Time is Not Money

Should firms bill based on hours or outcomes? How AI is changing the conversation around this longstanding debate.

Not long ago, Rebecca Isaacs lost a client to price alone. He had been paying her firm, Isaacs & Associates, $900 a month. But when his business switched to new software with more automation capabilities—and he asked Isaacs to create the fully automated accounting setup he wanted—she told him the upgrade would raise his monthly bill to around $1,500. He balked, ultimately leaving for a firm that would do it for less.

Isaacs resisted the urge to chase him. She has a feeling he’ll return on his own eventually, once he discovers that the cheaper firm won’t be able to deliver the level of service he’s after.

“Pay me now or pay me later,” she says, shrugging. “It doesn’t matter.”

It’s just one example of the many ways emerging AI and automation technology is affecting the way accounting firms price, position, and deliver client services. And it’s forcing a deeper examination of what, exactly, small and growing accounting firms are selling.

The Subtraction Problem

When work gets done faster, the knee-jerk reaction is to price it lower.

Darcy Huey has thought a lot about the logic behind that impulse. Huey is the office manager at MSM Advisors, where the team has started leaning on an AI tax-research and review tool to speed up the parts of a return that used to eat several hours. It’s great for MSM’s staff, but the looming worry is that once clients notice the firm is spending less time on the work, they’ll request—reasonably enough—to pay less for it.

For her part, Huey doesn’t buy this premise.

It’s not just that we’re spending less time,” she explains. “We’re using our time more efficiently. We’re able to do other things [for the client], and we’re still paying for the software.”

Darcy Huey

Thus far, they’ve kept the tool relatively quiet in client-facing communications. “That’s not something we’ll advertise to our clients,” she says. “That’s just an internal tool that we’re using to help us with our day-to-day work.”

The firm has not made any pricing-related moves in response to the technology, though according to Huey, they use a fixed pricing model for the majority of their services.

But even among firms that currently bill by the hour, AI does not appear to be a major driver of pricing changes. According to the recently published State of AI in Bookkeeping & Accounting report, only 4% of the nearly 500 respondents cited a move away from hourly billing as the biggest change coming to the industry by 2030, making it one of the least popular options on the list.

What Accounting Firms Are Really Selling

All of this begs the question: has time ever really been the product firms are selling?

Time-based pricing offers a simple way to quantify the value of a firm’s services. More time spent on an account equates to a higher bill; less time leads to a lower bill. But often, the client paying the invoice isn’t motivated by the number of hours the firm spent performing the work. They are motivated by the confidence that the work has been done promptly and correctly.

Jean Zick built her firm, Juna Financial Solutions, on that value prop from the very start. As a result, she’s found that clients who purchase solely based on price typically aren’t a great fit.

Recently, for example, one of Juna’s small, price-sensitive clients decided to take their books in-house (after Juna cleaned up their data and built the reports that made it possible for them to do everything themselves, of course).

‘We used your reports to categorize, so we know how to categorize everything,’” Zick recalls the client telling her. “‘Because your data was so good.’”

Jean Zick

In the end, the client left with something AI is actually making it easier and cheaper for most firms to deliver: tidy, trustworthy-looking data. But that’s not what Juna was ever really selling in the first place, which is why Zick wasn’t the least bit surprised that the client walked away. What they do sell, Zick explains, is the expertise and judgment that made the data trustworthy to begin with. And the clients who truly understand and appreciate that are the ones the firm is actually interested in attracting and retaining.

That’s why, whenever a client pushes back on price, Zick’s rule is to stop and ask a very important, and sometimes very difficult, question. If a client argues that they should pay less because you are doing the work faster, “that’s when you’ve got to circle back and think about what it is that you’re actually selling,” Zick advises.

Her own answer is unambiguous.

Even if AI is doing the work, someone still needs to look at that work,” Zick emphasizes. “We as the accountants, we know our clients’ numbers; we know what to expect. We’re the expert. And that’s what we’re selling.”

Jean Zick

The profession as a whole seems to understand this concept, even when pricing methodology doesn’t always follow behind it. Going back to the AI report, 90% of bookkeeping and accounting professionals who were surveyed agreed that human judgment matters more, not less, as AI spreads—the single most agreed-upon statement in the entire report. Furthermore, only 19% said they trust AI output enough to use it with limited review. What the client is buying, therefore, is that review—not the time it took to produce the work itself.

What It Means to Be Irreplaceable

The next challenge, then, is defining and positioning the true product your firm is offering.

Gena Graziano has never had much trouble with that, even before the proliferation of AI. Graziano, the integrator and chief of staff at First Steps Financial, frames AI less as a threat and more as a filter.

We always marketed our firm as a partnership,” Graziano says. “We never marketed ourselves as a transactional firm. I think those firms are gonna have an issue.”

Gena Graziano

For firms that are concerned about how AI might affect client retention and revenue, her prescription is blunt: “You just have to make yourself irreplaceable.”

According to Isaacs, one thing that makes a good firm irreplaceable is complexity. She expects AI to be able to file straightforward returns in minutes before long, which means the simple 1040s (i.e, the drop-off-and-pick-up clients) will drift away on their own. What will remain, Isaacs predicts, is everything a machine can’t reassure a nervous client about.

It’s gonna be the complexity that brings people to us, and the need for customer service,” Isaacs says. “Not everybody wants to get on a computer and just deal with a computer. They want to ask questions; they want to feel secure.”

Rebecca Isaacs

In many ways, AI enables firms to provide better service for their most complex clients. As detailed in More of What Matters (page 31), plenty of firms are leveraging AI-driven gains in capacity to go deeper on their current client work. That’s the work clients can’t easily replace with a tool—which is exactly why they are willing to pay a premium. And it’s the work many firms are focusing on as AI further commoditizes pure compliance.

Patti Storms, who supervises the client-accounting team at BKC, has observed a similar arc from a different vantage point.

“The big push now is on advisory,” Storms says, adding that when the debits and credits automate, what’s left is the interpretation and recommendations. “They’re gonna really have to be able to…have conversations and be very proactive with their clients.”

But that conclusion is far from consensus across the broader industry—at least according to the AI report. Only 35% of respondents agreed that AI is shifting firms away from compliance work and toward advisory, with nearly a third actively disagreeing. So, owners who are adjusting their pricing to better reflect the value of their professional judgment—or who have always structured their revenue model around that level of depth—are largely ahead of the field.

How to Back Into a Fixed Fee

Defining your value is one thing; figuring out how to charge for it is a whole other ball of wax.

Isaacs rebuilt her pricing model from the ground-up. She was, by her own admission, the worst on her team at tracking time; five-minute emails and quick calls rarely made it onto a timesheet. At some point, the whole hours-based system stopped making sense to her. “Why am I doing all of this work for time entry and billing?” she remembers thinking.

So, she flipped it around and backed into her new fixed-fee prices from the top.

Let’s say this year I was hoping for somewhere between $1.5 and $1.7 million [in revenue],” she explains. “A third to the bottom line, a third to overhead, and a third to salaries.”

Rebecca Isaacs

From the salary figure and her team’s known hours, she can work out what each rate needs to be, then check a fixed fee against how long a project should actually take. She still tracks time, because you have to know whether or not you’re making money. The difference is that now, she doesn’t bill by it. New engagements also come with 50% due upfront and a payment method kept on file.

Zick, on the other hand, never had an hourly model to rip and replace. “We started Juna with fixed prices from the beginning,” she says. “We didn’t go from an hourly [rate] into a morphed fixed price.”

While there’s no single correct path to value-based pricing, the key is staying disciplined on pricing the outcome rather than the input.

A strong feedback loop can be helpful on that front, which is where Bri Como comes in. Como, manager of operations and systems at VP CPAs, runs a regular utilization analysis against the firm’s fixed fees, comparing the time a job was estimated to take against the time it actually took. This exercise—similar to Isaacs’s time-tracking approach—helps the firm keep their fixed pricing rates honest, Como explains, by answering questions like, “Is this cost-effective? Do we need to up prices? Do we need to revisit our service offerings?”

Exit Implications

Many firm owners have their sights set on an eventual exit. Even if it’s on a fairly long-term timeline, it’s important to remember that the way you value your services today can affect how a buyer values your firm in the future.

When a bookkeeping practice comes up for sale, Deborah Harris—the co-founder of Grow CFO, CEO of Grow Group Global, and an angel investor in the accounting space—always runs the due diligence on any firm she comes across that is for sale. In many cases, she walks away because the math just doesn’t compute. One recent seller, she explains, wanted $1.90 for every dollar of revenue on the books. Harris said 70 cents was a much more realistic estimate.

It’s tempting to file that valuation gap under “pricing,” but again, it really goes back to what the firm sells, not necessarily what it charges. Fixed (a.k.a. “agreed”) pricing typically suggests value selling—which is much more appealing to her from an investment perspective.

When you look under the hood and you see this one [client] is not on agreed pricing, this one has a risk of leaving, it vastly changes the value of the book,” Harris says.

Deborah Harris

A firm still selling cheap, undifferentiated, time-based work is not as durable in the long term, which makes it less valuable, Harris asserts. That being said, very few AI survey respondents identified profitability as their top priority with AI, with only 6% selecting that particular response. For comparison, 43% chose increased capacity as a top goal, indicating they are mainly focused on doing more with the team they currently have in place. It’s another way to increase the overall value of the firm, but as greater capacity is unlocked, the pricing conversation is one worth having—especially as “capacity” is increasingly not measured in hours.

Further complicating the conversation is the cost of AI itself. AI is an input to profitability like any other budget line item, and Zick isn’t assuming it will stay cheap. If the companies behind these tools “are running lots of losses,” she warns, “we might see pricing pressures in terms of the cost of this.”

At Juna, Zick thinks about each AI subscription the way she’d think about a team member on the payroll. The lesson isn’t to avoid the tools altogether, but to build a pricing model flexible enough to adjust in line with tech costs. Storms added a warning against locking into long AI contracts that might trap your firm in pricing that no longer makes sense a year or two down the road, especially considering how rapidly the AI landscape is evolving.

I’ve heard of firms that have gotten contracts for however many tokens, and they’re finding out that they’ve prepaid for all of this AI that they don’t need, but they spent the money and now they can’t get it back,” Storms says.

Patti Storms

The Bottom Line: Price Expertise, Not Hours

The pricing question posed by AI looks, at first, like a simple equation. You got faster, so your rates should get cheaper. But time-based discounts only make sense if the hours were the product, and for most successful small firms, that’s far from the reality.

The key is recognizing how your best clients value your firm, pricing accordingly, and accepting that some clients may drop off because they weren’t really buying what you were selling in the first place.

That was Isaacs’s exact mindset when she let the $900-a-month client walk away without a fight. Because when he comes back—and she’s fairly certain he will—the price will have gone up. And by then, he’ll actually understand what he’s paying for.

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