There’s a new movement in the accounting industry shifting toward a pricing strategy that lets accountants earn what they’re worth while allowing clients to pay for the services they want the most.
Read this article to learn more about value pricing and how to implement a value-pricing strategy in your practice.
How does value-pricing work?
Value pricing focuses on what your client perceives to be the value of your services, rather than how you perceive the value of your services.
With value pricing, prices are set before any work begins. In order to deliver those services at the price offered, it’s fair game to ask your client to agree to a set of requirements—such as responding to requests for additional information within 48 hours or submitting year-end files to your practice by an agreed date.
The problem with hourly billing
How a business owner perceives the value of your services will be different from how you perceive the value delivered. An hourly rate may reflect your expertise, education, and years of experience. However, the business owner may only care how little tax she pays or meeting basic government compliance requirements.
- For example, calling the tax office to negotiate lower penalties on tax arrears may only take 15 minutes of your time, but could save your client thousands of dollars.
Value-based pricing lets the client identify what is most important to them and lets you charge accordingly.
Value-based pricing vs. value billing
It’s important to understand the difference between value billing and value pricing before engaging with your clients.
- Value pricing involves communicating with your client in advance of the work to be performed about the associated price you will charge.
- Value billing involves charging the client after the work is performed. Typically, a service provider would total up of the cost of a job and apply a markup.
What are the benefits to value pricing?
For your accounting practice, value pricing offers numerous benefits:
- Separates time from profit, so you are rewarded for efficiency.
- Better client engagement when the clock isn’t ticking.
- Improved employee retention rates when you remove time-based pressure to complete work.
- You will be properly compensated for the results you provide to your client rather than the hours required to complete the work.
- It’s easier to raise prices; for example, raising annual service fees by 10% from $3000 to $3300 is less likely to upset clients than raising your hourly billing rate from $100 to $110.
- Value pricing differentiates your practice from competitors stuck on hourly billing.
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Clients like value pricing for these reasons:
- No more invoice shock.
- Deeper engagement with the accounting professional.
- Easier access to the accounting professional (because the hourly fee clock isn’t ticking).
- Better understanding of what the accounting professional requires of them; for example, when annual financial data is due.
How to talk value pricing with clients
Preparing for a value-based pricing conversation with your clients will help you to enjoy a more successful outcome: when a client accepts your value-based price and your profits increase.
Start the process by figuring out your internal value pricing rates. Make a table of the services you will provide and the approximate pricing for each—remembering to use bundled pricing instead of hourly rates. Think in terms of bronze, silver, and gold packages. These prices are a guideline and may vary based on your client conversation and their specific needs.
Next, create a list of questions to ask your client that will help to identify which service(s) they value most. Ron Baker, founder of the VeraSage Institute and an accounting industry expert, offers an excellent list of questions you can consider asking your clients during a value conversation.
Set up a time to talk with your clients about your new value-pricing policy. If possible, have conversations at the client location. Start with clients you believe will reactive positively to the change.
When you talk with clients, remember that a value conversation is about identifying which services your client values most and balancing their needs with yours—it’s a two-way conversation.
Give it time
Changing to value pricing will take time and consistent effort. It will take a commitment from your leadership team to implement the change; work is required to engage those client conversations and to educate clients so they fully understand the benefits of value pricing. Make a plan to transition over time to value pricing rather than flicking a switch; get your best clients on board and convert remaining ones over time.
Want to learn more about this topic? Download our ebook to learn why value-based pricing is important to clients.