For decades, accountants have typically charged clients by the hour. Is the billable hour an effective measure of performance and does it represent value for accounting clients?
Professor of organisational behaviour at Cass Business School
We need to get rid of billable hours right now; they are the bane of many professionals’ lives. Breaking down work into six- or seven-minute slots is unnatural, unfair and unproductive.
Billable hours are widely used in industries such as accounting, law and consultancy. They are supposed to create a clear and transparent system to keep track of who is doing what. However, our research found they often end up backfiring.
We found that professional work doesn’t usually fit neatly into billable hours. This means professionals spend a lot of their time trying to make square pegs fit into round holes. They devote a good chunk of their work day recording billable hours rather than doing the work.
To make things fit, they often fudge billable hours, loading up large billing-insensitive clients with more hours and not charging the hours they actually work to very vigilant clients.
Senior partners with high charge-out rates often overestimate the amount of time work takes them, while junior employees with low charge-out rates often radically underestimate the amount of time work takes them.
"Professional work doesn't usually fit neatly into billable hours."
Billable hours also sets up an incentive scheme that means professionals get rewarded for working longer on a project rather than just solving a problem. Billable hours can also be discriminatory. Judging people on the hours they work can sideline some staff, such as new parents.
When I asked a group of senior London lawyers what the number one barrier to diversity was, they all answered “billable hours”.
Thomas Taylor CPA
Outsourced CFO with T2 Consult
Billable hours should be in your toolkit and there will always be a place for them: some clients want you on hold as an adviser to ring up every now and then; some are happy with a fixed price; others prefer an hourly rate. We offer a range of pricing options and billable hours is one of them.
I think fixed or value-based pricing is also an important option, but it can be a challenge for a lot of accountants because they find the concept of selling themselves quite difficult.
Team leaders, when left to their own devices, will often quote lower than they would if they were using hourly rates because they feel “I can’t possibly ask for that much money”. This means you need to put robust systems in place when quoting fixed or value-based pricing.
One of the best things about fixed or value-based pricing is that it can help you build deeper relationships with your clients. They may be less inclined to rush through phone calls or meetings because they think the clock is ticking.
"I don't think we should scrap billable hours. They should still form part of a range of pricing options."
However, this can be a double-edged sword. You have got to manage how much time you’re spending with clients and you can’t have them ringing up every five minutes, so you need to clearly define your arrangement and manage their expectations, which can be difficult.
I don’t think we should scrap billable hours; they should still form part of a range of pricing options, but accountants need to understand their own value and be confident in articulating it.
Peter Ambrosiussen FCPA
Managing partner, Ambrosiussen Accountants & Advisors
I would like to see billable hours go. My concern is that it puts the focus on input rather than output. We scrapped billable hours at our practice 10 years ago and switched to value-based pricing, which allows us to put a greater focus on the needs of our clients.
It also motivates our staff because we’re doing things that our clients really value, such as being part of the broader strategy of their business. We work to understand their challenges and their goals, then put together a package of services to help achieve them.
“We’ve developed alternate ways for measuring how effective we’re being.”
There is an argument that keeping billable hours is a way of keeping track of what it’s really costing you to do each job. When you’re changing from billable hours to value pricing, it could be useful to still use billable hours as an internal reference to make sure you’re getting your pricing right; the trouble is that it takes a lot of time to do that.
I think once you get the hang of what your prices are, tracking hours doesn’t serve any useful purpose.
We’ve developed alternate ways for measuring how effective we’re being. For example, we work on more a completion-of-work basis rather than the number of billable hours done.
As an accounting profession, we need to position ourselves so we are client focused and are happy to build up relationships with our clients. It’s value-based pricing, not billable hours, that puts us in a position to do that.
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André Spicer is professor of organisational behaviour at Cass Business School in London. He is a frequent commentator in global media outlets such as CNN, BBC, CNBC, The Guardian and The Wall Street Journal. His research papers include “Financialization as a strategy of workplace control in professional service firms”, co-authored with Johan Alvehus, which explores the impact of billable hours in a Big Four accounting firm.
Thomas Taylor CPA
Thomas Taylor is the founder of T2 Consult, which outsources CFO skills to creative services and technology firms. The practice offers merger and acquisition support and financial forecasting, among other services. Before T2 Consult, Taylor was CFO of the Australian Payments Clearing Association.
Peter Ambrosiussen FCPA
Peter Ambrosiussen has been an accountant for almost 40 years. Before setting up his Queensland-based accounting practice in 1985, he was group CFO and company secretary for the international shipping group Wilhelmsen. Ambrosiussen also serves on a business-mentoring panel for Queensland State Development.
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