Presented by Peter Johnson CPA CFP Partner, Redman Partners Pty Ltd Value Pricing and Fixed Fee Agreements Tips & Traps

Agenda Reducing your cash lock-up Value Pricing v’s Time Billing Fixed Fee Agreements What about Timesheets? Monthly Direct Debits Work Flow – Receipts versus Billings Case Study & Questions

Value Pricing Reducing your cash lock-up What is it? –An alternative to hourly billing –Time x Rate ≠ Value –Value pricing is about pricing on purpose –We do it anyway with write ups/offs –Take it one step further and fix the fee

Value Pricing Reducing your cash lock-up Hourly Billing Hourly billing sets an artificial ceiling on what can be charged Hourly billing creates a conflict between our interest and client’s Hourly billing has a focus on hours not value Hourly billing fosters a production mentality, not an entrepreneurial spirit

Value Pricing Reducing your cash lock-up Hourly Billing Hourly billing creates a subsidy system Punishes technological advances Hourly rates are set by reverse competition Hourly billing creates bureaucracy

Fixed Fee Agreements Reducing your cash lock-up What are they? –Here’s an example Fixed fee quote Fixed fee agreement Schedule of fees

Fixed Fee Agreements Reducing your cash lock-up Why have them? –Benefits to us Attractive to clients Clarifies client expectations Prequalifies the client Upsell services Regular income source Lock-up reduction Assist budgeting

Fixed Fee Agreements Reducing your cash lock-up Why have them? –Benefits to us Develops client loyalty Forces efficiency

Fixed Fee Agreements Reducing your cash lock-up Why have them? –Benefits to clients Become priority clients Assist budgeting Assist cashflow management Gives the client a chance to complain

Fixed Fee Agreements Reducing your cash lock-up What’s the downside? –Disadvantages to us Underquoting More complex than hourly billing Hourly billing is a cost-accounting tool

Fixed Fee Agreements Reducing your cash lock-up What’s the downside? –To clients May be more expensive Being tied down Seasonal clients (e.g. farmers)

Timesheets Reducing your cash lock-up Costing Tool Only, Not a Billing Tool

Monthly Direct Debits Reducing your cash lock-up Calculate annual fee Divide by 12 Receive fees monthly in advance We control not client –Direct debit not direct credit Receipting separate to work & billings WIP & Debtors usually negative

Receipts versus Billings Reducing your cash lock-up Moneys receipted every month –Against debtors account Bill raised when work completed –As per fixed fee agreement Client receives one annual tax invoice –Schedule of Fees

Bill & Bobs Bait Shop Reducing your cash lock-up Refer Fixed Fee Quote Period 1/7 to 30/6 Bills prepared as work completed Write up/down at year end Debtor stays positive WIP billed as soon as work completed Spreadsheet

Tips & Traps Reducing your cash lock-up Easier with new clients Timing –July – June 7 months positive debtors Average Debtors $694 –October – September 1 Month positive debtors Average debtors -$1,419 –Bill on a monthly basis Difficult with time sheets

Tips & Traps Reducing your cash lock-up Multiple periods in 1 quote –2005 annuals, 2006 interims, 2007 annuals –Fixed fee up front for work in arrears –Monthly direct debit for current/future work Clients pay up to 3 years in one year

Questions? Reducing your cash lock-up