Although value-based pricing is a hot topic, many accounting and law firms continue to bill hourly. An hourly rate emphasizes time, which shifts the focus from value received to hours taken to complete a project. The alternative to billing by the hour is a value-based pricing model, which has quickly gained popularity among law firms and accounting firms. However, there is still some confusion about what value-based pricing entails and the potential benefits. Below we have outlined the advantages of value-based pricing models for customers.
The Hourly Bill Creates Tension
Over 50% of organizations continue to use the hourly bill and cost-plus pricing models. It is the most common billing method across service industries, and involves dynamic generation of billing records for projects, time, expenses, retainer balances, amounts owed and paid, and other information.
- Reward Inefficiency: Although it may not always be intentional, the hourly bill rewards inefficiency. Clients who pay by the hour want the work to be completed as quickly as possible. Firms, on the other hand, earn more when they slow down the work flow. The interests of the customer and the firm are misaligned from the start.
- Wasted Time: It is important to consider how much time is spent calculating costs and tracking to complete a project. Could this time be spent better on something else? The focus should be on results, not time.
- Uncertain Scope: Sometimes projects take longer than expected. It is likely that a budget and time frame was discussed before the project started. The customer makes the decision to agree to services based on the estimated cost, not the final cost. Notifying the client that the time frame and budget has changed can create tension, or sometimes firms even just absorb the extra costs.
- Outdated Technology: Service providers using hourly billing have no incentives to stay up-to-date with the latest and greatest technology to make their jobs easier. If they do switch to the latest, greatest and fastest technology, they risk getting paid less.
If customers are looking for genuine relationships with service providers, the hourly bill can almost certainly guarantee harm to a meaningful and long-lasting relationship. It discourages efficiency and innovation and often leads to frequent disputes among service provider and customer.
Advantages of Value-Based Pricing
Value-based pricing is the practice of setting the price of a service to the value received by the customer. Value-based pricing could easily be called “customer-based pricing” because that’s essentially what it is. It removes the above concerns and tensions that could arise between client and provider. Many clients prefer this type of pricing model as they would rather pay for the value received compared to the hours spent.
- Genuine Relationships: The outcomes are better when both customers and firms can focus on the results, not the hours spent on a project. The customer and the firm will likely experience better outcomes.
- Better Service: Firms can customize and tailor services to the needs of their customers since services fulfill the needs of a customer.
- Reduces Billing Disputes: Value-based pricing sets a fixed-price when the scope of the project is determined. Customer’s won’t have to worry about surprise bills and can more easily budget
Work with an Accounting and Law Firm that Offers Value-Based Pricing
Many law and accounting firms are resisting the switch to value-based pricing due to the perceived complication of switching pricing models. Exemplar Companies, founded in 2005, has operated on a value-based pricing model from the very beginning, and has over 15 years of experience operating a fixed and value-based pricing model.
Don’t Take Our Word For It? Our Clients Love It!
“The Exemplar team provides different vantage points and are also pretty cool people. It has been comforting to have a talented team in our corner and to bounce ideas off of. The way Exemplar provides counsel in a different way that is not typical, is awesome. The journey that we have been on together has been really enriching.”
– Chris L
“I think meeting Exemplar has really been a godsend. The way you handle compliance, developing strategies, and structuring, has been a very big blessing these last two years. We appreciate the help, and you have a great team. They are on top of it and they get it done. I appreciate someone who says they will something, and they do it.”
– Greg W
“Exemplar is really everything that I was hoping it would be and more. Having a team that is available to me, to be able to support me, provide a point of reference, network, new ideas and suggestions has been incredibly helpful. I appreciate it so much.”
– Jennifer N
Chief Executive Officer, Exemplar Companies, PBC
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