Do you want to explore how to run an accounting firm without timesheets? Are you realizing the limitations of timesheets and considering alternatives to this dated system? Making this transition isn’t impossible—in fact, it can be a smooth transition so long as you know the right steps to take.
Gusto is committed to showing you the future of business and accounting. So we’re thrilled to partner with CPA Academy to bring you wisdom from two accounting pros with visionary ideas about the industry. Greg Kyte and Caleb Newquist discussed how to run a firm without timesheets and covered one of the biggest challenges: how to price your services, whether it’s for an existing customer or a new client.
Getting over the fear of work without timesheets
The notion of setting prices without timesheets can be daunting. It’s one of the biggest hesitations firms have when it comes to making the transition away from timesheets. However, clients aren’t paying for your labor. They’re looking for results.
While determining how to price your services without timesheets is no easy task, it helps to understand that in some ways, you’ve been doing it all along. Greg explained:
“You basically already do everything to price without timesheets, you’re just using timesheets as a crutch … in the sense that you have something to tie your price back to, but that’s actually kind of false.”– Greg Kyte
Greg shared that when you bill by the hour, you’re looking at what the fees should be based on the timesheets submitted by your staff. Then you might compare what this fee is compared to the past, and if it ends up being a lot more, you’re likely to consider some of that time obsolete and lower your prices. So in this way, you’re not operating solely based on timesheets alone.
On the other hand, you might keep the fee as-is. In this case, it’s a common scenario that a client complains about the higher fee. Greg explained that, oftentimes, firms will keep prices high and even raise them bit by bit until someone finally complains. At this point, you’re likely going to negotiate with your clients and lower your prices. Greg shared how he personally experienced this.
“Your client calls you up and goes, ‘What the hell is this big bill all about? I don’t like this.’ Funny thing. … I have a CPA firm that does the review for our financial statements at my company. … Every year, their prices have been going up. And finally, it crossed some imaginary threshold where I was just like, ‘Dudes, I can’t abide by this.’ But at the same time, I knew that they weren’t just passing on their hours to me. I knew that they were already looking and going, ‘What do you think we can bill him where he’s not going to complain to us?’ And finally, they messed it up, and here I am. … I went, I complained, [and they lowered the price.]”– Greg Kyte
You’ve likely had to make judgment calls with prices all along, which should give you the confidence that you can do without timesheets. You’ll just need to take this ability to gauge the value of your services a few steps further.
Setting prices for existing clients
Greg and Caleb discussed a simple method for setting prices with existing clients.
- Start with last year’s price
- Increase the price slightly
- Talk to clients about the price
Greg and Caleb also suggested that you should always be slightly increasing your prices every year. This is because you may get to a point where you need to make a drastic price hike, say of 50%. This big of a price hike is likely to drive at least some of your customers away. It can throw off your clients and destabilize your firm. Why take that risk?
At the same time, Greg confessed that even if you do raise your prices suddenly, you may still retain many of your customers. What’s the lesson here? You need not be afraid to raise your prices.
The third step in setting prices is perhaps the most complex. Before communicating with your clients, consider what your bargaining chips are. You’ll want to entice customers to stay with their current level of services or even take on new ones. This is what you need to do to grow. At the same time, you always want to present options and clearly communicate that you’re willing to work with your client.
“Say ‘Hey, listen, here’s how much this is going to cost you this year if we do X,’ [or say,] ‘Hey, this is how much it’s going to cost you this year if we do the exact same services we did for you last year.’ And then also present other proposals to go along with that and say, ‘Okay, here’s what the price is if we do exactly what we did last year. We feel like we could serve you better if we also did these additional services for you, and that would be a higher price.’ And then also go, ‘But if you feel like our prices are getting out of line, we can also scale back the services that we give for you. … Here’s the services we [can] give you if you’re trying to control costs. … We can work with you.’”– Greg Kyte
Greg also suggested setting up three different prices with three different service packages. Then be sure to lay out these options well before you start any work for them. Not only will this eliminate conflict, miscommunication, or lost time, it also creates a powerful incentive for your clients to keep the same level of services as before, or even pay for new ones.
“One of the bigger reasons why you want to … give the price before you perform the work is [similar to] the locksmith story. If you’re locked out of your house, you understand the value of getting back into your house. … If you’re locked out of your car … you are acutely aware of the value of getting back in there. But after the door’s unlocked, all of a sudden, you don’t have that visceral awareness of how important it is for you to get in. So you always want to present your prices upfront before you do the work to your clients.”– Greg Kyte
As you can see, setting prices depends on having both the confidence to ask for what you want and the flexibility to work with your clients. Your success is also likely to depend on the strength of your relationships with clients.
Setting prices for new clients
Now that you know how to set up prices for existing clients, what do you do when you’re presented with the blank canvas that is a new client?
One of the most important steps you’ll need to take is to have a value conversation with them. Value is subjective. If you don’t know what your client values, you need to talk to them about it. You and your client may have completely different ideas of what is important. Because your job is to provide value for them, get as clear as possible about what is important to them in order of importance. Another great tip? If your client has left another firm for you, ask them why. This will give you a lot of information that will help you serve them.
Next, you’ll want to create tiers with different prices and services based on what you’ve found out. Here’s a general example of how that could work:
Gold Level—This is the highest end of the spectrum. You’ll provide premium services for premium prices. As Greg shared, you’re sort of fishing with this one. You’re not necessarily expecting most clients to go for it. It’s not super likely that they will. But you start there, and you start high.
Silver Level—You’ll have more limited services at a lower price. Remember, your prices should reflect the types of services you’re offering so you’re not simply giving people three price options to pay for the same thing.
Bronze Level—This is your lowest tier, so you’ll want to offer your most basic services at the lowest price you’re willing to charge.
So how should you determine what goes in each tier? And how much should you charge for each one? You want to have consistent revenue, so you’ll want to be careful not to undercharge. Yet, at the same time, you need to offer fair prices if you want to beat the competition. While there are no hard and fast rules, Greg offered his wisdom:
“Make sure [your gold price is high]. [For] your silver price, it depends on if you want the work or if you need the work because [for] your silver price, if you’re just hungry for new clients, make sure your silver prices are on the [doable side.] … You want to come in below what the competition is going for. But if you’re good and you’ve got a full book of business and you’re like, ‘Well, we could do a little more work,’ then you need to price it higher because if you’re at or above … capacity, those clients really should be paying a premium to get your services because obviously you’re doing something right.”– Greg Kyte
On the other hand, you’ll need to make careful choices regarding your anchor price. As Caleb and Greg shared, your best point of reference is your competition. Consider what firms would be your customer’s chosen alternative to you. If they weren’t working with you, who would they be working with? Then check out their prices.
You’ll then need to assess whether you are the more capable firm or if they are. Do you offer more value than the competition? Are you better at your job than they are? If so, you might consider pricing yourself above them. If, on the other hand, you’re not as skilled as they are or you just really need the business, keep your prices lower than them.
Remember that your pricing model is a work in progress. You can always adjust, so don’t be afraid to dive right in. Also, if you’re struggling with how to stand out from the competition, consider choosing a niche.
“If you want to maximize your pricing [and] if you have the time and the confidence [to do it,] … here’s where you want to do: … You need to position your firm in the accounting space with a well-defined niche … [That might look like] ‘We do these types of engagements,’ like, ‘We are a forensic accounting firm. That’s what we do, and we’re masters at it, and we train all our people, and we’re amazing at that.’”– Greg Kyte
Establishing yourself in a niche requires smart positioning. You’ll need to educate yourself well to serve that industry. You want to be the go resource for companies in that field.
Learn more about pricing your accounting services without timesheets
While eliminating timesheets may make you feel like you’re a firm gone rogue, it’s not an entirely new way of operating. Chances are you’ve already been adjusting prices to cater to client or company needs. Timesheets are often simply a crutch to lean on.
Setting prices for new clients and existing clients require different approaches. To set prices for existing clients, analyze what you’ve charged them in the past and raise your prices slightly. Consider having multiple tiers and price levels so that these clients have options. To set prices for new clients, you should analyze your competition. You’ll also want to have tiers with different service plans.
Gusto’s mission is to create a world that empowers a better life. We’re here to help you evolve in ways that serve you and your clients. Don’t forget to check out our other articles based on the same webinar: “How Do You Apply Cost Accounting Without Timesheets?” and “How Do You Manage Your Accounting Staff Without Timesheets?”
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