Most accounting firms are still doing something no sane business would consider, says Ron Baker, founder of the VeraSage Institute. He talked with LinkedIn about his crusade to kill billable hours and remove a “cancer” from the profession. Edited and condensed excerpts below.
LinkedIn: You want accountants to stop charging clients by the hour. Why?
Ron Baker: First off, it limits the income of the professional firm. So right out of the gate, you’re starting with a business model that caps your income. That’s something that Apple, or Microsoft or no other sane business would do. If you want to earn $1 million more dollars, you have to bill 100,000 more hours. That just doesn’t make sense. Customers don’t buy hours — none of us buy time from our doctor, or plumber or anybody. The only place time spent matters is in prison; a knowledge worker is capable of having a million dollar idea in the shower. So how do I put that down on a time sheet?
So how should firms charge clients?
What professional firms have to understand is what their clients are doing; what value are they adding to them? It’s not a measurement of just summing up the labor hours. It’s actually looking at the value and setting a price, or better yet, giving options to the client. Value is subjective. A tax return to one person is not going to be worth the same to someone else. We need to price the customer, not the services.
But many accountants are profitable and say billable hours work, right?
There’s no burning platform in the accounting industry, certainly among the big firms. It’s hard to get millionaires to change their business model. And that’s what we’re talking about here: a business model change, not just a pricing change. The reason it hasn’t diffused is because the big firms will be the last do to this. They’re the luddites of the world; they’re the dinosaurs. What’s going to ultimately wake the profession up is the young talent. They don’t want to work in an environment that bifurcates their life into billable or non-billable, and if (work is) non-billable, they should feel guilty about it.
You’ve also said that the time sheet is the true problem.
I believe the time sheet is the real cancer. The billable hour is just a symptom. It’s the time sheet that keeps the accountants mired in the mentality that they sell time.
Ron Baker, VeraSage Institute verasage.com
Ronald J. Baker started his career in 1984 with KPMG’s Private Business Advisory Services in San Francisco. Today, he is the founder of VeraSage Institute, the leading think tank dedicated to improving the professions for posterity.