Most professional accounting firms use the billable hour model to charge clients for their services. The Rules of Thumb blog from MoneyThumb finds it interesting to note that billable hours was not originally an accounting firm practice. The billable hour model was created by the legal profession 50 years ago and along the way was adopted by accountants.
However, a century ago not even attorneys worked from billable hours. In this article from Lawyerist.com, there is a short history of billable hours. Here is what the article has to say:
A Short History of Billable Hours
“A century ago, lawyers rarely billed by the hour. Instead, they billed in a variety of different manners: fixed fees, retainers, estimated “value” and contingency fees. Ironically, these are many of the same methods being touted today as “alternative.”
As corporate America’s demand for legal services grew in scope and complexity in the 1960s and 1970s, it became more difficult to determine a fixed fee, a retainer or “value.” At the same time, it became more difficult for clients to understand exactly what they were purchasing.
Enter the “bill by the hour” method. Initially, time records were only one component used to determine final bills. However, by the end of the 1970s, time records became the only way to determine final bills. This change was welcomed by all. Lawyers liked it because it was easy to predict revenue and profits. Clients liked it because it was easy to comprehend what they were buying.”
Accounting firms, like many other service-oriented businesses, began following the legal model of billable hours around that same time, in the 1970s. However, over the last few decades, professional service providers have begun to understand how ineffective the billable hour model is, and how it also can easily lead to fudging the numbers, causing distrust from clients and taking up far too much of the service providers time, keeping up with every minute of the time spent on a client’s account.
Many service-oriented businesses, including lawyers and accountants, have turned to a different type of billing system called Access-Level Agreements, or Service-Level Agreements. This type of billing is based more on selling your knowledge rather than your time.
To most customers of professional organizations, the “feature” that drives the most value from their perspective is how quickly the professional will return their call. In other words, not the service itself, but rather the level of access they have. This means that professionals, especially accountants, should be designing agreements that offer their customers choices and highlight the response time as the first element in each of these offerings. The switch to access-level agreements can be rewarding to your accounting firm and the customers you serve.
If your accounting firm has yet to add the option of Access-Level Agreements to your clients and you think it’s time to remedy that situation, Sage has this great free guide, Creating Access-Level Agreements, A Guide to Selling Your Brain Instead of Your Time. Follow this link to download the free guide.