We are pulling the curtain back on key strategies for major firms and this week’s topic might find some of us feeling a little exposed. Why? We might find ourselves clinging tightly to our traditional business model of pricing services based on the time and cost to provide them. Time has been our profession’s friend for the last 100 years. So if the business model is working, why are firms exploring other pricing options or business models? Why do some firms believe they must find new and better ways to price their services?
I won't pretend to understand all the reasons firms begin to look for new pricing strategies. I can give you some of the reasons that have been shared with me, as well as share why our firm has taken on pricing as a major strategy in defining our new business model.
Below are my top reasons firms are learning new ways to price services and implementing new business models not driven by time. They are in no particular order or priority, but share the common thread that time spent to do the work has nothing to do with the value created for clients.
- Automation is making time less relevant.
- Closely connected to the increasing automation—large investments in technology reduce the time firms incur to do the work.
- Time does not equal value. When niche expertise and unique solutions are provided, many times firms do not capture the real value that reflects the worth they have created.
- Clients generally see our work as having more value than many of our current pricing models based on time provide.
- Advisory work, which is growing exponentially as part of our services, might be better priced on the worth generated than on a cost-based model.
- Providing certainty in price and scope is a better client experience.
- Collaborating with clients prior to being engaged to define scope and worth is a better experience. The key is capturing clients perception of worth.
- The historical approach of timekeeping is an expensive and unnecessary cost.
- Utilizing time, chargeable hours and realization has led to a lack of skills in project management and doesn't focus on delivering on our client promises.
- Clients do not care how long it takes us; they care about turnaround time.
- Partners, in general, have used the time crutch so much that they don't have good client conversations on worth of services and haven't developed real pricing skills.
- Profession-wide margin compression shines a spotlight on the fact that we are not keeping up with the costs of doing business today with our time/cost based pricing.
- Tracking time inhibits real flexibility. Virtual teams find that RESULTS and communications are top of the list for success—not time sheets.
- Tracking time is a deterrent to recruiting top talent and is a disconnect for many millennials who are now the largest segment of the workforce.
- Tracking time and utilization kill innovation when innovation is already being identified as key to a firm’s future success.
- Tracking time distracts us from missed opportunities and from being focused on KPIs that are historical views.
- Tracking time inhibits investments in time and resources to redefine and transform our firms.
- Tracking time teaches us to make short term “budget” decisions that hamper investing in exceptional client service experience. What is tracked and reported more in your firm—time or exceptional client service? So what do we think our teams focus on?
I hate tracking time, how about you? Life is too short!
Ron Baker has devoted his career to destroying the myth of the chargeable hour and if you read his work, you will find lots of things to add to this list.
Is your firm working on implementing new business models and pricing strategies? I encourage you to add to the list in the comments and your journey. Even more so, leave comments on why this is the wrong direction and firms should double down on time-based billing and business model.
Personally, I believe this is critical for the firm of the future and I believe it is a bigger obstacle for our profession than we realize. The compression of profit margins, lost or lower profitability and price war on basic compliance work is certainly driving firms of all sizes to review how they price their work. What do we have here that we can be aware of, predict and adapt for a better and more successful future for our firms? #FutureReady