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!

Do you want fries with that?

By Karen Smart

There are many things that people do instinctively. One is to look for patterns. Our eyes are constantly searching for patterns. Think of those posters we use to see in the shopping malls in the late 80’s. If you stared at it long enough, an image would emerge. Remember those? Well, I was staring at those ‘motivational’ posters waiting to get excited about their message and beautiful images until Ed Kless womped me over the head. By the way, if you’re tired of the motivational posters, there are also fun non-motivational posters. http://www.demotivators.com/. Another thing we do instinctively is choose. Options are in front of us everyday. We even give our children options. Do you want the red fire truck or the Sit-n-SpinT? You can’t have both. Do you want fries with that? Himalayan Pink Salt or regular table salt? What size? I think the entire value model probably goes back to Adam & Eve. They had a choice too. But, I don’t have time to do all of that research because I’m so busy having fun at work these days trying to figure out what options I want to offer my customers on proposals. And yes, they ‘see’ a pattern in my options and I can generally alter the text to have a specific pattern that is more pleasing to the eye. Read on.

I’d like to start off by presenting the first proposal I fashioned after coming back from an intense two day training course that our company hired Ed Kless to do especially for our group (WAC Consulting Group, L.L.C.). It was sort of like a mini consulting and leadership academy wedged in between two beautiful Florida sunrises and Ocean sunsets.

I had previously submitted to our client, an hourly based contract, which you will also see later. When I first submitted the hourly proposal, the client didn’t purchase the upgrade due to some economic struggles and staff changes. A few months later (after Ed’s training) the client wanted me to send over the proposal again because they lost the first one. Bless their little heart! What a great opportunity to try this new ‘Value Pricing’ model. I was skeptical at first, and my business partner actually thought the idea was ludicrous and wanted no part of ‘ripping off our clients’ as he deemed it. I looked him in the eye and said, “The customer now expects me to upgrade their system, install the new modules, train people and work with their bank all within a two week time frame”. That meant I had to shift around my schedule and call other clients to move their scheduled updates, just to make this customer’s deadline when we could have worked this in nicely three months ago. So, I endeavored into the ‘uncomfortable zone’ by myself and with people scowling over my shoulder, mumbling something about hours and time tracking and losing customers.

I think it’s important that you see an example of what options look like. Please keep in mind, this was my first time walking and it was hard to be creative. After looking at my first proposal, I am then going to show you how I previously went about doing this task. Seeing is believing.

Okay, as promised, below is my first value priced proposal to upgrade a customer who was on a very old system. This customer also wanted to add the ability to do direct deposits.

New Proposal for Client

What will be needed to configure EFT:

1. Client to authorize their banking representative to talk directly with Karen Smart
2. Karen Smart to obtain ACH file formatting specifications/sample from bank.
3. Configure EFT to generate ACH file in accounting/payroll software.
4. Generate sample ACH file
5. Transmit sample file to Bank for testing and make changes as necessary to form and or database structure.

(This section imparts a skill level that will be required to do the EFT work. Most clients would not want to do this and that’s the reason I put it in the beginning, before the pricing options.)

Option 1

• Project to be completed by January 31, 2009
• Obtain product activations for new version of software from Sage
• Download software and all available service packs to client server
• EFT software installation and installation of accounting software
• Accounting software conversion, install all current service packs
• Configuring EFT (above steps) will be up to client
• $3,800

Option 2

• Project to be completed by January 16, 2009
• All of Option 1 above plus
• Adjust check stock forms and invoice forms after upgrade
• Half-day of training on new product features
• Configuration of EFT as stated above by Karen Smart
• $4,900

Option 3

• Completed by January 8, 2009
• Includes Option 1 & 2 above
• Create direct deposit form
• Full Day of training (8 hours)
• Casual product use calls for one month
• $5,900

Option 4

• Completed by December 31, 2009
• All of Option 1, 2, & 3 above
• Pre-conversion testing performed at Smart e-Solutions Inc, off business hours
• Transfer converted and service packed system to client server, reducing impact of system downtime.
• Database repair on data if needed
• $7,000

Previous Proposal for Client

What you are about to see next is how we previously worked up our proposals.

Description	Done by	Consulting Hours	Programming Hours
Project Management and documentation	Karen Smart	1.50
Analysis (Pre-conversion)	Karen Smart	4.00
Check writing to be ported over to new version	Programming		1
Invoice form to be ported over to new version	Programming		0.5
Training on new features & Direct Deposit (EFT)	Karen Smart	4.00
Performing MS SQL backup of all databases	Karen Smart	2.50
Installation & Conversion of accounting data to new version (For all company databases at Client site)	Karen Smart & Programming	4.00	1.25
Workstation Setups	Karen Smart	.75
Configuration of EFT	Karen Smart	1
Total		17.75	2.75

Note: This is not a fixed cost quotation. We work on a ”Time and Material” basis. If the above quote goes under the amount actually worked, we only bill for the time worked. Same holds true for any time above the estimated hours.

Rates

Charges for Programming hours: $150.00 per hour

Charges for Karen Smart hours: $150.00 per hour

Notice that if you calculate the total estimated hours it only adds up to $3,075. My value pricing proposal started out at $3,800.

You want to know what option they chose? I’ll get there, but let’s talk about your business for a minute. If you’re like me, you’ve been in business for a few years, you are experienced in your field of work and you probably consider yourself to be among the best at whatever it is that you do. I had forgotten all of that. I was looking at things from an hourly standpoint and not from an experience level. Tasks that took me 30 minutes to complete ten years ago, now only take 10 minutes. That is experience and knowledge and folks, it shouldn’t be defined by an hourly rate. If it is, I can guarantee your clients loathe getting bills from you. I also woke up to the fact that when people call me for help, it’s because they seriously can’t do the task themselves and my experience becomes invaluable to the customer, whether it takes 10 minutes or 10 hours.

As a result of my look back and more bonks on the head by our sales person, Dennis Bock, we are in the process of on-boarding all clients to software license agreements, (SLA) which is a whole story in and of itself. We have consultants and programmers in our group that have been applying their experience and knowledge to our customers for over 20 years. I started asking employees and contractors, what do you want out of life, what do you want to do in this position, what are your goals at work? Many came back with things like, “I want to earn over the yearly Social Security maximum taxable wage just once in my life”, “Pay off my mortgage”, “Go on a vacation without taking out a loan” and the list went on. I started off by looking at what bacon I was bringing home in a year. I took into consideration my college degree and the many years of being in this field and what knowledge I have as a result of those years of work. My yearly wage has never been where I want it to be. So, let’s do the math. 40 hours x $150 = $6,000.00 x 52 weeks = $312,000.00. Now start calculating how many ACTUAL billable hours you have over a year, and it’s no where near $312,000.00 per year. In fact, when you start putting a pencil to it, maybe you’re lucky you’re still in business. A good economy masks a poor business. If you’re struggling in today’s economy, maybe it’s time for that change?

You know how much people despise looking at bills from lawyers, so you can imagine that your customers probably feel the same way about getting hourly bills from you. In fact, I know the customers abhor this because one of our clients, that is on plan (SLA), actually told me one day, during a technical support call, “I hated getting bills from you, even though the support was great. I didn’t want to call you unless it was a real emergency”. Reason: Hours = Pain. For the customer and for you. The conversation with my customer led me, of course, to review our SLA billings. I guess it’s just easier to pay a yearly amount because I’m doing just fine on margin. As a result, communications with my client have actually increased. I’m building reports for them and talking to them about other products. They feel they can call me anytime, without the pain of an hourly billing rate. In fact, there’s a lot less stress in the office as a result of having our clients on plan.

For recurring revenue streams that are consistent, and that will allow you to concentrate on your business, start looking at implementing and enforcing SLA’s. You’ll soon be working on your business instead of in it. We have four different levels on our SLA’s and one of those levels is “NO PLAN”. No plan means a higher incident fee when they call in for any help. Sage has been doing maintenance and support contracts for years, and it’s amazing that for most of us, the light bulbs didn’t turn on to recurring revenues long ago. Sage depends upon those recurring revenues for over half their business. I did say half. And to be exact, 52%. Still don’t believe me? http://www.investors.sage.com/reports_presentations/results_presentations/

Click on the 2008 tab Full Year 2008 Results.pdf and go to page 19.

I’m sure that there will be other methods developed in the future to woo us, but this plan is truly working for my company and we’ve never felt more secure in such a tough business environment. So when you’re doing your next proposal, I encourage you to try the value pricing method. I’ve managed to work with two other companies on opposite ends of the nation and they were amazed at what options their customers chose on the proposals I created. They have now seen the light and how this really works! Implementing the SLA’s, (WITH OPTIONS!!!) has also allowed me to relax and not worry about when the phone is going to ring, so that I can bill someone and make them feel horrible about using my services!

So, the client I did the quote for? They weren’t as “HOT” to get the job done before December 31 as they thought they were, and I really didn’t want to call my other clients and reschedule them. They chose the option I wanted them to: Option 3. That was $2,825 above what I originally quoted using the hourly rate syndrome! You know how people frame one dollar bills and proudly display them as their first money earned? I have my first value pricing option proposal taped next to my desk for all to see we did it!

I have yet to prove my theory on pattern searching within my proposals, but I’m starting to keep track of the choices and outcomes. If you want to seek out some interesting sites on pattern searching of the eyes. I might suggest the following websites.

• http://www.videodim.com/Eye%20gaze%20Patterns.html
• http://www.aber.ac.uk/media/Modules/MC10220/visper01.html

Karen Smart

President

Smart e-Solutions Inc

www.smarte-solutions.com

www.waccg.com

785-832-0007 (Office)

866-400-0922 ext 2666

913-269-2666 (Mobile)

Pricing PR by the outcome, not the hour

Dan Morris received many nice emails from people who saw him quoted in the Wall Street Journal article. One was from Kirsten Mortensen, who wrote the following:

Hi, Dan,

Came across your name in yesterday’s Wall Street Journal article. Congratulations on that!

I have also just joined your institute.

My firm, Creative Communications Services, has offered project-priced PR services to our clients for over 30 years.

I can’t tell you how many times, in that time, we’ve watched with astonishment as corporations have thrown big bucks at PR programs that are all puff and no results.

Please let me know if there is anything we can do to contribute to your site.

Regards,

Kirsten

I immediately wrote to Kirsten and asked if she’d contribute a case study for our Trailblazers section, which she generously did. It’s just excellent, and speaks for itself on the sanity of basing your prices on results, not hours:

It’s All in the Package:
Pricing PR by the outcome, not the hour

Kirsten Mortensen, CCS/PR

Other public relations agencies have probably viewed us, over the years, as naïve.

We’ve never cared. We’ve just smiled and gone about our business—because, in the 35 years that CCS/PR has been serving our Fortune 500 clients, we’ve proven our value many times over, earning our clients’ loyalty and repeat business, as well as a steady stream of word-of-mouth referrals.

Our secret is what we called “package pricing.”

We didn’t design this model to anticipate the Big New Thing in services pricing—nor to respond to clients’ budget concerns. It was by accident, really. Our firm was founded by Bob Fisher, a young newspaper reporter who transitioned to writing “success stories"—
case histories—for Eastman Kodak Company and other high-tech corporations. It was a modest little freelance business in the beginning, but notice the model: Bob brought a journalist’s aesthetic and principals to public relations, and he was paid when he produced something tangible—high-quality articles profiling how customers benefited from using his clients’ products.

It wasn’t the way traditional PR firms operated, but it worked for Bob—and it engendered a feeling of mutual trust with his clients.

As Bob’s workload grew, CCS transitioned into an employee-owned company staffed by journalists and media relations professionals who secured placements for our case studies. The portfolio grew; today we offer everything from news release development and distribution, marketing, PR consulting, to customer reference management, video production, and, more recently, website content development.

But even as we expanded, CCS continued to offer package pricing under the original model. For example, we arranged for the placement of articles before we started writing them, so clients only paid for print-publication pieces that actually reached their intended audience

Yes, this model means we assume some risk. We essentially work on spec. But because we assume the risk, we work smart, and there’s a built-in integrity to our services delivery.

We focus our efforts on results—because we’re paid for results, not for “effort.”

We find ways to work efficiently—because when we work efficiently, the operational savings go straight to our bottom line, allowing us to bid more competitively for work while still remaining profitable.

We are inherently comfortable with metrics. It’s easy for us to document the results of our services on our clients’ behalf, because our work is focused on achieving results.

And we don’t overpromise to our clients or overhype what they can accomplish—because we know we won’t get paid for promises we can’t keep.

Not every client we’ve worked for has wanted our pricing structured in this way. We’re sometimes asked to bid on contracts based on a per-hour bodies-for-hire model. And when this happens, we accommodate those requests.

But no matter what, we continue to offer our package pricing option to both new and existing clients. It remains a fundamental aspect of our firm’s corporate identity. And it feeds our corporate culture of integrity, high-quality work, and a strong emphasis on results.

Thanks, Bob!

Thanks so much Kirsten for sharing your story with our community.

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 Update: An Australian Black Swan

Matthew Tol, from the Trailblazer firm of Matthew Tol + Associates in Australia, recently sent us an update on his progress since dumping timesheet on July 1, 2007.

Sixteen months after what Matthew calls this “leap of faith,” the story of this firm corroborates all the others we have heard from who have taken the initiative to transform themselves into Firms of the Future.

As I read this, I was thinking of the many consultants from Down Under who still insist you must keep a timesheet to lead a successful accounting practice—Rob Nixon, David Connell, Andrew Ged, David Smith, among others. They don’t seem to understand that not all swans are white. Some are indeed black, including ones in their own backyards.

How these so-called experts can continue to deny the existence of these Black Swans is a topic that fascinates us to no end. It is very similar to the medical profession not giving up on bloodletting even though antiseptic surgery, along with germ theory and penicilin provided more effective ways to heal patients.

It reminded me of what G.K. Chesterton wrote (paraphrased):

If it were true that the man who is trained is the man to be trusted—if the man who saw something every day saw more and more of its significance—the argument for expertise would be unanswerable. But the man who sees and studies and practices something every day does not understand more and more of its significance, but less and less.

In any event, here is Matthew’s inspiring journey to emerging, like a chrysalis, into a Firm of the Future.

I must admit, it was a leap of faith to dump timesheet from the 1st of July 2007. My staff were against it (whilst understanding the reasons for it), my clients (in the main) were a little bit sceptical and, to be honest, whilst I was confident it would all work out in the end, I wasn’t exactly sure how long that would take.

I’m now 16 months down the track and I’m pretty sure the time is up!

Taking the step from timesheet which I’d been bought up to believe were the whole raison d’être of our lives as professionals was somewhat daunting. I’d read the books, trawled the internet and spent many hours speaking with colleagues about the whole process. It was still relatively new in the accounting profession in Australia and most of the people I spoke to expounded at length on a whole heap of reasons why it would never work. All of them quantitative.

One of the first steps was to get the team’s head around it. They too had been inculcated with the belief that everything they did had to have time attached to it. They’d been trained that way, they’d been reviewed that way and they had also trained others in this system.  It was, to a large extent, ingrained.

Many hours of discussion, mo of new processes by which we could run the business and the methodologies we would adopt with clients ensued. It was actually quite illuminating as it caused us to look, dispassionately, at what and why we were doing things for the people we were doing them for.

In many ways, it helped to clarify our culture and business mantra—we like dealing with people we like.

We then had to sort out our client engagement process and go through the exercise of discussing this with the clients. This served to help us to uncover and get more confident in the value we provided to them by the processes and procedures we used (our Intellectual Capital if you will). Prior to this, we had not really thought about this as it all revolved around the hour and applicable rate.

As part of the engagement process, we moved the clients on to monthly billing which was, again, a difficult process in some ways as they were used to “you work now, bill then and we pay later.” Speaking to our customers now, they are very happy with the process—they have certainty, clarity and comfort that they’re not going to get “a blister” of an account from us—everything is priced and signed off up front.

We then proceeded to get on with doing the work. If I may hark back to the timesheet model—assuming we have 10 staff and they all spend 15 minutes per day in doing timesheet—by dumping them, I freed up and additional 150 minutes per day (12.5 hours per week) which could then be spent servicing customers, training or on business development. All of this came at no additional cost. The month end process of reconciling timesheet, doing bills, reviewing write-offs and sending out the bills was all stopped. This would free up a minimum of an additional 25 hours per month. So, I’m already about 75 hours ahead per month.

Couple this with the fact that we don’t then have any debtors (all invoices are raised on the day the direct debit comes in) the additional time taken to collect the outstanding accounts has been removed. This would have totaled about 20 hours per month plus the costs of mail, phone calls, faxes etc. I’m now about 95 hours per month ahead with reduced costs.

Now, with the extra 95 hours per month I have, we are able to work more on the client and “follow the rabbit down the hole” on issues where we can add value to the customer. The admin team are working on further development of our internal systems and processes which then improves our efficiencies and traps our IC. My team are and have been encouraged to think about what they do rather than just get it out the door so we can bill it. They’re coming along really well and developing at a far more rapid pace than that which they were able to before.

One other thing we’ve done is signed up with Principa. We’ve found their products to be extremely useful in providing high value, challenging proposals to our customers which help them in attending to the raft of issues they need to grapple with as they move their businesses forward.

All sounds terrific doesn’t it?

There have been a couple of pitfalls. We didn’t get our pricing right the first time around. This is what I refer to as the “learning premium.” We have developed our skills in identifying value AS IT RELATES TO THE CUSTOMER rather than as we perceive it.  This is a big issue because, as accountants, we’re trained to focus on the quantitative issues of the customer—profit, balance sheet, cash flow and tax. They’re all definable, measurable, provable and totally meaningless (in a value way) to the customer. The customer wants your help in understanding their business, working with them to build and drive their business, to think for and with them and to help them develop their own set of skills. You can’t really do that by looking at historical figures—you don’t drive your car spending all your time looking in the rear-vision mirror!

There have been a couple of customers who just “don’t get it.” Or, should I say, ex-customers. If you’re going to do this, be prepared to lose a few on the way. If I can be so blunt, they will more than likely be the customers who you didn’t really enjoy/want anyway.

There was also a bit of a short term “blip” in the cash flow. Instead of having a succession of big payments coming in, there were very regular smaller amounts coming through. Sure the debtors as at 30 June paid up (eventually—one of them just last week!) but it took quite a while. And I put up with this payment crap for years!

As part of our ongoing development of our business, we also spend a fair bit of time on the following:

• Team “love-ins” twice a year where it’s a full de-brief of what we’re doing well and not
• Up-skilling our team and up-scaling our IT hardware and software to enable us to be more efficient
• Workflow management processes (all our compliance work will be done within five months of year-end) and
• More “down time” in the office where people are encouraged to just talk
  

So then, how are we positioned now? Well, life has become a whole lot more enjoyable. I have employed a General Manager who now negotiates all our terms and pricing with existing and new customers. He is from a banking background and has terrific training for this type of role. The rest of the team (technical and admin) have been freed up to do what they do best—work, think and engage with each other, the customers and the rest of the people we deal with in this business (banks, lawyers, financiers etc). They don’t need to be concerned about how much time it takes—it’s all about the results. Results are what counts to our customers and that is a large part of how they assess the value of what we do.

The team is also more focused on thinking for the customer rather than worrying about the time it takes to do things. Again, a far better result is created.

In a discussion with my GM and one of my senior guys this morning we crystallized what it was all about. It’s all about qualitative assessment of what we do rather than quantitative measurement. If we concentrate on the qualitative things:

• Our internal relationships
• Our customer relationships
• Creation of value for the customers we are working with
• Open, honest and considered responses to customer queries
• Proactive, challenging proposals for the customers (as a result of our earlier thinking)
• Our relationships with other people who touch our business, and
• Fostering and refining a great environment for everyone to flourish in
  

then the results will look after themselves.

All sounds very “new age” doesn’t it? Maybe it is. But it works. Very well.

Now, for the quantitative types out there, here are the results:

• Growth of >30% (increasing)
• Profits up a little bit (but a lot more this year)
• Staff turnover of zero (actually negative as we’ve put more on)
• Cashflow improved out of sight
• Me working about 3.5 days per week (could do less, but I enjoy it)
• Average client fee has increased to about $18,300
• Debtors of zero
• No write-offs
• Very collegiate and supportive culture in the place, and
• Lots of customer referrals (hence the growth)
  

So, from a quantitative point of view, I cannot tell you what my profit on any one customer is. I don’t care. If we like dealing with them and we believe we are being fairly remunerated for the work we do, that’s fine. I’ll bet most accounting businesses out there would be able to tell me who their non-profitable customers are without looking at a time costing model—they’d just know.

From a qualitative point of view, I’m pretty sure we’ve got a fair way down the road. We’ll never reach the end of it—I don’t suffer that delusion—but the whole place is a far better place to be now than when I was keeping track of my life in six minute increments. I recommend it.

It’s worth pointing out that this isn’t merely a “pricing strategy change.” This is a business model change.

A business model is the way in which a firm monetizes the value it creates for its customers. What makes the Firm of the Future just such a change is that it is no longer selling time, but rather Intellectual Capital.

In a service industry, like an airline, if a seat goes unsold, that revenue is gone forever—it’s what economist’s call a “rival asset,” since it can be used by only one person at a time.

But a PKF that knows it sells Intellectual Capital also knows that IC is a “non-rival asset—meaning it doesn’t disappear just because it’s not being utilized. Therefore, the service analogy of “unsold seats” = “unsold time” doesn’t make sense in an IC framework. Just because my book sits unread on your shelf does not mean that someone can’t benefit from it during that time.

This is an enormous difference in how to think about what you really sell, much more liberating than thinking about the confines of time.

Matthew brings up another excellent point—his concept of a “learning premium.” We are often asked what are the risks of adopting this model, and there are no doubt some short-term costs.

But those must be compared to the mistakes you are making now, not some utopian idea where everything is 100%. You have to consider that learning premium as an investment in a better future. It is, after all, a short-term cost, not perpetual.

There are many other lessons I hope you take away from Matthew’s experience. Reading our Trailblazers is always exciting, since no two firms take the same path to becoming a Firm of the Future. They are as unique as each butterfly. Or each Black Swan.

If I could Matthew, I would hoist a glass of Black Swan wine with you, to congratulate you and your team on your tremendous progress.

Trailblazer:  Fletcher Martin

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!

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.

Congratulations:  Trailblazer Snyder & Company, Lancaster, Ohio

In August of 2004 I traveled to Lancaster, Ohio to present a Value Pricing workshop to Snyder & Company.  I’ll always remember this trip for many reasons, one of which is Victor took me to the Accounting Hall of Fame, located in the business school at Ohio State University. 

The partners immediately grasped the opportunity of transitioning from hourly billing to Value Pricing.  We also discussed the benefits and costs of timesheets, with me arguing strenuously they trash them.

Well, they did.  As of January 1, 2008, Snyder & Company is a Timeless firm, both for pricing and as a misguided means of measuring so-called “productivity.”

Here is the email I received yesterday from one of the firm’s partners, Victor Christopher:

Hi Ron,

Hope all is well.  Not sure if you remember me or not, but you visited with our firm a few years ago to help us get our arms around the Value Pricing Philosophy.  It’s been a long process, but we’re finally completely finished billing by the hour.

...And I am proud to say that since January 1st, I’ve had zero billable hours...since we officially did away with timesheets on January 1!  Much to the surprise of others in the industry, the walls did not come crumbling down around us...work is still getting completed...staff are still getting paid (and partners too)...and our clients are happy.

We’ll have to catch up at some point later this year.

Sincerely,
Vic

To all the skeptics out there, take a good look.  This is the future of the profession.  Deny it all you want, but it’s happening every single day. 

Your dogma of timesheets has been tossed onto the ash heap of history—and not a moment too soon.

Congratulations Snyder & Company for becoming one of our Trailblazer Firms.

New Technology Trailblazer - Forepoint LLC

VeraSage is pleased to announce a new Trailblazer in the technology industry — Forepoint LLC.

Based in the northwestern United States, Forepoint has undergone what President Kevin Cumley describes as a magical transformation. “This business is fun again after some years of difficulty. Our customers are happier and more profitable than ever and it is due to the move we have made to what we call value selling and value pricing.”

Not that it was easy. It was actually quite hard. “The hardest part was convincing ourselves. We had some struggles just getting buy-in from our people.” Take Sonia Gray, vice president and partner in the firm. At first, she resisted thinking that customers would not understand and believe that value pricing was akin to price gouging. “I was not convinced, but I agreed to at least try it,” she begins. “Then something happened that dramatically changed my thinking.

“I was talking to a prospect and told him that we wanted to fix price his engagement rather than bill him by the hour. He looked at me, dumbstruck and said, ‘I don’t know why everyone isn’t doing this. I’ve always thought that billing by the hour was just a license to steal!’ From that point on, I was convinced that this was the best thing for both our company and our customers.”

“Getting Sonia over the hump was the catalyst that really got things started,” says Cumley, “Not that it still didn’t require convincing others.” A recent example illustrates this challenge.

Forepoint was engaged by a customer to perform a simple (from their standpoint), but high-risk movement of data for a customer. Cumley set the fixed price based on the relative value to the client and risk to his firm (based on time it came out to a little over 4 times their standard hourly rate). Once the Forepoint staff was informed of the price quote, one of the consultants on the project even emailed Kevin to express his concern, “I know that our services have a lot of value, but I think that this data move has been grossly over-priced, and could be a problem.” Cumley held his ground. “The answer is simple - this is not about time, but value. My question to you is this - given the very high risk for a project of this nature to both our firm and the client, what is the value to the customer,” he responded. After some additional email exchange, the consultant reluctantly capitulated, “OK - I give.”

Kevin even admitted that he expected some price resistance from the customer. The result, the customer not only signed off on the proposal without any resistance, but also was thrilled with the results. “Probably left money on the table,” laughed Kevin. “It ain’t always easy, but it sure is fun!”

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:  Kreykes Consulting, Inc.

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!

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.