A growing number of industry pricing experts are urging CPA firms to jettison the billable hour and replace it with a fixed-pricing model, or even the more optimal model of “value pricing.” Few public accounting topics spark as much controversy as this one. Many firms have adopted value pricing in recent years, but others have been reluctant to do so. To give our members additional insight into this important topic, we sat down for a series of Q&A sessions with author and consultant Ron Baker, an unabashed value-pricing champion. These conversations give readers an in-depth look at the reasons a firm should consider switching to value pricing, and the nuts and bolts of how a switch might work. The following Q&A session, the seventh in the series, focuses on how young CPAs can contribute to the process.
Click here to read Part 1: Should You Dump the Billable Hour?
Click here to read Part 2: How Can Firms Implement Value Pricing?
Click here to read Part 3: What You Need to Ask Clients Before Setting a Price
Click here to read Part 4: How to Determine a Client’s Price Sensitivity
Click here to read Part 5: To Boost Revenue, Try Offering These Pricing Options
Click here to read Part 6: How to Present Your Prices to Customers
Why do young CPAs need to know about value pricing?
Baker: For the younger generation, I think the change is coming. I’m not going to say the end of the billable hour and the time sheet is within reach, but I am going to say it’s within sight. Firms are going to be gravitating more and more to this model, and I think the younger CPAs need to understand it and drive as much of this change as they can because they’re going to be taking over firms or perhaps starting their own, and this is a much better way to run a practice.
To prepare, I would suggest they read the Journal of Accountancy articles that have been published, as well as books on the topic. This will help them understand that value to the customer is in no way related to time spent, and for most CPAs, this is an epiphany.
Why is it important for young CPAs to be actively involved in their firms’ transition to value pricing
Baker: I think a big challenge in making this transition to value pricing is the unlearning that has to happen. Younger members of the profession don’t have that many years of baggage to unlearn with respect to billable hours and time sheets and all the traditional methods that we use. So it’s easier for them to embrace something that’s new and help drive change.
So what are some of the roles that young CPAs can play in the process?
Baker: A lot of the firms making pricing transitions have set up value councils. Some of them have even appointed chief value officers—and some of those CVOs have been in their late 20s. So they’ve been on the younger side. I don’t think there’s a direct correlation between age, even experience, and pricing ability. So being on the value council is definitely something that the young CPA can be involved in, and maybe they can even aspire to be the chief value officer if their firm is going to appoint one of those.
If they work in a smaller firm that does not have a value council, they can still volunteer to help the owner/partners with pricing. No pricing should happen in a vacuum, and the more minds the better. Becoming one of these minds will add tremendous value to the firm, while enhancing your pricing competency, which is a good skill to develop.
Another role they can play is to constantly learn about it, attend events surrounding it, and come back to the firm and bring that education to the rest of the firm. They could hold a lunch and learn or set up book clubs or just a group that is interested in this topic. So they can drive a lot of change if they want.
Have you seen young people’s involvement make a big difference in helping value pricing succeed in a firm?
Baker: There have been several firms that have made the transition where young people have certainly played a big part. I remember working with one firm in California where one of the key members was a star. She was definitely partner material, somebody you wouldn’t want to lose. She actually went to the partners and literally told them, “If you don’t make this transition, I am leaving.”
That’s one way I’ve seen it, but most of the time it’s from the firms appointing somebody young, either a CVO or at least as part of the value council.
How does being involved in this process help young CPAs in their careers?
Baker: For starters it helps them understand a business model. And not just about the business model of their CPA firm, but even the business model of their clients. If we’re defining the business model as how an organization creates and captures value, it’s the capturing value part that deals with the pricing. So even if a CPA is not able to effect change in their organization, learning more about pricing can help them with their clients. That’s because their clients are all struggling with pricing, and CPAs are in a really good position to help with that. So it’s a skill set that you can use to actually advance your career and help your clients.
How can young CPAs get involved in value pricing?
Baker: Talk to their partners or their managers about it. Maybe they have mentors, talk to their mentors about it. Try and find an ally amongst the partners because so much of this is one customer at a time. If they could link up with a partner who’s willing to experiment with it, maybe help that partner do it on their own client base.
Document any successes or failures. Show successes to the rest of the partners and say, “Look, this is what it would have been if we charged by the hour. This is what it was when we did value pricing, and it’s obviously more advantageous to do this form of pricing. So why don’t we start this more throughout the firm?”
Of course another alternative is that entrepreneurially minded young CPAs also can start their own firm. Because of the cost of capital and because of the technology that’s now available, you could start a firm on your kitchen table and do anything you want and create your own business model from the ground up.