Five Tips for Profitable Value-Based Billing

Carl Coe

Most high-valued employees are paid on a salary, a set amount every year that establishes how important they are to their firm. This same principle benefits clients and CPA firms alike in value-based billing.   

When you bill in terms of value instead of hourly, your client knows the up-front cost of the whole project, and both of you know exactly what you agreed upon to complete. Value billing also increases predictability for both clients and accountants—clients know upfront what they’ll be paying, and your firm can more accurately predict revenue since you aren’t relying on estimates of billable time.  

For value-based billing to be profitable, however, you must establish the value of the work your company performs. This may be a challenge at first if your firm is just getting started with value-based billing, but these five tips can help you ensure your engagements remain profitable. 

1. Consider the value of the work being performed

The first aspect to consider to make value-based billing profitable is the value of the work performed. Your accounting firm will get better and better over time—a task that once took someone five hours might eventually take them three. By implementing pay based on value, you can build on your employees’ growing knowledge by bringing in more revenue per hour for the same amount of work.

2. Hammer out the scope of work in advance

To set profitable rates, you need to hammer out the scope of work on every project in advance. Discuss what each client needs in depth before agreeing to any work so that there are no surprises later. You’ll need to spend more time with the client ahead of time to figure this out, so account for that in your pricing.   

Surprises are the enemy of profitable billing for accounting firms, so figuring out everything your client needs and assigning a rate based on value will save both of you money in the long term. Your client won’t have any surprise expenses and you’ll know exactly how much you need to charge to be profitable.

3. Use the right software tools to budget time effectively

No matter how you bill, your CPAs need to accurately track and budget their time. If you don’t know exactly how much time a task will take, you’ll have no way to calculate profitable rates. And if your firm has no way to consistently enforce a time budget for engagements, you’ll often lose part or all of your profit margin on projects that exceed your initial time estimates.  

To make it easier to calculate profitable rates, consider implementing time and billing software that utilizes timers. The right software will let you run timers for each type of work you do, so you can accurately track your hours as you work. A cloud-based software like Mango will even let you track time from anywhere, so you can update entries in real-time on whatever device you’re using.  

You’ll also want to look for software that helps you keep your engagements from exceeding their budgeted hours. For example, Mango allows you to set project budgets and automatically send alerts when a project is going off track or an individual task exceeds its allotted hours. 

4. Establish client minimums in billing rate templates

When you first start value-based billing, you can expect your immediate cash flow to drop—at least temporarily. When you bill by the hour, your firm might send an invoice at the end of the week. However, when you switch to value-based billing, you’ll generally bill for the scope of the project completed at the end.  

Because you won’t be paid until later, you need to make sure your minimums are high enough and speed up the billing process so that once you’re done, you can get the cash to your firm quickly. To speed up the billing process, consider using default billing rate templates on your invoices. You can create different settings for certain client groups or users to enforce your firm’s billing policies while also speeding up the billing process.  

And if you’re concerned about cash flow, consider offering retainer value-based invoicing, so your clients can pay you in advance for work you’ll complete. 

5. Study your analytics

To continue to improve your company’s value-based billing for years to come, incorporate reporting and analytics software that makes it easy to understand which clients are bringing in the most revenue for your firm. These dashboards show goals that are billable and non-billable, so you see via graphs and visuals if you’re meeting set objectives. With reporting and analytics software like Mango, you can look at trends over multiple years to understand your firm’s performance.  

Studying these analytics shows you how profitable your value-based billing is or isn’t. This helps you know when to raise your prices or when to stop working with clients who require too much for what they’re willing to pay. 

 

Make value-based billing profitable with Mango 

Changing up your accounting firm billing seems like a daunting task, but with Mango Practice Management, it’s easy to make the switch to profitable value-based billing. Mango handles every aspect of your accounting firm’s billing, so you don’t have to rely on a patchwork of different software and risk losing important information when switching programs.   

Our robust practice management software offers:  

  • Easy-to-use timers for more accurate and consistent time tracking 
  • Streamlined invoice generation, including batch and retainer invoicing  
  • Online payment processing for faster collections 
  • Project management and scheduling tools 
  • In-depth analytics to help your firm make profitable decisions 
  • And more 

 As a software designed by accountants, for accountants, Mango features an intuitive interface that makes it easy to get started. And if you have any questions about using the software, Mango’s support team offers free training and data migration to walk you through every step of the process.  

 If your firm needs assistance making the leap to profitable value-based billing, schedule a demo with Mango today.

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