Managing Partner Showdown: Value Billing vs. Billing by the Hour
At our previous Boomer Managing Partner Circle meeting, we staged a debate featuring three MPs advocating for traditional hourly billing against three MPs who’ve moved to the value billing model. The discussion was lively, occasionally humorous and incredibly insightful.
Here are a few key takeaways from the conversation.
Value billing and timesheets aren’t mutually exclusive
Our timesheet proponents believe that value billing and timesheets can cohabitate quite nicely. They argued that timekeeping is just a baseline for billing at best, and the firm can write jobs up or down to get to the value they’re delivering for a client project.
Value billers question the validity of time entry
One of our member firms started value billing in 2003 but continued keeping time as a measure of productivity for another 10 years! At that point, firm leaders decided they didn’t feel like the time being entered by employees was genuinely reflecting productivity. As the MP of that firm said,
“If the expectation is that employees will work eight hours a day or 2,000 hours a year, they’d get those hours in there somehow, someway.”
In other words, if time budgeted for a job is four hours and the employee got it done in three, the employee would bill four hours to the project.
Timekeeping is a tool for staff accountability
Our timekeeping firms recognize that hours aren’t perfect, but they believe hours are a good measure for analyzing the profitability of jobs and the effectiveness of their staff.
One MP told the following story:
“What you feel isn’t necessarily the truth. I realized the staff people I liked weren’t necessarily the ones that were producing. When we put billable hours standards in place amongst the staff, one guy I really liked working with quit. Without this measurement, we didn’t know who was really driving it. If I’m only relying on who I like working with, that scares me.”
Value billers want staff to focus on other behaviors
Our value-billing firms emphatically stated they do not want their team to focus on measurements such as charge hours or realization.
“We want them to focus on making clients happy and getting the work done.”
They’ve also found value billing breaks down barriers to collaboration in the firm.
“If I know I’m not going to be charged in my WIP for another partner’s time, I’m more likely to have a 15-minute conversation to leverage their knowledge.”
Time-keeping prevents under-valuing work
A member of our audience pointed out that time keeping might prevent “cheap” partners from under-valuing work done by the firm.
“If a partner sees $6,000 in WIP, that’s what they’ll bill. But if they didn’t have a timesheet, they’d bill $1,500 for that same job.”
The value-billing MPs acknowledged that to make value billing work, you need to have a clear methodology for striking a balance between value expected by the firm and value perceived by the client.
Metrics are a work in progress
If we’re not tracking hours, what metrics do value-billing firms track? Our members noted the metrics they use are evolving, but they tend to look at:
Average turnaround time per preparer
The throughput of the team and across locations
Profitability on a macro level
The level of revenue each person is serving
Thank you to Jason Lawhorn, Glen Thomas, Jeff Harr, Bill Dunton, Rich Kikuchi and Ron Toellner for taking part in our Timecard Showdown debate. It’s clear that whether firms rely on timesheets or other metrics for measuring productivity and profitability, all of our Managing Partners are committed to accountability, excellent client service and encouraging their staff to work smarter, not harder.
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Sandra Wiley,President of Boomer Consulting, Inc.,is a leader in the accounting profession with a passion for helping firms grow, adapt and thrive. For nine years running, Accounting Today has recognized her as aTop 100 Most Influential People in Accounting due to her expertise in leadership, management, collaboration, culture building, talent and training. Sandra’s years of experience and influence as a management and strategic planning consultant make her a sought-after resource among the best and brightest firms in the country. She is regularly invited to speak at national conferences where she empowers audiences with new ideas and a sense of humor. She is a popular author, having been published in many online and print publications, and penned two books, The Journey Ahead: A New Roadmap to Collaboration in Your Firm and The Engaged Employee: 10 Initiatives for Successful Firms.