This post is inspired by Jeff Maddux CPA, so you can send your hate mail there. Just joking keep it coming, I love it!
His idea (see tweet exchange) was actually really good. You don’t need me to harp on about value based billing (It’s almost as played out as "cloud"). Our firm was on fixed fees, I refer to it as market-based billing, where we look at what the guys next door have been doing and then we use that as a guide for the fee.
The problem is that our staff are still paid at an hourly rate. You guys are accountants so you can understand the issues here. Essentially my inputs are hourly and my outputs are fixed fee. This exposes us to downside risks, if too much time gets booked on a job we lose money. Conversely if the job goes under budget, we book the margin!
To use a crude example:
$5,000 job with a staffer that costs $30 per hour.
- If they take 50 hours it costs $1,500, the firm books a $3,500 gross margin
- If they take 100 hours it costs the firm $3,000, the firm books a $2,000 gross margin
- If they take 200 hours it costs the firm $6,000, the firm fires a staffer
What if, we paid staffers on a percentage of job budget? So instead of $30 an hour, you were paid 30% of the gross fee.
The idea has merit, but like all compensation plans it’s fraught with inconceivable downstream implications. What would it do?
Shy of actually implementing this without much thought (like much of the other stuff I do at Accodex), consider this my feeble attempt at market research. Would you work at a firm that offered this, or would your rally around their office with pitchforks and torches?