Accountants are moving to value pricing in which rates are based on the value perceived by the client, according to a recent survey by the Bay Street Group accounting profession marketing and research firm and to Ronald J. Baker, the value pricing evangelist who introduced the concept to accountants.
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In Bay Street Group's survey of small or sole practitioner firms across the nation and in Puerto Rico, 27 percent said they use value pricing, which compared to 26 percent for market pricing, based on what competitors charge, and 35 percent for cost pricing based on their costs for labor and materials. The remaining 12 percent cited a mixture of strategies, including combining value pricing with market and/or cost-based methods.
This is a major shift, given the fact that value pricing was barely heard of in accounting before 1999 when Baker began promoting it at accounting profession conferences and through books that include “The Firm of the Future,” published in 2002.
Baker estimates that only 7-10 percent of accountants value price, adding that some of the Bay Street Group survey respondents may have identified themselves as value pricers when they do not follow all the key tenets of the practice, which include agreeing with clients on an established price before work begins.
However, Baker said, “This (Bay Street Group study) gives a good vector that value pricing is in public discussion, that the train has left the station. Firms are doing this; they may be struggling in fully understanding it, but they know this is the future.”
“CPAs know in their bones that they have to move in the value pricing direction,” said Rick Telberg, president of Bay Street Group, baystreetgrouop.com. He added that some CPAs who say they value bill probably don’t match Baker’s criteria because “he is just so much more sophisticated in his knowledge of this area.”
Baker, who heads the Verasage Institute think tank for business services professionals, verasage.com, has emerged as an internationally-known authority on pricing and has written several books on the topic. He will be a featured speaker at many accounting profession shows this summer, including the American Institute of CPAs’ Practitioners Symposium in Las Vegas on June 11.
Baker acknowledged that other authorities have told him his 7-10 percent estimate is conservatively low, and that several other consulting studies have placed the portion of accountants who value price at 20-30 percent.
Bay Street Group also found that CPAs who say they value bill are far more satisfied with their pricing than are those who market or cost bill. Its study, which covers a wide range of pricing issues, determined that regardless of the pricing strategy used, the average fee earned per billable hour for sole practitioners and small firms is $124.60 and the median is $115.
Among the billing questions asked was what rationale drives the pricing strategy. Retaining clients was the top answer, cited by 59 percent; maximizing revenue was identified by 35 percent, placing it second, followed by maximizing profits and maximizing profit margins.
Accountants are using all different combinations of pricing strategies, the study further reports. Among the more convoluted strategies cited is by Judy Lynn Scott, head of a small CPA firm in Houston, who prices audit services at market rates, value bills for consulting, and seeks to “maximize profit" when billing for tax services. Another practitioner covered in the study value bills for individual services, and is open to taking an ownership position in clients’ businesses in lieu of cash.