Trailblazers Section -
I had a great conversation this week with Michael Stewart of Integrity Wealth Pty Ltd, outside of Brisbane, Australia.
I’ve known Michael since his days with Results Accountants’ System under Paul Dunn and Ric Payne. Then he was with Principa, and now is with Integrity as General Manager.
As of October 1, 2007, the firm eliminated timesheets. More empirical evidence that this is the wave of the future if firms are serious about operating effectively in an intellectual capital economy.
During our conversation, I asked Michael to provide me with a case study on his firm’s transition to becoming a Firm of the Future.
Here is his first installment, as he wants to add to the story in the future to inspire others:
Hello Ron.
Thank you again for speaking with me during the week. As is always the case when interacting with you, or your material, I left feeling further inspired; and also somewhat humbled—there is still much for us to learn and implement as students of pricing and value.
As agreed I’m sending this email now and if there is sufficient interest from the VeraSage community I’ll follow up with a more detailed case study. While getting rid of timesheets was just one step in an overall strategy to change our firm, it has proven to be a critical one. Not being an accountant myself I’ve never had to record my life in 6 or 10 minute units (and if I had I probably wouldn’t have lasted very long). So in some respects I don’t think I can really convey some of the differences it’s made to individuals within the firm. But I do know what it’s done for our mindset, how we promote the firm, and how both clients and team members react to a no timesheet model—and it’s all positive. Perhaps in a future email I’ll get one of the team to write their thoughts. As an example, Denise Gibbons (Partner) said to me recently “I used to make myself sick preparing bills for clients”. We don’t have to worry about that anymore, which in itself has to be a major win.
As a summary:
Practice Profile:
- 2 partners + 11.5 FTE (includes our financial planning division)
- 2006 revenue $645,000
- 2007 revenue $735,000
- 2008 revenue $1,180,000 (growth approx 50/50 acquisition/natural growth)
- Approx 400 clients in Accounting division
We are located in Clayfield, Brisbane, QLD, about 10 minutes from the heart of the city. Over the past 18 months we have been working to redesign the business on many levels in order to create a place that will attract team members. The partners, Denise & Mark, were very keen to implement many things but like most firms were struggling to balance client work with internal goals. I joined full time in October 2006 with my focus being on establishing the strategy and infrastructure that would attract team members and allow us to grow. For a firm of this size to hire someone who does little or no client work was a significant decision, both financially and in terms of mindset—the partners were agreeing to hand over the day to day running of the overall business so they could focus on client work and development of the team.
We made the decision to abolish timesheets as of 1 October 2007. We had been talking about it for at least 9 months prior to that and had committed in writing to the team we would do it. There were many discussions on whether we should keep timesheets at the same time to make sure, well, to make sure the sky didn’t fall in I guess; or whether we should still record total time on the job to identify scope creep. Finally common sense prevailed, we chose to back ourselves, we took the leap, and haven’t looked back.
How it works:
- All clients now receive an engagement letter with a fixed fee and a date for when their work will be completed. Typically the fee is based on last year + 10%. We review each job and the scope of the work before determining the price. Mark, the partner of the accounting division does the initial review. We then sit together and as Chief Value Office I challenge anything that has not seen a minimum 10% increase. (This is in addition to a 10% increase last year for most clients). Mark is right on the page with value pricing so he identifies any special work or areas in which we could add significant value. Though for most work it’s very similar year in year out.
- We must receive the signed letter back from the client before work begins. Naturally there are some long-standing clients where we respect the relationship and we haven’t bothered trying to force an agreement upon them. So long as they agree to the price we’re happy.
- We now ask for payment of invoice immediately upon completion of work, instead of 14 day payment terms. New clients often have to pay $1,000 upfront for us to review their work, then we quote on the scope and price of the work that needs to be completed. Again, the client must agree to all terms in writing before the work begins. We haven’t worried about moving to bill existing clients upfront. Instead we have focused on workflow—if we can get the job out the door quickly then we can invoice sooner. Then of course you need a system to chase debtors (receivables for our international colleagues).
- We initially set a minimum fee of $1,000 for new clients. We have since moved that to $2,000 and will soon be increasing to $3,000.
- We currently have just one KPI that has replaced timesheets—a monthly invoicing target. The entire accounting team are responsible for ensuring we make this target. I have set the budgets for the firm, Mark then looks at all upcoming work and selects the jobs to be completed each month. Then we just get on with it. If we make target, we know those jobs have been completed. Nice and simple.
- Monthly targets are based on a combination of what we have invoiced for the same period in previous years; what the firm would have achieved on a hours x rate x productivity model; plus any price increases, allowances for special work or value priced engagements etc. In a firm of our size it’s pretty obvious if people are working hard or not. If productivity or workflow is lower than we believe it should be, it’s usually more to do with planning, getting the right people doing the right work, and resourcing, than it is a lack of effort by the team. In other words we believe people come to work with the intention of working hard; we just needed to get the planning and infrastructure correct so their efforts turned into outputs.
To ensure I was happy with the monthly targets I conducted a financial analysis using Principa’s FirmPlan—I think it’s the best tool I’ve come across in relation to looking at the financial performance of a firms that record time. Within it I compared our numbers to some benchmarks, ran some what if analysis on impact of price increases etc. From there we picked an annual revenue figure, divided it by 12, made some adjustments to each month based on seasonal fluctuations, and targets were set. We have 15 years of history on what price our clients will pay for most of our work and how much work we can do in a given period—so even if that is based on a timesheet model it is a well established precedent and provides an easy starting point for getting rid of timesheets and quoting a fixed price before the work begins.
- It’s important I point out how helpful our team, in particular our admin team, have been in adopting this change. For the professionals it has made life easier. Though for Barbara (admin, reception) it has created work. Who gets engagement letters; who doesn’t; changes to the system every other week as we learn new things; extra work in preparing engagement letters; updating the workflow system etc. We continually communicate why we are doing these things and we are very grateful that all of this has been handled with a minimum of fuss and we are a better firm as a result.
Ron, there will be many other things to discuss and share: strategy, vision, client selection, pricing, marketing, recruitment, post job reviews, successes, failures, things we have no idea how to approach, examples of value pricing successes, and comments about “accounting utopia” (more on that story in another email). This email is to get the process started. On behalf of Integrity I’d like to say a massive thank you to everyone who has shared their ideas with us and myself over the years. We hope our contribution is helpful to others who are heading down this path.
Ron, please feel free to publish my contact details in case anyone would like to contact me.
Michael
Michael Stewart
General Manager
Integrity Wealth Pty Ltd
Integrity Chartered Accountants & Business Advisors
http://www.integrityaccountants.com.au
http://www.integrityfp.com.au
Tel: +61 (7) 3262-3533
Thank you, Michael, and we look forward to more details on your firm’s transition.
Congratulations to the entire team at Integrity for blazing the trail for your colleagues—and all of those reluctant consultants—to follow.
This is truly Firm of the Future 2.0.
Congratulations to our newest Trailblazer firm, Base52 Ltd in Hertfordshire, outside of London (the same city as O’Byrne & Kennedy).
Fred McBeen is the Director and Practice Manager of Base52. I was privileged to meet him at a talk I gave for CIMA last June outside of London.
Here is Fred’s email reporting on his firm’s progress since our meeting:
Dear Ron,
I hope that you are well.
You may recall we met at a UK conference a year or so ago and exchanged e-mails after this.
I was enthused by your presentation and by your book, The Firm of the Future and implemented some changes to our practice after reading this. You asked if I could send you an update after 6 months or so and let you know how things are going, so here goes:
Broadly, things have gone quite well. We are a relatively small practice having only started a few years ago. In the last financial year we grew revenues and profits by about 35% and a good proportion of this growth was due to “Value Pricing” measures we implemented.
We scrapped timesheets about 6 months ago now and I don’t think we have missed them. We set work completion targets every month and track these every week so as practice manager I have a good feel for how work is progressing. Being less hung up about hours has meant that we focus on quality even more and ensuring that we do a first rate job.
I mentioned in my previous e-mail that we had secured a contract with one customer and I had followed value pricing principles and priced this 2 or 3 times higher than if I had used my normal “hourly rate” method. I am so pleased that we did this as the work has been problematic. Nevertheless we have made a good profit on the contract and have done what we said we would do. On our old pricing methodology it would have been very hard slog for very little (if any) return which would have been demoralising for the whole team.
My conversion rate for signing up new customers has dropped from around 70% to nearer 25%. The prospective customers we have not signed up have not been prepared to pay the higher prices I have quoted. By and large I am satisfied that they would not have been the right customers for us. In a tough market, we are finding it more difficult to pick up new customers but for now I am holding my nerve and looking to compete on value and not price.
I have been a bit less tolerant with customers who do not fit our ideal profile. Again it is a tough call but I expect to give notice to a couple of customers shortly who have repeatedly ignored our advice and do not seem to appreciate the work we do for them. This will mean a short term hit on revenues but will hopefully will be for the longer term good
I have taken on board the views in your book about building capacity before taking on new business. We have invested in training, systems and a bit more space so feel ready to expand with the right customers. We are only a small team and I am hoping that I can retain my key team members for the immediate future. If I can do this, I think the prospects for growth are very good.
One of the biggest changes in my own attitude has been self belief and confidence that what we offer is good value and we don’t need to be apologetic about this.
So to summarise the progress report. It’s so far, so good. Our target is to grow profits by another 30% or so this year. I will let you know how it goes..
Thank you again for your advice and support.
Best regards,
Fred McBreen
Director
Base52 Ltd
Fred makes many excellent points here, probably the most important being that you’ll never be paid more than you think you’re worth.
Also, it’s nearly impossible to implement Value Pricing with the wrong customers. I’m a bit concerned, Fred, about your acquisition rate dropping from 70% to 25%. This may be just a temporary drop given your new pricing strategy.
If it persists, however, it may be a indicator that you are not effectively communicating value to prospective customers, since customers aren’t as price sensitive as they are value conscious. If this continues, you may want to develop a “stripped down” version of your services at a competitive price (pricers call this a “flanking product"), which will allow you to acquire some of these customers and then as time goes on they will purchase more from your firm.
But I don’t want to take away from your incredible accomplishments in the past ten months.
Congratulations again, and please keep us posted on your progress.
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.
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!”
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.
