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Billable Hours vs. Value Pricing: Who Ya GOT?

You may have heard I almost got my butt kicked over value pricing at AccountingWEB Live. After Adrienne's article about the incident and its related comments, I need to clarify some things.

I think timesheets and billable hours suck, and it’s not because I’ve been brainwashed by our Glorious Leader, Ron Baker, praise be onto him.

My stance on the shittiness of the billable hour model rests on two points.

1. Nobody Prefers Price Uncertainty

It always sucks to have to buy something when the seller is too much of a wuss to come up with a set price.

Plumbers bill by the hour. When your toilet takes a shit and you call the plumber, you have no idea how much the service is going to cost because the plumber transfers the risk of the unknown (specifically the unknown duration of the job) onto you.

So I hate calling a plumber.

Businesses do better when they serve their customers better. If customers hate the price uncertainty that comes with hourly billing, then stop billing by the hour. Ron Baker, full of grace, has penned several epistles unto us, giving viable alternatives to billing by the hour.

2. The Billable Hour Creates Shitty Firm Culture

Partners are really smart. They pay you salary and pimp you out hourly. You’re a fixed cost. After they break even with you, you’re a profit machine.

This is why, despite the fact that we’re highly trained and highly respected professionals, the only roadmap to success is working an ungodly amount of hours. There’s no working smarter. There’s no working harder. There’s only working longer. Partners are incentivised to make their firms into first-world, white-collar sweat shops.

And the perverse incentives get even more perverted. Some customers have the balls to demand a fixed price in our billable hour environment. To capture (or retain) this business, a partner is under pressure to low ball the price. The price to the customer drives the budget to the team. The magic of the billable hour is that a concession on price does not equate to a concession on partner profit.

And we’re the fairies that make the magic work.

Raises and promotions are tied to whether you hit your budget. To hit your budget, you eat time. By eating time, you show fewer billable hours. And when you show fewer billable hours, you get your teeth kicked in for not meeting your chargeable goals.

The message – whether intended or not – is, “Bill more time! And don’t go over budget by billing more time!” So the way to win is to work all day every day.

Or get the fuck out and work in industry.

I don’t ever want to hear a partner bitch about a shortage of talent in the accounting profession and then bitch about how value pricing advocates won’t shut up. Their choice to bill by the hour is driving talent out of public practice. It drove me out in 2,003 hours.

The only valid argument for billing by the hour is that lots of people have been making plenty of money for a long time by billing their time. After all the goats I’ve sacrificed at the temple of VeraSage (and by the way, I was going to sacrifice those goats anyway), it has been revealed unto me that firms that successfully switch to value pricing generally enjoy improved cash flow and profitability.

I bang the drum of value pricing because I got chewed up by the billable hour machine. I refused to sacrifice my life for my firm, and I was repulsed by the expectation of donating my time to a for-profit entity.

I also bang the drum of value pricing because we’re supposed to be “trusted business advisors” but we’ve got our heads up our asses regarding basic customer service principles like “don’t price your shit in such a way that it makes your customers actively avoid you.”

There’s a verse that I like to remember at this time of year. “And lo, there were accountants abiding in their cubicles, keeping watch over their ten keys by night. And the glory of VeraSage shone round about them, and Ron Baker said unto them, ‘Fear not: for, behold, I bring you good tidings of great joy, which shall be to all profession knowledge workers. For unto you this day is given value pricing with fixed price agreements and clear scoping documents. Or you can keep doing what you’re already doing. It’s not the best, but whatever.’”