By now you’ve all been urged in some capacity to move towards more advisory-based services, given the advent of automation and evolving business needs. This has of course made it more challenging to charge by the hour.
So how do you price? One way being touted is a breed of value pricing known as an Access Level Agreement (ALA), whereby your client (or customer, if you will) “subscribes” to your firm; not any particular partner or agreed price, per se but to Your business.
During this three-part Q&A series, we will have Ed Kless, Senior Director, Accountant Solutions at Sage Software, explain the idea behind and benefits of an ALA, as well as the details of structuring one and its implementation.
Ed and his VeraSage Institute partner Ron Baker have been tireless advocates of the benefits of value pricing and this latest effort, in tandem with Sage, essentially takes this pricing practice to the next level. The second part of our discussion explains how to establish an ALA, what’s involved, what the expectations are and should be and dealing with any client or internal pushback from this plan:
AW: How can/should firms begin to develop an ALA?
Ed: The beginning is to really involve some current clients and looking at not only what you are providing now, but what you can provide that they may be getting elsewhere (i.e. financial planning, estate planning, tax planning, business advice, etc.). It’s harder to look at what you already do and start charging in an ALA.
Then, if your firm has less than 200 clients, create a brief framework of what you think it could be and have conversations with all of those clients and customize something that would be a fit for them. If it’s more [clients] than that, it’s harder so you need to decide on the plans you’re going to offer. This does require what your minimum price will be if someone is to be a client of your firm. Too many organizations won’t do that because they have clients that don’t meet the minimum.
AW: Can you offer some basics or best practices on price setting?
Ed: First and foremost, you must have a conversation with your client about the value of the service you currently provide or what would be of most value to them. After that, develop three core choices or levels of service. In price theory these are “fences.”
Why three? Because it seems that’s what our brains can handle best, we tend to weigh choices better with only three. It can be more, but three would be easiest.
This allows your client to do the choosing. Plus, the concept of “good” “better” “best” is understandable by anyone engaging your services. Also ask, can you set a “low” at what a low hourly range would be and a “high” at a high hourly range.
Then, there’s your “hope for” price, what should we be able to get for each of the three prices. Finally, the third price you come up with is the “pump fist” price, meaning if you got a client to sign for this price you would celebrate. Then, you have a matrix of prices, you have partners or a committee review on you should price this way, discuss the advantages/disadvantages and take all feedback from your team. All value is subjective and as such all prices are contextual. We need to understand the context of a price.
AW: How do you introduce an ALA best to your client/customer base?
Ed: There are a couple of schools of thought. One is just for new clients, the other is offer it to current clients with a trusted relationship. There is no hard and fast rule here, base it on your comfort level.
The first way is fairly self-explanatory, but if it’s the second choice then further conversations need to be had. What I think is offer it to some subset of existing clients (10 percent, 20 percent), but don’t say all “A” clients or “B” clients, mix it up.
Launch it, learn from it and make course corrections. You could also roll it out over one to three years until you get everyone on. I will say the sooner you can roll it all out the better.
AW: How do you deal with client resistance/pushback?
Ed: At a certain point you do have to draw a line and they have a decision to make. Are they willing to be your customer or not under this model, if not you need to let them go. I will say there’s far less resistance than people think. In a lot of cases the only reason they put with hourly is because they thought this was the only way it could be done. The profession has not done a good job of pushing back with the idea of saying “this is how we do business” but if your client knows they have a choice they will be happier.
Next week, Ed and I wrap up our ALA discussion as we take a look at measuring the success of this plan, as well as what comes next and how to address any necessary changes. Also, feel free to download this guide on Creating Access Level Agreements.