Fred Wright from Aries Technology Group recently reminded me of one of the favorite quotes we use at VeraSage regarding price and value. The exchange is from the Oscar Wilde play Lady Windermere’s Fan:
Cecil Graham
What is a cynic?
Lord Darlington
A man who knows the price of everything and the value of nothing.
Cecil Graham
And a sentimentalist, my dear Darlington, is a man who sees an absurd value in everything, and doesn’t know the market price of any single thing.
It is obvious, to me anyway, that as pricers we are striving for the midpoint between the two. However, I am curious as to your thoughts on this.
VeraSage prides itself on dissenting ideas, which is why we have a “Skeptic/Dissenter” category under membership.
Greg Kyte is the self-proclaimed “Champion of the Dissenters.”
I’m proud to post his first contribution and let our readers decide for themselves the merits of his arguments. I’m sure this won’t be the last we hear from Greg.
Enjoy!
Ron Baker is Wrong
Ron Baker and his stooges at VeraSage have long tried to discredit the well established modus operandi of professional firms: Time Accounting. To do so, they use the following simplistic equation:
Revenue = People Power x Efficiency x Hourly Rate
Unfortunately for the VeraSage minions, they have been attacking a straw man. The manifestation of the formula as conjured by Mr. Baker does not accurately represent the robust nature of the hourly billing convention. Professional firms naturally augment the formula with the processes by which they calculate Hourly Rates for their personnel. Best practices for calculating the Hourly Rate element include the use of the following formula:
Hourly Rate = RABR x Experience Factor x Stupidity Factor x Biorhythm Factor x Opportunity Cost Adjustment.
Allow me to enlighten the brainwashed value pricing hoard on the components of the augmented hourly rate element.
Reputation Adjusted Base Rate (RABR). Every firm has a reputation within the context of the business community that it serves, and this reputation determines the base rate to be used as the starting point for calculating billing rates for personnel within the firm. Also, it is universally accepted that the reputation of a firm equals the quality of its service. Arthur Anderson was unquestionably the most reputable accounting firm in the world in 2000, and to this day nobody questions the quality of their work.
Experience Factor. To begin to hone the firm-wide RABR to the individual practitioner’s hourly rate, it is obvious to everyone but Ron Baker and his goons that experience is the most important factor. Without a doubt, a college graduate with a piercing analytical mind and a penchant for big picture value creation cannot deliver the same quality of service that a middle-age alcoholic in the middle of a years-long divorce and a crippling debt burden with 20 years of experience can.
Stupidity Factor. Stupid individuals should have a lower billable rate than smart people. A Stupidity Factor of 1.00 means that the individual has committed the average number of errors during the prior period. A Stupidity factor above 1.00 indicates more errors, more stupidity, and a lower billing rate. No, no wait. A lower stupidity factor means lower intelligence and more errors. No, that doesn’t seem right. A higher stupidity factor means stupider people with higher rates. Yeah, there we go.
Biorhythm Factor. I am a morning person. I work best in the morning, and I am virtually useless in the mid-afternoon. Therefore, since my efficiency and the quality of my work are higher in the morning, I bill clients 15 percent higher before lunch. I also charge a fifteen percent premium for the 20 minutes right after drinking a Diet Coke. To be fair, I also give my clients a 15 percent discount for the 20 minutes immediately following calls from my ex-wife or for any time that I happen to be hung over. For price sensitive clients, we have a partner with clinical depression and irritable bowel syndrome.
Opportunity Cost Adjustment. One of Ron Baker’s harebrained arguments against time accounting is that it does not reflect the realities of economic laws. Is there a more irrefutable economic concept than opportunity cost? Opportunity cost comes into play constantly during busy season when personnel are working odd hours. I charge an opportunity cost premium on Tuesday and Wednesday evenings because I hate missing Idol, and I give a discount on Sunday mornings just so I can have a good excuse for skipping church.
So, sorry, Ron, your simplistic revenue formula has been turned on its head. It looks like I’ve single-handedly brought VeraSage to its knees, and I sincerely hope that you can get out of the lease on the office space for your (virtual) headquarters.
You know who you are. You LEAN, six sigma, black belt, ninja turtles.
Explain to me (and the world) how any of you and your methodologies would have come up with the idea of putting a piano in the atrium of the Mayo Clinic where this could happen?
I just love Craigslist. I am convinced that one can find almost anything for sale. Today (thanks to the ABA Journal {see free iPhone App even if you aren’t an attorney, it is frequently excellent reading}) I learned of a relatively young (well when you are my age, anything south of 40 is considered young) lawyer that has decided the FMV of his (assuming it is a he, based upon the Craigslist posting choice of language) is equal to the current value of his outstanding student loans. Quite the discount. If I had the nearly $60,000 (I would of course request a cash discount) to spare, I might actually consider it, although my terms and conditions would be stringent (e.g. I would require vast amounts of tutoring to help him transfer the knowledge and social capital to me) - but still this is quite the steal.
The telling spot about the advertisement Craigslist Lawyers Sells Degree is his description of why he wants out. If you are at all curious as to why brilliant minds opt out of a distinguished profession, read the full post. What is it about the law that has so tainted this young person to leave after spending in excess of $100,000 at a top tier law school to leave his chosen profession?
And this creative lawyer is merely a representative of those that are annually leaving the profession. At least the lawyers are asking some of the questions as to why? Legal leaders know that young people have no desire to be slaves to the almighty hourly bill. Additionally, the exchange for unnecessary legal work for merely a paycheck isn’t a standard of an honorable profession. Finally, law firm leaders frequently lack leadership (meaning they aren’t nice people to work for).
From my perspective, it is simply another wooden stake into the Vampire’s Heart (that being the hourly bill and its timesheet). I will offer some silver bullets as well and have already invited him to read this blog.
Whoever he is, I want to thank him for cheering up my evening.
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