In my May 13, 2019 blog I declared my decision to convert my practice to Value Pricing. As part of my preparation, I interviewed someone who had already made the switch for her practice, Serah Blackstone-Fredericks of Books In Harmony. In this post, I share my thoughts on why Value Pricing is the right choice for my practice.
I opened my bookkeeping practice about 15 years ago, and I am still a Sole Proprietor. As such, I have to carefully choose my clients to create a balanced workload ensuring I have enough work, but not too much. Like most people who started out 15 years ago, I billed my clients an hourly rate. Isn’t that the first question new prospects ask during the initial call, “What’s your hourly rate?” Each year, as I gained more experience and certifications, and I attended industry conferences and gained more practical knowledge, I inched up my hourly rate in an annual letter to my clients.
Fixed Fee Pricing
In January, 2015 I implemented Fixed Fee pricing. I did an analysis of the average monthly fee I had billed each client over the last 24 months, added on a small cushion, and gave each client 30 days notice that I would be moving to this new billing model. The letter included a bullet point list of the services included in the fixed fee, such as posting QBO bank feeds, monthly reconciliation of the bank and credit card accounts, a monthly reports package, preparation of 1099s in January, and annual reports for the tax preparer.
I decided to line-item third party app fees separately, so if the Vendor raised their subscription fees, I could pass along those increases to my clients. Finally, I implemented ACH billing on the first day of the month, and had each client sign an Authorization Form, which is required by Intuit Payments for ACH transactions.
I can tell you that not one of my clients jumped ship when I made this change. In fact, they liked the elimination of monthly fee fluctuations - they now knew what to expect each month.
The Value Pricing Difference
So why am I ready to switch to value pricing now, in 2019? Because I finally understand that I am selling value to my clients, not time. When Joe Woodard talks about becoming a Transformative Advisor, he says it’s time to get out of the business of selling bookkeeping or accounting services. Instead we are selling coaching or mentorship, peace of mind solutions, stability, metrics. You can fill in the blank for which term best suits your personality and firm.
If I had continued to bill by the hour, I would actually be penalizing myself the more efficient I get. Imagine I have taken the time to explore, research and learn how to use third party apps, or even QBO for that matter. Upon implementing these tools, I discover that I am working more efficiently. But if I am now billing 6 hours per month, instead of 10, I have decreased my income.
It no longer makes sense for me (or any of us) to bill by the hour. Instead, we can charge clients for the value we bring to them. My value includes my 15 years of experience, my Intuit and other certifications and the skills and knowledge I have gained over time.
My value also includes the ability to recommend workflow and applications to my clients, to create custom reports, to respond to their inquiries in a timely manner, to talk to their tax preparer, and more.
But what if you do not have 15 years of experience? Well, you can still offer value pricing as long as you are able to show clients what you bring to the picture beyond data entry, they will find value in your services.
And why am I switching from Fixed Fee to Value Pricing? My Fixed Fee model still contains an hourly component which I wish to eliminate. During the transition from hourly to Fixed Fee, I discovered the need for a cap on the number of hours worked for that fixed fee, as some clients took advantage of the flat rate and started asking me to perform tasks they had never requested before.
So, my Service Agreement designates that the Fixed Fee is for “up to X hours per month” and then I charge an hourly rate for time worked over the cap. I’m now ready to scrap that model.
To truly offer value, I want to provide a menu of services for my clients, and let them select from the menu. The services are bundled into clearly defined packages.
Note: Even though I am no longer billing by the hour, I still track my time. It’s an important exercise to know how much time I spend on each client, so I can confirm my pricing not only pays the bills, but includes a reasonable margin. Also, I don’t like having to notify my clients each time a subscription fee increases. I want the value I bring to be wrapped up in a full package, subscriptions included.
Fixed Fee pricing and Value Pricing are not the same thing. Value Pricing now makes sense for my practice and perhaps it does for yours too!
Next post: Packages & Pricing, Service Level Agreements & Change Orders.
Jody Linick is an AIPB Certified Bookkeeper, a QuickBooks® Certified Pro Advisor, and a member of the Intuit Trainer/Writer network. Her company, FitBooks Pro (formerly called Linick Consulting), specializes in remote bookkeeping services for professional services firms using QuickBooks Online. You can find her series of Blog posts here.