candid look at our recent (i.e. about the last ten years) recommendations to our clients. We eliminated those that our clients paid us to develop. We selected what we thought was the best strategic advice we had offered. Sadly, we determined that none of our best counsel had been implemented. Now I know you could say that that our thinking was blatantly flawed and rightfully rejected. You could also conclude that our clients showed insight and wisdom to select alternative approaches. But the fact remains, we instituted and executed the strategies that they put forth. We did so honestly and with honorable intent. After all, the execution of their existing approach was our only opportunity for compensation. To no one’s surprise, we failed, they failed and a new agency appeared on the horizon.
Second, with failure having been confirmed with a client’s current agency and failure almost assured within three years with whomever they hire, everyone is looking for a better deal. I actually used to be amazed at this one simple fact—when a marketer fires their agency, they automatically want to pay the next one less money. They actually seek success for less than they paid for failure.
Third, agencies make the same amount of money whether their work performs for the client or not. We have become somewhat like professional athletes. It doesn’t matter if we help our team win or lose, we will still get the same check. Unfortunately, it appears most all of us in our industry are willing to accept the league minimum rather than those headline generating, multi-year contracts.
Fourth is the always stated desire for a “partnership” between the client and their agency. It would seem that this little topic would be the most easily achieved. After all, clients routinely include their desire for an “agency partner” in their RFP, and agencies mention “partnership” in their capabilities about as often as they as they do “integration.” I acknowledge this as a noble goal, but it is none-the-less unachievable. In a true partnership, one partner does not pay the other. They share. In a true partnership, one partner does not fire the other. Normally one buys the other out of the partnership. You get my drift.
The fifth and final factor is the actual assignment or “scope of work.” Too often agencies are asked to provide the next executions of failing strategies. Marketers jump to the conclusion that a new agency will breathe new life into a tired brand message. They skip the often painful process of reexamining their product, service, distribution and ultimately the customer expectations that have no doubt shifted in their marketplace. This all but assures the new agency will fail. We tell our clients it just doesn’t matter how well you say the wrong thing. So, what did we do? We eliminated the assumption of failure. Shocking, I know. We only engage with a new client on the following terms.
We will only work with clients who allow us the opportunity to fundamentally affect their strategy. We will not produce any speculative recommendations or “initial thinking” until we are engaged. Subsequently the client must allow us to challenge their current strategy and provide us full access to all senior management within their firm, current customers, channel partners and market data and research. This evaluation will result in a fully executable strategy in detailed plan form. To assure success, the client must pay for this plan. The price we charge is based on complexity of the assignment and degree of difficulty. We believe that the more differentiated our client’s products or services are, the less difficult it is to develop the strategy. The reverse is obviously true if the client lacks meaning inherent differentiation. In those cases we charge more. It has been proven that our new clients are much more attentive to the planning process and place high value in the ultimate deliverable due to their financial commitment. Because the client paid for the plan, they own it. They can give it to any agency to execute. If they want us to execute it, we move to a new phase. We will risk our entire compensation going forward against success of the new strategy.
It really is simple. If our client doesn’t achieve greater success (make more money) with us than they did before us, we shouldn’t get paid any more money. None. If they make a little more, then so should we. But if they make a lot of money, then so should we. We should be paid based solely on success. Not based on how many hours we spend or on a percentage of how much our clients spend in advertising. We are still not a “partner” but we are unquestionably in the same boat.
There is real upside for the client. Failure is cheaper than ever before and success is the only result that costs them money. We love it because we can make real money for our work, but only if the client succeeds.
As you can imagine, many companies we present this to push back. Their greatest fear is that we will somehow get credit for their success that was not our doing. That’s fine. If there are so many things going right for their sales unrelated to our efforts, they probably don’t need a new strategy any way. Others have mentioned they have no way to truly measure success. For instance, what if top line growth is as important as other criteria? No problem. I have never known a CEO that didn’t know if his or her company wasn’t more successful one year to the next. However they judge it, we’ll make it work. Frankly, we’ll use their personal compensation deal. However they calculate their incentive plan is good with us.
To pull this off, we had to change a lot. We no longer participate in traditional agency reviews. They almost always require spec work. We have to say “no” and that is almost unheard of in our industry, let alone our previous culture. We hear frequently that there are “plenty of agencies out there that don’t charge for the strategy.” We eliminated timesheets to eliminate any temptation to charge hourly “just one more time.” We have to stick to our guns. Our clients pay half of the strategy cost before we even begin. That almost always generates spirited discussion.
So far we are more than pleased. We have been hired by good new clients. Our work is improving because it is based on solid strategies. Our clients really like the reality of our success being solely tied to their success.
Congratulations to Andy and his entire Team at Fletcher Martin for being another brave penguin, among the first in the profession, to leap off the iceberg!
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.
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.
One of our favorite Key Predictive Indicators at VeraSage is the HSD—High Satisfaction Day.
Nothing gives us more HSDs than receiving an email like the one I did yesterday. Even though my computer’s hard drive crashed in the morning, which is a lousy way to start the day, getting this email from Brett Kreykes makes it all worthwhile.
Ron,
Keep up the great work at VeraSage! You have been inspirational to me and my small I.T. Consulting company! Indulge me, if you will, in my “story.”
Five years ago I journeyed out on my own as an independent I.T. consultant. I was billing by the hour and things were going pretty well for me. After 2 years I was very busy with small to medium sized companies and residential work. I soon discovered that I was unable to grow my income due to the limited number of hours in a week. How terribly depressing! I wondered for days if I was going to be ‘stuck’ at a fixed income. I didn’t know how to address outside of raising my rates, but I didn’t think my customers would put up with that for long.
After seeking out advice from those wiser than myself, a friend of mine introduced me to VeraSage and I dove head first into the 3 ACCA Booklets available on your website. I immediately knew FPAs were the solution. I continually had situations in my work that bothered me. When one customer had a new problem, it might take me 3 hours to fix it. A second customer then had the exact same problem, which I could solve in 10 minutes. This was really unfair to the first customer and to me! Now, realizing that selling knowledge/skills (and not time) would remedy situations such as this!
I introduced my first FPA to one of my larger customers, which they warmly received. My fees increased 50% without having to do any more work! As my hourly based contracts expired, I introduced FPAs to my remaining customers. I occasionally received some resistance, but nothing unbearable. Once my customers understood how an FPA would benefit them, they soon saw the value of a FPA.
Now, the beautiful part of it. I’ve been firing customers, specifically all of my residential customers and business customers who were not good customers. I now have more free time, less stress, and I can better take care of my FPA customers and provide a higher level of customer service. Now, if any business wants to ‘hire’ me, I sit down with them and determine their needs. If the engagement is not worth at least $10,000 a year, I pass. This way I ensure of having customers who are as committed to me as I am to them.
I have never enjoyed work so much as I do now. I earn a fantastic wage and I don’t have to work myself silly. I even get paid sick days, holidays, and vacations now! (try that with hourly billing) My family life has even improved as I now have more time for my wife and children.
Ron, you and VeraSage have made a huge difference in my life, and I want to say “Thank you!” As comical as it is, my friend who first introduced me to VeraSage has yet to get his CPA firm utilizing FPAs. I brag about my success to him all the time and continually remind him of all the money he’s leaving on the table. It drives him nuts.
Best wishes for the future!
Brett Kreykes
Kreykes Consulting, Inc.
Thanks Brett. Nothing is more humbling, nor more inspiring than hearing stories such as yours.
Value Pricing works, and to all those cynics who say it can’t just read all of our Trailblazer stories. This is empirical evidence from the real world.
It also illustrates that Value Pricing is not just about pricing. It’s a business model. It changes everything about a firm, from shifting your thinking that you sell time to thinking you sell intellectual capital. It impacts how you treat customers, how you select them, communicate with them, and more.
When we say “all this we do only for the price of seeing you, our colleagues, succeed,” we truly mean it. This type of confirmation of our work is priceless because it furthers the posterity of the professions.
Congratulations Brett, and continued success in the future!
As a follow-up, I asked Brett if he trashed his timesheets. Here’s his response:
Ron,
I did in fact dump my “timesheets”...what a sheer joy that was in and of itself. I didn’t have sophisticated software, I tracked my time using Microsoft Outlook’s calendar. At the end of every month I would then manually transfer it into QuickBooks so I could do my billing. It was an awful process that was tedious and prone to human errors. I’m glad that ‘chapter’ is done!
Thanks again!
That’s worth another HSD!
Geoff Richmond of 2IC Management Pty Ltd. sent us this e–mail to share…
Thank you very much to Ric & Kerry Payne, Paul O’Byrne & “The Value Guru” Ron Baker.
As you know we left the 2020 Conference and jumped in boots and all to tear up timesheets and operate on Value Pricing on all assignments. So far after three full months the results have been fantastic. Obviously there have been some teething problems as would be expected with any major revamp but the pluses have far outweighed these minor hurdles. As a thank you to you all I thought I would give a brief summary of our encounters for you to pass on to the unconverted. Once we have experienced a full year I will be happy to give a more comprehensive report if you’re interested.
The Hurdles:
- A few clients were a little sceptical and suggested they did not want to pay for the unlimited phone calls and meetings. However when we explained the fee set did not include any allowance for these freebies they signed up.
- A couple of clients also mentioned we are getting out of their league and they don’t really need this level of service ( these are borderline clients in terms of “the type we want”) but most agreed to stay on.
- We did loose several clients based on the upfront quote. It probably gave them a chance to make a decision before the event rather than not doing anything about shopping around, bringing in their work late and not being happy with the fee ( as has probably been the case in past years). These were definitely clients that we were not worried about losing and they never utilised our services as we want anyway.
One significant client who has never queried our fees and with whom we have a great relationship has felt uncomfortable with a fixed fee that includes a lot of unknown variables. We have agreed to bill them quarterly but explained to them that we will only be able to assess the fee based on the value we bring to them as we do not have timesheets. We will be using the costings of previous years to determine the value of compliance work and assess on an ongoing basis the value brought to them from ongoing assistance.
We have proposed four different payment structures:
- Prepay before 30th June to get a tax deduction in the previous financial year. We did get in a few thousand dollars under this proposal, and probably a chance to get more next year once clients are familiar with the system.
- For those previously on monthly instalments over 12 months they remain the same. No problems here.
- The option to pay the fee in equal instalments from July to December. We had several that tried to get it payable past December but in the main we were successful.
- For once off annual clients 50% when bringing in their work and 50% upon completion. There are still a few who are not convinced they should pay anything before we do the work but we don’t see them as critical amounts , nor do we see them as being a problem.
Trying to get every fee set and out to clients in the first couple of months of the year has been a lot of hard work by our Admin team and added additional responsibility on our professional team but they have all got right behind it because of the long term benefits.
The Benefits:
- For the three months to 30th September this year we have banked $375k compared to $206k. Based on a turnover of approximately $1.0m this is a much improved result and we are still bedding down some of the fixed fees that opted for the six month payment plan that will be catching up over the next three months.
- Our team feel that rather than having pressure on them to produce chargeable hours the pressure is to get the compliance work out the door so we can develop value add strategies for our clients.
- I personally have found that rather than worrying how much time a team member is spending on a job I am more concerned about the quality of the job produced. This has to be a better outcome for all in the long run.
- On the one off assignments we have quoted so far we are finding it much easier to quote a higher hourly rate if there is value in the job. In fact I had one project we quoted $7000 for a report for two partners starting up a new business. I was a bit worried when I did not here back from them that they thought I was too dear. When they finally got back to me they questioned whether our quote was $7000 each rather than in total.
- The psychological difference between asking a client if they are happy to spend $x before you commence a project has really stood out. Beforehand the client has a need and is willing to invest to get it. After the work has been done he has nothing to gain when receiving a bill and in fact if the project turns out not to be as attractive as he had hoped there is even more downward pressure on the billing. We know that if we had invoiced after the event based on time sheets we would have marked some of these jobs up but may have made an additional $20 to $50 per hour. I believe we are consistently making an additional $100 per hour plus on one off projects.
- We have discussed within the team whether we are ripping anyone off and all have the same opinion that we are offering a service with a price tag and the client is buying on a well informed basis. Having said that some of our VPA clients have asked us to do some work outside free phone calls and free meetings and we have performed these tasks at no charge because we couldn’t see that there would be any tangible value for the client. We even had a client ask are we going to bill them and we won’t—this should also build goodwill.
- We have also made it our policy that we will perform work at below normal rates for clients that need some assistance but could not justify a fee based on normal hourly rates. This will keep us involved with the client and ensure they turn to us when they need some more valuable work.
- We are setting up a “Value Register” for every client which is supposed to be updated as we do some work for clients—especially for benefits we bring to them from the compliance, free calls and meetings input. This will help us in justifying next years proposed fee by pointing out all we have helped them achieve over the previous 12 months.
- Moving forward, timesheets we are keeping really only monitor such things as sick leave, staff training, promotional time and overtime. The time saved and therefore increased productivity is very significant.
- We no longer have an admin team compiling WIP reports for professionals to raise invoices and no more angst between team members because they are holding up closing off debtors or wip.
- We haven’t yet finalised our internal reporting to establish our efficiencies but this is well on the way. I am confident that any inefficiencies in our billings will be outweighed by the extra time available to do real work rather than timesheets and the improved hourly rates on projects and the improved cashflows.
Thanks again, give me a call if you would like to discuss.
This correspondence was received by VeraSage and is posted with permission.
Dear Ron,
Just wanted you to know I finished a medical billing insurance claims case today based on value pricing. The bill for $30,661.95 was over 2 years old. The patient tried for 637 days (1.75 years) to get it resolved and didn’t make any progress. I successfully resolved it in 122 days (4 months) and the patient owes $889.74!
My customers are happy and I’m happy to eliminate the extra job of tracking my time. My income is no longer restrained by time! I can focus on what I do best...resolving my customer’s medical billing and insurance claims problems.
Thank you Ron for teaching me value pricing! My VALUE truly is my TALENT not my TIME!
Dawn Hampton, RHIT
“Dedicated to the effective management of your medical bills and insurance claims”
www.phd-org-services.com
