Do You Confuse Fixed Fee With Value Pricing?by
The manner in which business services are priced matters a great deal in the context of profitability, the prudent use of time and value provided to clients. Business owners and managers are empowered to choose between flat fee and value pricing. This article delves into the details of each approach to pricing, highlighting the merits of value pricing for accountants and other professionals.
Whether it's Value Pricing or fixed-fee, pricing services is is one part psychological and one part financial. One thing is guaranteed – the price you share with a potential client has an immediate impact. Some will physically relax; agreeing to get started now. Others will gasp at your rates since your price exceeds their expectations. If they recognize the value of your accounting services, a certain percent of these clients will say “yes” to your offer.
The Difference between Fixed Fee and Value Pricing
Fixed fee and value pricing are often confused. After all, both refer to a set price for your services. Let’s dig a little deeper into these terms to clarify their differences.
Fixed fees account for time, cost and other select variables. A fixed fee positions your service as a commodity since it places importance on time, tasks and processes. This price strategy reinforces the traditional belief that your time is worth money. Basically, these rates reflect what’s most important to you.
Now if you’re a client-centered firm, then value pricing may be the ideal fit for your culture. With this approach, you set your prices according to the client’s needs, not yours.
Let me explain. Step into your client’s shoes. Now view your service offering and rates from the perspective of your client. Ask yourself two questions. First, what problem do you solve for your clients? Next, why clients choose to work with your firm?
Reset Your Priorities
Peter Drucker states, “The customer rarely buys what the business thinks it sells him. One reason for this is, of course, that nobody pays for a ‘product.’ What is paid for is satisfaction.”
Your clients don’t hire your accounting firm for your time. And, clients aren’t interested in your costs. When you strip away your time and costs, you realize clients primarily consider how your service benefits them. When you connect your service to those benefits, then clients happily pay your fees.
Consider resetting your priorities. Rather than prioritize your needs over your clients, flip the priorities.
Connect your prices to the things your clients’ value most. Yes, this requires slightly more effort. Engage your clients in a value conversation. Illuminate your clients concerns and challenges by asking great questions. Then, let them know how your service resolves those needs. Once that occurs, your clients will happily pay your fees.
Your Value Extends Beyond the Tasks You Offer
As Jamie’s accounting practice grew, she carved out a specialty. Her clients are attorneys who want to increase their profit margin.
She excels at the business side of things for attorneys. Her busy clients value accurate financials. Knowing she’s got this covered gives them peace of mind.
Jamie doesn’t work with all attorneys. She’s highly selective, only choosing ones who are a good fit for her services. These growth-minded attorneys value her insights regarding invoicing, cash flow and profit margins.
Why Charge Two Different Prices for the Same Work?
During the past several years, Jamie studied different price strategies. She prefers value pricing since it flips priorities. With this approach, she prices the client instead of the service.
By the way, sometimes different clients pay different fees for the same work. The value one client obtains from her work differs from the value enjoyed by the next client and so on. Your pricing reflects this value variation!
As an example, consider two clients with solo-legal practices. Tom’s had his practice for 8 years. He finally decided to outsource his bookkeeping and taxes to Jamie’s accounting service because he’s tired of maintaining his own books. As a result of Jamie’s services and advisement, Tom saves $50,000 in expenses and increases profits by $300,000.
Now let’s consider Sarah, who started her law practice last year. With Jamie’s insights, she ultimately saved Sarah $10,000 in expenses and her profits increase by $40,000.
Now with fixed fee, both clients would pay the same for her services. According to the numbers, Tom enjoys greater value from Jamie’s accounting and advisory services. Since value pricing prices the client rather than the service, his fees are greater than Sarah’s.
Value is Subjective
Remember, value is subjective. Value pricing works when your client realize their gains from hiring you are greater than your fees. As a result, you charge differing amounts based on the value your services create for their respective businesses. As you gain comfort with this price strategy, any guilt about charging different prices to different clients for similar services quickly disappears.
Even if you invest the same amount of time doing similar work, the resulting value differs considerably from one client to the next. As a result, it makes sense to pair your fees according to each client’s value. And yes, this means one client may pay a higher or lower rate than the next.
Value Pricing Paves the Way to Success
When you separate fees from time, you earn more without working additional hours. Clients no longer watch the clock, challenge your invoice or question the amount of time you spend in their file. When your accounting firm leads with value, you gain awareness about your client’s perspective. This price strategy grows your bank account without working additional hours.
Imagine only working with clients who value and respect you. They appreciate your service and happily pay your fees.