Benefits of Value Pricing for the Small Firm
No one likes a surprise bill, especially from their accountant, so while value pricing is nothing new I find that most firms forget to put the “value” in value pricing.
What does your client value about your accounting services and how can you price based on those values? Clients not only want confidence that their books are audit proof and support their decision making, but they also want to be profitable and know their costs.
First Step: Have a Conversation
If you’re on the fence about implementing value pricing or don’t really know how to get started, it’s best to begin by having a conversation. But, before you do that, you need to understand what the client values.
Read over their website and do your research about the owners and decision makers. For example, what LinkedIn groups do they belong to? What are their interests? Set up a quick call before you meet, get a general idea of what they want and then set an agenda based on that conversation.
One of the best questions for starting the conversation is this: “We will only undertake this engagement if we can agree that the value we created is greater than the price we are charging you. Is that acceptable?” Let the client answer. If they ask for clarification, ask the question again. Mention that you “tailor” services to your clients. This sets you apart from other prospective accounting firms.
Manage Your Risk
Like many initiatives, transitioning to value pricing from hourly billing can be risky, but there are techniques to ease your clients into this model. First, communicate proposed pricing changes to the client in writing and, if you can, in person, and then explain that you’re maximizing their value for growth and transformation. Give specific examples.
Next, ask yourself what matters the client is responsible for in the engagement. For example, how much access does a client have to edit or view your work?
If the client changes your work and you have to fix their input, that’s a higher price. Also ask:
- What short and long-term risks are you mitigating for your client?
- What external factors can affect your capacity to do the work?
- Are there objectively measurable results?
- Will you guarantee results?
How to Price
More than anything else, the best advice I can give is this: do not present hourly fees as an option! If you must give an hourly rate for a specific reason, use it as an anchor to nudge the client toward a fixed fee.
If you have a service for which you charge $1,000 a month and the client perceives that it will take about 10 hours to complete, give an hourly rate of something like $450. Charge for the initial interview, too. You can credit the client if they hire your firm.
Here are some other considerations to think about:
- Are you performing non-standard tasks that may not be automated and some that the client requires for their processes?
- Does the client want a specific person on your staff to perform or supervise the work, or to answer questions?
- Is the client using desktop, cloud, online or manual processes? Does the client need you to deal with handwritten paperwork? Do they expect you to work with low-tech banks?
- What method of payment are they using? Paying in advance? Prepaying long-term services? Are you charging penalties for late payment? What’s the exit strategy if either of you decide to leave in the middle of the engagement?
- When does the client need the work? How quickly will the client respond to questions? Is the client hiring you during peak season? After project completion, how much time do you or your team members need to be available for the client?
- Will the client require training or education? How much explaining do you need to do to help them navigate financial statements or reports? Do you need to give them a manual at the end of a project?
Assume your base price is $275, you can take that and add options. For example, if the client needs the work by the 21st of the month, you might not charge a premium, but if they want it done by the 14th, charge a $25 premium.
Similarly, if they want it by the 7th, charge a $100 premium. If the client needs you to use their technology, that might be a $200 premium. Do they want unlimited access to a staffer? Charge a $250 premium and so on.
Value Applies to All of Your Services
Every one of your services, from accounting and bookkeeping, to sales tax reporting and consulting, fits into the value pricing model. However, remember this: clients will rarely give you a numerical representation of value. It’s up to you to ascertain the cost to the client not to hire you.
What about current clients? You might lose some. Try transitioning two or three to value pricing from your client base, but use the value-pricing model for all new clients.
And, don’t be afraid to screw up – that’s how you learn!
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Hector is a CPA practicing as an Accountant and QuickBooks Trainer/Consultant in Davie, FL for his own firm Quick Bookkeeping & Accounting LLC. Before working in public accounting, Hector worked in several accounting & financial departments of past fortune...