Imagine this: you’re doing a client’s books and you discover a way to save them $4,000 (let’s say in A/R). You notice it and you spend about an hour setting up a report that highlights aged debtors over 30 days AND you put in place an auto-mailer that chases down debts effectively. What is this worth? An hour of your time or more? Or does it come down to this: ‘I sell services; never time’?

Think of it another way, when was the last time a potential client called and said ‘I want to buy two hours of your time’?

Now consider this one-time ‘golden’ rule for calculating hourly rate: Calculate how much money you need for your lifestyle, divide by the available number of hours you can work in a year, and you have your hourly rate!

Right, and of course you also have broken relationships, major dental work, little in retirement savings, and too little time doing what you love to do. What’s wrong with this industry that still works with hourly fees as the default?

Technology can save time: what are you going to do with the bonus hours?

Most professionals are too cheap. Most bookkeepers don’t know how to price because most don’t make enough money. Plumbers make more because they solve urgent problems and work in conditions that we would not want to work in. As a profession we are not taught to price and naturally will tend to price as a function of cost. We’re brought up to charge based on hours; it’s a big mistake.
So what’s the answer? Quit all that obsessing about time and focus on value instead. Use the productivity bonus smartly.

Your clients don’t really care how long it take you to do something; they care about the value it creates for them; the peace of mind for having the compliance stuff done and the benefits of having a dashboard available of how the business is travelling..

If you want to grow your income you’re going to help customers grow their business. When looked at it like that–from their perspective–it’s clear you’re not selling time. Instead, you’re selling a solution that is going to make an impact for your client and achieve some business objective.

Defining and Applying Value Billing

There’s a lot of talk about value billing, but what is it? Here’s one definition: “Pricing a service at a rate that reflects the value of the service delivered.” Actually this definition can be applied to both hourly and fixed-fee engagements. Date entry work – even in a value billing environment – can be done at a standardized hourly service rate. With increased automation and integration the risk to the service provider is that the perceived value of the service is being driven down.

Transitioning to Fixed-Fee Value Pricing

The journey to value billing in essence is a shift to value-priced fixed-pricing (fee) engagements. One of the keys to doing fixed-fee pricing is knowing what it takes to provide a particular service. There are three elements to this:

1. Knowing the steps in the process to perform the service,
2. Specifying, describing and negotiating the fixed fee component in your letter of engagement
3. Knowing how long it takes to perform the steps based on the business drivers.

You could also price engagements based on whether you think it will lead to more work. For example, cash flow projections are actually a dynamic tool – circumstances can change. Which then leads to follow-on work which could have a higher margin. And maybe even the odd referral or two!
There is homework to be done before you jump to fixed-fee value pricing—understanding the process, understanding the client business drivers, and the time requirements. Why are you waiting? Start to learn value pricing now. Download our guide here.