Common practice in the professional service industry is pricing services based on the amount of time required to complete engagements and charging clients an hourly rate for each unit of input (i.e., billable hour). I believe this method of pricing is inconsistent with what clients are truly purchasing. Instead of paying for a compiled list of hours spent performing a service, I believe clients purchase value arising from the services provided, as well as, the peace of mind that results from hiring a professional whom you trust to adequately address your unique needs.
In my opinion, the “billable hour” approach to pricing professional services facilitates a prohibitive mindset that can lead to problems between customer and accountant, as follows:
- Creating anxiety within the customer from inability to price services before completion of work, and
- Developing resentment within the customer that arises from the belief they are being “nickeled and dimed” by being charged for every phone call, e-mail, letter, etc.
Whenever possible, I propose an alternate pricing method to billing clients by the hour. I offer customers the opportunity to receive quotes for services prior to commencement of engagements. This process involves gathering information for the purpose of understanding a client’s unique situation and communicating the recommended service’s price using a “Fixed-Price Agreement”. It is my opinion such an agreement will provide the following benefits:
- Alleviate anxiety arising from unknown service cost,
- Provide customer a written document that clearly explains responsibilities of each party, and
- Assist customer in determining value created by service through transparent presentation