It’s all the rage these days on accounting blogs – value-based pricing. You’ll see it everywhere, hip accountants (Who’s a hipper accountant than one who blogs? One who blogs about value pricing!) posting missives decrying the historical basis of hourly billing and extolling the virtues of pricing based on value.
What value pricing means to them, is that we should charge for our services based on a basically intuitive notion of the “value” we’ve provided. Sometimes that value is quantifiable, when you identify cost savings the client would not have come up with on their own. (These poor clients, they’re a hapless bunch to the value pricing gang.)
But most of the time it’s like pulling a number out of thin air. What’s the value of creditor-proofing? Is the value the money you save the company that would’ve gone to the creditors? How about due diligence? Surely a percentage of the sale price is the value of that!
You see, value is in the eye of the beholder. Clients will have a different value attached to the services provided than the provider does – it’s inevitable. How about advising a client against a tax plan that could potentially draw the attention of the CRA? (Aside: CRA is the Canada Revenue Agency, our IRS.) If advice is heeded and the attention diverted, where is the value? The amount the client would’ve had to pay after a tax audit?
In most cases (possibly not with the Big Four, I’ll have to consult with my friends one that one) there’s already value pricing in effect. It’s called the “fee quote.” Many of our clients – actually most – request and get from us a quote at the start of whatever work we’re doing for them, typically audits, of how much the bill is going to be. In this way, the “value” of the service to be provided is agreed upon. Isn’t this a better way to do things than generating a figure to represent the value created at the end of the job?
If the job turns out to be more difficult than forecasted, we’ll usually sit down with the client and explain what sort of extra work we’re having to do and why we need to do it. We provide an itemized list of the extra work and the extra time it required. Right the value pricing gang is choking on the bit: “Extra time? Value isn’t based on time! The billable hour is evil!”
Any way you swing it, the fee quote is the type of value pricing that both clients and professional service providers prefer, because it sets expectations at the beginning of the work and it doesn’t expose those despicable timesheets to the client. And timesheets are still very useful in determining the cost to the firm of an audit.