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Why Hourly Billing Sucks

In case you didn't know, the CPA profession is obsessed with hourly billing. In fact, the majority of firms use software programs (like Ace or TimeMatters) that are designed to track the amount of time they spend working for each customer. In other words, when your accountant starts a job they click "Start Timer," and when they stop they click "Stop Timer." As you can imagine, this raises a number of interesting questions. For example, what happens if they go get a cup of coffee, or take a phone call from another client, but forget to stop their timer? (Answer: in the real world, CPAs routinely adjust their time, up or down, to what feels right.) Another question: what happens if a job takes seven minutes? (Answer: the program automatically rounds up to the next increment and you get billed for twelve minutes- funny how that works.)

The problem (in a nutshell) is that hourly billing causes CPA firms to spend their time and energy tracking billable hours rather than focusing on the things that matter- like results and customer satisfaction. Speaking of which- don't CPAs realize how many of their customers hate hourly billing? Have they ever bothered to ask? My impression is that every time a customer gets an invoice, they feel like they're being gouged. Plus, it makes them reluctant to call their accountant for advice because the meter is always running.

As far as I can tell, the biggest reason that hourly billing is still around is because "that's the way it's always been done." The practice has been around since the 1950s and I guess old habits die hard (especially in the accounting industry). However, the good news for customers is that there is a better alternative. It's called "fixed pricing" (or "value pricing") and many progressive firms throughout the U.S. and other parts of the world now offer this option.