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Bill What You're Worth, 3rd Edition


Pricing your services and billing for them is one of the most important skills of the successful accountant. Unfortunately, formal education and training courses seldom discuss pricing or billing and firms rarely discuss pricing in an organized manner, making it all too easy to adopt bad habits and policies that impede profitability.

David Cottle’s Bill What You’re Worth walks you through the most common pricing methods and methodologies, teaches you how to discuss pricing with clients, and offers advice on how to motivate employees to bill what they’re worth.

This edition includes a new discussion on gauging client satisfaction and the key performance indicators to monitor to ensure you are offering top-notch client service.

Earn what you’re really worth! Learn how to demonstrate your true value to clients.

By following the advice in this book you will be able to:

  • Use tools to implement specific value pricing scenarios
  • Charge more for those engagements that justify a higher price
  • Avoid price disputes and handle misunderstandings in an agreeable manner
  • Upgrade your marginal clients’ profitability
  • Raise your standard chargeout rates if needed

David W. Cottle, CPA, B.B.A., is a consultant  who works with firms to improve their profitability, growth, and management. His articles have appeared in publications ranging from The Journal of Accountancy, The Law Management Journal, The Practical Accountant, and The Practicing CPA, to Veterinary Economics and the Texas Bar Journal. He served on the Editorial Advisory Boards of the Journal of Accountancy, Quality Client Service newsletter, the CPA Managing Partner Report, and the Panel of Experts for CPA Partner Hotline newsletter.

Introduction 1

Once Upon a Time in Ukraine 2

Why Some Accountants Earn Much More Than Others 4

Three Top Reasons Accountants Do Not Earn Enough 5

A Word About Terminology 5

Chapter 1: Pricing Methods in the CPA Profession 7

Types of CPA Firm Services 8

Specialist/Niche Services 8

Extension and Advisory Services 9

Compliance Services 9

Expert 9

Adviser 10

Cost-Driven Prices Versus Value-Driven Prices 10

Pricing and Risk 11

Using Chargeout Rates as a Benchmark 12

Investment Versus Value 13

Chapter 2: How Much Do You Really Earn? 17

The Problem with Partnership GAAP 22

The Ratio of Employees to Owners 22

The Salaries of Owners 23

Interest on Owners’ Capital 23

Pricing Philosophy 24

The Financial Analyst’s Dilemma: GAAP Versus Economics 24

Step 1: Convert Owner’s Salaries to Fair Market Value 24

Step 2: Convert Owner’s Capital to Financial Equivalents 29

Step 3: Convert Net Sales to Standard Revenue 30

Analyze the Profile Firm 31

Analyze Firm Overhead 33

Analyze Firm Write-Downs 33

The Key to Improving Profitability 34

When is the Top Line Not the Top Line? 36

Unavailable Time 37

Time Not Recorded or Not Delivered to the Firm 38

Sales Variances, or Planned Write-Downs 40

Chapter 3: The Pricing Myths 41

Chapter 4: How to Be Worth More to Clients 49

What Do Your Clients Really Need? 49

A Clients 50

B Clients 50

C Clients 50

D Clients 50

X Clients 50

How and With Whom Do You Spend Your Time? 51

The Potential of Client Meetings--Going from Effect to Cause 51

The Iceberg Value Principle 52

What’s Missing? The Future!53

The Rearview Mirror Perspective 54

Our View as Accountants54

Look Out the Windshield 55

Iceberg Value Strategy 55

“But My Clients Won’t Pay for the Extra Service”--The Rule of Price Flexibility 56

Creating a High-Impact Relationship 56

The Meeting Plan Campaign 57

Lessons from a Mime--Transition Your Client From Compliance to Advisory Services 58

How Not to Do It 58

A Better Approach 59

A Realistic Meeting Schedule 61

Chapter 5: Client-Care Key Performance Indicators 63

Client Surveys 63

Other Ways to Measure Client-Care 65

Time to Complete the Engagement 65

Three Other KPIs 65

Chapter 6: Pricing Strategies in a Troubled Market 67

The Problem With Price Estimates 71

How to Avoid Professional Panic 71

Ask for a Deposit, but Don’t Expect It 72

How to Handle Price Complaints 73

Current Client Complaints 73

Listen--Really Listen 73

Price Objections from Prospects 74

“Another Firm Will Do It Cheaper” 77

Chapter 7: How to Set Prices 79

Chargeable Time or Billable Time? 80

Five Factors That Affect Your Prices 81

When to Use Value Pricing 82

The Value Gap 82

Factors Affecting Value 84

Arranging Payment With the Client 87

When to Use Results Pricing 88

When to Use Fixed-Price Agreements 89

Packaging Your Services 90

How to Adjust Prices Upward 94

How to Make “Balanced” Changes 95

“But My Fellow Owners Will Never Go Along With That Large a Rate Increase” 96

Unleash the Power of Unconditional Service Guarantees 96

Chapter 8: How to Discuss Prices With Clients 99

Train Clients to Pay You Well and Promptly 100

What “How Much Is This Going to Cost?” Really Means 101

Turn a $438 Sale Into a $238 Sale Without Really Trying 103

Don’t Make It Look Too Easy 105

Your Pricing Communicates Your Value 106

How to Use “Cottle’s Law” and “Cottle’s Corollary” 107

The Problem With Price Estimates 109

How to Avoid Professional Panic 109

Ask for a Deposit 111

Be Flexible 111

The Preferred Client Approach 111

Five Important Tools in Negotiating Prices 112

How to Handle Price Objections 117

How to Handle Procrastinators 118

How to Handle Price Complaints 118

Chapter 9: Build a Better Firm With Better Clients 121

Why Are You in Business Anyway? 121

How to Recognize a Good Client 123

Evaluate Clients Realistically 125

Pick Your Five Worst Clients and Fire Them or Upgrade Them 127

Fire the Least Profitable Clients 139

Increase Your Minimum Individual Income Tax Price 140

Raise Prices on Aggravating Clients to $300 Above Standard 140

Give Your “Widows and Orphans” to Another Accountant 140

Chapter 10: Avoid the Seven Causes of Unplanned Write-Downs 143

What Are Write-Downs, Really? 143

Cause 1: Estimating the Engagement Incorrectly 144

Cause 2: Not Specifying What Is Included in the Price Estimate and What is Not 152

Client Planning Conference 152

Team Planning Conference 154

Cause 3: Inefficiency (Sometimes Laid at the Feet of the Employee’s Supervisor 155

Cause 4: Bad Scheduling 156

Assign the Right Person to the Job 156

Avoid Wall-to-Wall Scheduling 156

Cause 5: Bad Supervision 157

Plan 158

Budget 158

Monitor 158

Cause 6: Inadequate Skill in Managing the Client Relationship 159

Cause 7: Unwillingness to Confront the Client 159

Chapter 11: How to Set the Right Standard Chargeout Rates 161

Why the Two-Percent Rule is Dead 163

Three-Step Formula for Setting Standard Chargeout Rates 165

Chapter 12: Motivating Your People to Bill What They Are Worth 169

Define Chargeable and Nonchargeable Time 170

Use the 50-Minute Hour 177

Adopt Daily Time Reporting 182

Round Up, Not Down 183

Use Peer Pressure 184

Require Second-Owner Approval on Substandard Invoices 184

Invoice Promptly to Avoid “Toxic Lockup” 185

Invoice Progressively 187

Let Employees Draft Invoices 188

Do Not Compromise on Prices 188

Chapter 13: Get It in Writing 191

Engagement Letters 191

Include Realistic Payment Terms in the Engagement Letter 198

Allow for Value Pricing in Your Engagement Letters 199

Change Orders 200

Use the Invoice to Increase Client Satisfaction 201

Appearance of the Invoice 201

Language of Invoices 201

Details of Invoices 202

How to Handle a Higher- Than-Expected Invoice 205

Client Termination Letter 205

Glossary 207