Does billing by the hour still make sense?
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What’s an idea really worth?
That’s the question posed by The New York Times in a provocative article that explores whether the notion of billing time – the standard income-generating model for most service professionals – still makes economic sense.
The concept of charging by units of time first came to the forefront in the 1950s when the American Bar Association suggested it. Concerned that lawyers were earning less than doctors and dentists, the A.B.A. advocated that law firms shun fixed-rate fees and sell their services in simple, easy-to-manage units. They took their cues from mass-produced manufacturing, believing that billing by the hour would allow well-managed firms to oversee staff productivity as mechanically as a conveyor belt managed its throughput.
Numerous other service professionals, including architects and engineers, adopted the model as standard protocol within their own practices.
But as the American economy has undergone dramatic shifts over the past few decades, global trade and technology have challenged any industry to profit from mass production philosophies.
Professional service firms have not been immune. In the accounting profession, for example, TurboTax® software and inexpensive overseas accountants have undervalued the routine services of an accounting firm.
Sound familiar?
The article profiles Jason Blumer, a South Carolina accountant who established some radical rules when he took over his dad’s small accounting firm: no time sheets, no dress code and absolutely no billable hours.
Blumer, according to the piece, realized that the billable hour was undercutting his value – it was his profession’s commodity. He believed it suggested to clients that he and his colleagues were interchangeable containers of finite, measurable units that could be traded for money. Worst of all, he thought billing by the hour incentivized long, boring projects rather than those that required specialized insight.
Blumer has emerged as a leading voice among the “Cliff Jumpers,” a national band of accountants who have abandoned the traditional bill-by-the-hour approach to focus on non-commodity accounting solutions for specific client groups.
It provides a compelling perspective on value-based pricing strategies for professional service firms.
