CEO High Rock Accounting
Share this content

How You Price Your Services May Impact Your Future

While the billable hour is no longer the most lucrative form of billing, it is long from dead and will live a rocky and contentious life.

Mar 2nd 2020
CEO High Rock Accounting
Share this content
hands holding coins and a clock
TheaDesign_istock_valuevstime

While much has been written about the benefits of value pricing or fixed-fee billing, there are plenty of practitioners that are still trying to wrap their heads around what makes the most sense for them and their clients. It's not a light switch one can flip and everyone is happier than they were doing things the old way, pricing services and how you bill clients takes time and thought.

The first step is always the hardest when even considering moving from hourly billing, which for some clients will always make the most sense. Below, practitioner, firm owner and Xero Ambassador Liz Mason gives her basic and practical view of client billing in the hopes that as you work today and into the future you will have a better understanding of what pricing scheme works best for your firm.

The waves of change have hit the accounting profession right in our invoices. We have traditionally focused on the billable hour.

Technology has allowed practices to become extremely efficient at their work, thereby reducing the number of billable hours required to prepare a job. Fewer billable hours requires adding clients to make the same revenue.

However, we all know that after a certain number of clients we experience diseconomies of scale where communication becomes a burden and the cost per client increases. So how do we solve this decreased profit margin problem? We bill for our value!

Let’s review the three standard billing models we see in firms:

1. Value Price

2. Fixed Fee

3. Hourly

Value Pricing

My favorite way to charge for services is value pricing, but it is by far the hardest to get right. So, naturally it is what I have gravitated to (why make it easy on myself?).

Value billing is a combination of understanding which services provide more value to your clients and setting prices with higher profit margins on those services. For example, I might charge $500 for monthly bookkeeping and $2,000 for monthly outsourced fractional CFO, even though they both take me 1.5 hours per week.

The perceived value of the work is very different. Value pricing also gives you the flexibility to address inherent varying complexities, when your services would be needed more, if the communication would take a long time, plus any other factor affecting the engagement, and price accordingly.

Fixed Fees

Fixed fee billing is where you charge a specific price for a specific service. Generally we can see menu type options with prices associated.

An example of fixed fees in client accounting service firms, are the pricing pages that say “$250/month monthly bookkeeping for two bank accounts and no inventory” or the like. Fixed fee pricing leaves little room for flexibility.

It also creates an averaging of clients where you might be profitable on a handful and not profitable on the rest, or vice versa. This means that some clients would be paying for the work of other clients in reality. It is, essentially a socialistic approach to making service pricing fair.

Hourly Billing

Hourly billing is always the easiest (if you are focused enough to actually track your time accurately) but it comes with a few negatives. With hourly billing you cannot take advantage of building efficiencies. If you do the job faster, you get paid less.

Second, your clients will be more reluctant to call if you send them a bill every time they do, creating a slightly adversarial relationship. There are also a few positives: As long as you have enough work, you will always have profitable time spent on a client because you can control for profit margin on a micro-level.

So What’s Best?

As the profession as become more technology-driven in their work, I believe value-based pricing works best. Why? Because you can adjust the prices without regard to the underlying time it takes to perform the project. Pricing on the value of your services gives you a great incentive to be as efficient as possible. The better your integrated app stack, the more profit you will see.

We have explored the downside of hourly billing in the efficient technology environment, we discussed the stability of fixed fees, and we exhibited the benefits of value pricing. However you like to bill your revenue, just keep in mind that the future is efficient.

Related Articles

Is it Time to Shift Back to Hourly Billing? 

Here's How to Say 'Yes' to Value Pricing

Replies (0)

Please login or register to join the discussion.

There are currently no replies, be the first to post a reply.