- Following my last blog, I received a number of emails commenting on how valuable the insights were that are being shared. Jane from a medium-sized firm in Sydney commented on how “we held a partner meeting this week and I circulated your first three articles. Over half the meeting was taken up by exploring what was happening to our gross margin, why it was reducing and what to do to reverse the situation we find ourselves in. The partners wait for your next article and will be discussing this at next month’s partner meeting.” I thanked Mary for her feedback and encouragement.
- The CEO of a global accounting association also kindly emailed me. His feedback was to say that staffing and profitability were top of the list that firms wanted their Association to address at their forthcoming online Practice Management Conference. And he kindly asked if I was interested in speaking…
- Another Managing Partner called me to say that he had circulated the blog to all of his partners with the comment to “read this – he is talking about us.”
So, just a quick recap of the content of the last blog that elicited these responses.
We explored the topic of pricing for professional accountancy firm. We set out a case study based on my presentations to accounting firm owners that evidence that partners do not price consistently. We considered the future and looked at how important pricing transparency and uniformity was going to be to enable profits to continue to be robust and growing. We also looked at a ‘golden’ solution in the form of a Pricing Handbook. This, I suggested would go a long way to improving pricing and importantly provide the basis for including prices on websites (yes, some firms are already doing that).
Pricing transparency is going to be important in the years ahead. The billable hour, while still going strong in many firms is not viable in the long term. Clients want to know the price – in advance of delivery. New clients will not wish to be told that the price will depend on the time taken.
The inherent danger in up front pricing is that you can never be certain how long it will take to complete a job. Time recording is still likely to persist. Why? Well, old habits die hard but that is not the reason why firms continue to require time sheets. The cost of labour is high – and increasing. The time records provide an account of the retail time (charge time) to complete a job. That may, or may not, result in recovering this time, but it will inform you of any adjustments that need to be made to future pricing of your services.
Let’s move on – to view the article that resulted in this feedback – visit my blog here.
CLIENT CAUSED EXTRAS
Some years ago, I was told by a client (the Chairman of a 50-partner firm) that he had taken his car into the BMW dealership. Round about 9am he received a text from the service manager. This informed him that the service team had reported three areas where the vehicle required rectification that were not covered by the service. The email included a link to a video where he could see exactly what he was being advised required attention. But the text did not stop there. Each of the three items notified my client of the price and included a check box for the client to authorise the work to proceed.
In one fell swoop the service department had eliminated those phone calls, those “are you sure?” conversations and those queries about price.
All of this was news to me.
But the story does not end there. I took my car in two weeks later to a Bristol VW dealership. I was in need of having a minor fault rectified and so agreed to a two hour ‘wait in’ appointment. That was OK as I could drink their coffee and use the Internet. I was sat about 40 metres from the service desk when about 45 minutes later I received a text, complete with video of two faults and a price and check box. I walked over to the service desk to discuss…
So, here is my point. The service department has introduced a brilliant and comprehensive approach to addressing the alert, evidence and pricing of ‘customer/client caused’ extras.
Going back to my client, he introduced a similar evidence-based approach to advising clients regarding the shortfall in the records and the price for fixing.
HOW TO PROCEED?
Let’s move on from the car dealership.
The tendency in the accounting profession is to do what it takes to ‘complete the job’ and raise the question of price with the client later.
HERE IS A TRUE STORY WITH TWO EMBEDDED LESSONS
I was meeting with a manager who told me that I had 100% hit the nail on the head. He said let me give you an example of what happened on one of my jobs.
“Mainly due to what you refer to as ‘client caused problems’ I had a £100,000 (converted from his local currency) overrun on a job. I arranged a meeting with the client and the partner, and we duly attended at the client’s premises. Here is what happened. The partner took the side of the client almost rubbishing the work we had had to do. The end result? A further cost of only £5,000 was agreed.
I chose not to drill down and seek any further clarification. That was not necessary and not the reason for my meeting with the manager. The two lessons:
- We need a better approach to addressing client caused extras, and
- Never, ever, ever humiliate or undermine anyone. It is not appropriate to use your position as a firm owner to ‘rubbish’ the work undertaken by your team. We should not undermine anyone.
Remember that when you point the finger at an individual there are always three pointing back at you.
KEY POINT: We should focus on fixing our processes rather than fixing people. Almost always it is the processes that need a fix rather than your team members.
Margin Mastery: Here is just one of the many lessons that we teach in Margin Mastery that is guaranteed to fix a number of problems that arise as a consequence of the above scenario.
- Create a Team of maybe 3-5 managers and have them review maybe 5-15 jobs
- Ask them to identify and list all of the reasons why time went over budget
- Have them select the Top Ten regularly recurring client caused extras
- Then have them consider the minimum to maximum retail cost (hourly charge rate x number of hours to fix)
- They should now have the main reasons why jobs go over budget and a range of costs to rectify/fix the problem.
Remember that in an earlier blog I mentioned that a good manager should create a budget on which they can deliver?
Well, I am sure you realised that not everything goes according to plan and jobs can easily go over budget for any number of reasons. This article seeks to address and propose a better process for addressing the ones that are caused by a client failure.
EARLY NOTIFICATION AND AGREEMENT OF PRICE VARIANCE
It is massively important to the success of this change in process that we recognise the need for early communication.
We have looked at the car dealership. But we could have used a builder as an example – don’t they always quote for extras? Or variation orders as the larger construction companies refer to them. Isn’t it good customer service to advise the customer when additional costs are incurred? How about when you go to a restaurant – doesn’t the restaurateur separate disclose the charge for additional plate items?
That last point is an interesting one and it is that of early notification. Your pricing letter which is sent out alongside your engagement letter MUST include reference to what is and what is not included in the price. In other words, the assumptions made. This is another area where Margin Mastery specialises by creating carefully worded paragraphs for insertion in your pricing letters.
Now, here comes the process improvement. Remember that a good manager delivers on budget? But how can they if the client’s records or responses to your interactions with them creates unexpected work?
Your list of 10 client caused extras should make it clear specifically what issues your staff have. We should not be like the partner who so easily dismissed the work undertaken by his staff. His response disengaged his manager and has demotivated him for some time. We must show appreciation and care to our team members.
KEY ACTION: Make your managers responsible for discussing the problem and agreeing the price to fix. This must be done when the problem arises – just like the car dealership, the builder etc.
There are a number:
- Managers and their teams feel more empowered
- They feel more in control
- Given that many of them are probably qualified, they will also appreciate the greater authority they have-connecting work with reward
- Job satisfaction
- Your next step? As with Mary in Sydney – discuss this and the three previous blogs with your partners and managers. What is the need in your firm? Do these articles provide insight to solutions?
KEY RECOMMEND: Invest in Margin Mastery – this is a course for managers, but there is also a separate course for partners. This page provides highlights of the programmes and comes with a money back guarantee. You have everything to gain and nothing to lose. Enrol for this course now.