*The Argument for Value Pricing

Source: Journal of Accountancy 

The Journal of Accountancy recently interviewed author, consultant, and “unabashed value-pricing champion” Ron Baker about growing interest among CPA firms in dumping the billable hour. Here are a few quotes from Baker:

• My argument against [hourly billing] is that it's suboptimal in terms of profitability. It's good enough, and that's a pretty hard inertia and apathy to overcome.
• A big problem with hourly billing is it's an internally focused metric. It looks at our costs and our inputs. It doesn't look at our outputs and outcomes. There's nothing in the hourly billing formula that looks at client value.
• Businesses should have prices, not hourly rates. Nobody would fly an airline [that] tried to charge $4 per minute. Clients want to know the price of something before they buy it, because they want to make that all-important price-value trade-off in their minds before they buy it.
• The thing that differentiates a value-pricing business model from an hourly billing model is value pricing starts with the client and works backwards. So it's basically the value that determines the price. And then it's the price that the firm has to look at and say, “Can we invest in the resources that it's going to take internally to produce this work at this price and make a profit we can live with?”
• One thing we hear is clients won't accept it, which is pure nonsense. I don't know of a client that doesn't want to know the price of something before buying it.
• A very common theme, which I see a lot, is what we do as CPAs is a commodity. It's just a commodity. But that's nonsense. We provide clients with knowledge, assistance, and a trusted relationship. So this idea that what we do is a commodity, I think, is a very curious self-limitation that we've put on ourselves.

For the complete article, read “Q&A: Should you dump the billable hour?”

From Journal of Accountancy, February 10, 2015, www.journalofaccountancy.com/Issues/2015/feb.