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News Releases
April 04, 2009
CPA firm adopts 'value creation' revenue modelPosted on Sat, Apr. 04, 2009
CPA firm adopts 'value creation' revenue model
BY JERRY SIEBENMARK
The Wichita Eagle
One Kansas accounting firm is attempting to rid itself of the traditional billable-hours revenue model in favor of one that its top executive said is based on the value the client thinks it's getting.
The new revenue model is called "value creation," and it is one Kennedy and Coe has slowly adopted starting more than a year ago and hopes to complete implementation of next year, said Kurt Siemers, the firm's CEO.
"When you talk about pricing you ought to be talking about value," Siemers said. "Pricing is really driven by what the customer thinks (a service) is worth."
It's a model that hasn't yet seen widespread adoption by the industry.
Some firm executives think that such a model is "esoteric" and question how value can be placed on everything a certified public accountant does for a client.
Other firm leaders think that value creation isn't much different than the way they already do business, under the billable hours and time sheet model.
But a couple of Kennedy and Coe clients -- including one that was initially hesitant about the change -- said the value creation model is working for them.
Siemers said he decided to adopt value creation after assessing Kennedy and Coe and the firm's future.
During the assessment he latched onto the idea that a firm must stay relevant to its clients in order to survive and thrive.
And then he read some articles by Ron Baker and his ideas on accounting firms, value pricing and "trashing the time sheet."
After consulting other firms that had success with the new revenue model, Kennedy and Coe decided to make the switch.
The value creation agreement process starts when Kennedy and Coe has its meetings with clients to determine what services they need for the coming year. Those meetings lead to a value creation agreement, which lays out the services and payment terms for the year.
Siemers said prices for services are determined in part from the client's "expected value" of the service.
"It's a pricing model that understands that value in the client's eyes," he said.
As a rule, he said, Kennedy and Coe is not generating any more or any less money from these agreements than it was using the billable hours model.
"From a client's perspective it's much more accepted," he said of the agreements.
He said that if, in the course of the year, the need for additional services or another project arises, then the client and Kennedy and Coe get together to develop a change order to account for the extra work.
He said fewer than 25 percent of Kennedy and Coe's clients are operating under a value creation agreement.
But he hopes to have converted all of its clients to the agreement by March 31.
"The realist in me says it might be June or September (2010)," Siemers said.
Mike Snyder, CEO of advertising agency Associated, said his firm is coming up on its first anniversary of having a value creation agreement with Kennedy and Coe.
He said his firm feels like it has some say in determining the value of Kennedy and Coe's services.
"They want it to be very subjective on the client's part," Snyder said. "What it does is take away a lot of the suspicion that goes into pricing."
The one big advantage to the agreements seems to be the fact that neither Associated or Davis-Moore Auto Group have to worry about calling up their accountant for a piece of advice and then being billed for it.
It's "a drastic change from decades of being held accountable for time with professional firms," said Stuart Ray, chief financial officer of Davis-Moore. "We were used to every phone call, every question, every project costing money directly related to that issue."
One competitor said his firm likes the accountability that come with time sheets and billable hours.
Bill Pickert, managing partner of BKD's Wichita office, said time sheets and billable hours "really provide us the opportunity to manage our resources efficiently and effectively."
"The thing we like about the time sheets is they provide us an internal discipline in terms of managing our business," he said.
Pickert said that while every firm is different, BKD doesn't always charge a client for each and every phone call or when they ask for 15 or 30 minutes of extra advice.
"You've got to provide that value proposition in the relationship," Pickert said.
Reach Jerry Siebenmark at 316-268-6576 or jsiebenmark@wichitaeagle.com.
© 2007 Wichita Eagle and wire service sources. All Rights Reserved. http://www.kansas.com
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