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How Firms Can Improve Profitability Through Pricing – Part 1

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Oct 28th 2016
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Value pricing is the ultimate approach to breaking the nexus between hours and price. Consider how many times in your career you provided a client with advice that created significant value, but because it only took you 30 minutes, your fee was very low (or even nonexistent.).

We heard recently from a CPA who had a client tell him that one piece of advice provided in a two-minute discussion had saved the client $100,000. The client was extremely grateful, but the CPA felt taken advantage of – and rightly so.

It may have been a two-minute discussion but it was the product of 30 years’ experience during which time the CPA learned HOW to provide such advice. And it’s that value gap that you need to fill by becoming an expert at value-based pricing.

A value-based price reflects the value you provide to the client by applying your intellectual capital. The client receives great value and you are properly rewarded.

To price based on value, you need to understand your client’s objectives and the perceived value, if you achieve those objectives. This means you need to become very good at:

  • Finding opportunities to have discussions with clients.
  • Asking great questions.
  • Listening more than talking.
  • Articulating value.

Setting the Price – How to Know if the Price is Right

Let’s address this question directly: The price is NEVER right. You have no way of knowing whether the price is right or not. All you can aim for is that you are happy with the price and the client is happy with the price.

As a general rule, if your clients say yes too quickly, then your prices are too low. When we work with CPA firms, we find that a 10 to 20 percent price rise generally goes completely unnoticed, providing empirical evidence that their prices were too low. As the price-setter, you have far more of an issue with prices than your clients ever do.

The key to value-based pricing is, perhaps not surprisingly, an ability to be able to quantify the value that you provide. Sometimes the value will be in $ terms; other times it will be qualitative (e.g., less stress, keep me out of jail, IRS off my back).

Whatever it is, you need to be adept at engaging the client in a quality discussion that results in the client (not you) articulating the value they believe they will receive. We will give you a process to help you do that in the upcoming sections of this article.

There is no magic formula for setting the price. It is a combination of art and science. Test your prices constantly. Look out for indicators such as clients saying yes too quickly. Change your focus from what you can get out of it to how you can create so much value that price is not an issue.

Value Articulation

There is value in everything you do for your clients. Even on jobs where the value is not obvious (such as compliance or compilation work), there is value.

When we coach firms, we play a game to help team members understand the value they create and how to articulate that value. The game, named simply Where’s the Value, starts with someone in the group naming a service.

Let’s say the service is a basic compliance service. The rest of the group then brainstorms the value that the client might receive. It is important to take the focus OFF the activity or input and ONTO the value. Some examples in the case of compliance work:

  • It satisfies the IRS.
  • It keeps cash coming in.
  • It helps me plan.
  • It helps me benchmark my performance against other firms in my industry.
  • It helps me satisfy my bank.
  • It lets me know how I’m doing.
  • It avoids surprises.
  • It gives me my key performance metrics.

Identifying Value-Based Projects

CPAs are at their best with numbers. That’s why we believe that year-end or compliance services should form a springboard into more value-based projects. Imagine if you held a quality, face-to-face meeting with each of your business clients after completing their year-end work.

At the meeting, imagine that you presented a couple of potentially valuable opportunities. And imagine that you had a proven sales process that you used every single time. It’s our contention that most firms could double their revenue just by doing that, given what we know about how underserviced most businesses are by their CPA firms.

We have created a process called Finding Opportunities. Every time we run this with a group of accountants, new, previously unnoticed opportunities become apparent. We know there are hundreds of opportunities out there – you just need a process to identify them, the courage to present them, and the capacity to deliver.

Selling Value-Based Projects

In conjunction with the hundreds of CPA firms we have worked with, we have created a unique sales process. The process is based on asking your clients the following types of questions in the order specified:

  • Decision-makers: Ensure all decision-makers are present. Don’t hold a meeting with the husband when the wife is actually the emotional buyer (or vice versa).
  • Background questions: Before you launch into determining client objectives, ensure you have some solid understanding of the client’s situation.
  • Motivation questions: What pleasure does the client wish to move toward, or what pain would the client like to move away from? What are the client’s objectives?
  • Problem questions: What is stopping the client from achieving their goals right now?
  • Measurement questions: What would show the client that we are on track toward achieving their objectives?
  • Value questions: What would the client get out of achieving the specified goals? It can be monetary, emotional, or any other point of value articulated by the client.
  • Consequence questions: What would happen if the client did not do something different?
  • Timing questions: Is this a later or a sooner project?

One of the resources we provide to our members is a Client Interview Worksheet. Many CPAs have created notepads based on this worksheet and find that it keeps them on track and improves outcomes.

Part 2 of this article on Improving Profitability Through Pricing will focus more specifically on upfront pricing. You can also join Rob Nixon on Nov. 29 as he hosts a webinar on how exactly to implement value pricing at your firm.

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