Are you paying for unfinished work?
Bet you are thinking, who does that? Who will hire someone and be silly enough to pay them to NOT finish? Well, people do it more often than they realize. In fact, every time you pay someone on an hourly basis, you are paying them on an old model (invented in 1919 but that’s another story on its own) that encourages them to take as long as they can – or to put simply – to not finish.
Hourly rate is outdated
Yes, that includes your lawyers, (maybe) your ad agencies, and of course, your accountants. Ah, good old hourly rates. It’s been so important to accountants for so long. I remember when I was an auditor, my hourly rate represented everything: who I was as a professional, how successful I am, and even how “smart” I must be. It was more than a rate. It was bragging rights. It was a badge to be worn with pride. $225/hr.
Why is the hourly rate outdated
With great power, comes great responsibility. And that responsibility for me as a professional was to do my time sheets.
The longer I took on a project = more hours on the time sheet x my hourly rate = more money.
Wait, the longer I took the more I get paid? That seemed a bit odd, doesn’t it? I mean, if we take the same logic and apply it to the rest of the world, this would happen: We would pay more to our contractor for taking 6 months longer than their competitor to build our house. We would pay more for a flight that stops 3 times before taking us to our final destination because they took longer to get us there. We would pay more for a car because it took the manufacturers longer to build. Right?
No. We. Won’t. Don’t be silly. We would hire the contractor who’d build our house to code, using the best materials and in the shortest possible time. We pay them to finish. We will pay a premium for a direct flight because they will get us there faster. And when was the last time we looked up how long it took BMW to make their 335i? Never.
So, why do it with our accountants or other professionals? Why pay them on a model that rewards inefficiencies and ineffectiveness? We are buying a product, aren’t we? A product that just works? Or are we buying their time? Should we be paying for their time or their knowledge and the value they create?
An alternative solution to pay accounting professionals
What do you think? Are you buying time or are you buying results, knowledge, and value? Sound off in the comments below.
ps. If you are sick and tired of buying time – call us. We are a knowledge firm. Our customers buy knowledge, attention, experience, and value. Not time.
update 1/28/2011: Funny how our good friend Chris Farmand out of Florida was interviewed and featured on this same topic. Read it here: Are you creating value or just punching the clock?
update 2/7/2011: Good friend Jay Shepard talks about the simple nature of ALL the different types of pricing in professional knowledge firms: time-based billing vs. solution based pricing. Sweet stuff, read it here.