Value pricing has been widely adopted in other industries by providers who are servicing the same clients as you. Why then, have so many accounting firms been slow to transition to this model? Bruce and Justin from QuickFee explore.
Listen to the radio or the TV. Many vehicle retailers are offering fixed price servicing. Which makes sense, their customers are tired of being quoted an hourly rate without knowing how many hours will be needed, or worse—how many hours were consumed. For these consumers, certainty has value.
If complex litigation is involved, companies will hire the best lawyer they can even though the rate is higher. For these companies, reputation has value.
Try booking a hotel at a ski resort in the middle of the best snow season on record. Here, scarcity has value.
Value pricing for professional service firms really started to gain momentum in the last decade, where the virtues of assigning true value to your education, expertise, and work have been touted. This war cry is typically received with nodding heads and hope-filled eyes, yet despite this prevalence in other service industries, most accounting firms today are still billing their clients based on hourly rates.
Why have accounting firms been slow to go all-in with value pricing, when so many other providers to our clients adopted it long ago?
Value pricing is not as straightforward as traditional pricing methods, so making the switch can be daunting. At the outset, you need to assess both the scope of the work to be done and the value it will provide to your clients, and incorporate this into a value-based pricing model. You to decide what your clients really value rather than your firm's inputs to a piece of work. Inputs do not determine value, and this is why a charge rate sold by the hour and based on a staff member’s salary does not reflect value.
The key to determining value and the price you charge (set below the perceived value) lies in asking questions that will uncover your client’s true need. As an accountant, you have typically been trained to answer questions, but now you must be asking the questions in order to uncover the value for your client and be paid accordingly. There is much more upside when addressing a client’s aspiration than solving an affliction.
There is much more upside when addressing a client’s aspiration than solving an affliction.
What is the problem your client needs solving? What will a solution mean to your client economically and emotionally? Can you provide this solution? How novel is your solution?
Accounting firms that have successfully worked through these issues and transitioned to value pricing enjoy transformative financial and satisfaction gains. By working out what is of real value to your clients, you can remove low-value work and spend time on the work that really matters to your clients. You will earn more in less time and enjoy more positive interactions with clients who are having their problems solved by working alongside you.
A prominent M&A-focused law firm said, “We must base our fees not on time but on the intensity of the firm’s efforts, the responsibility assumed, the complexity of the matter, and the result achieved.” They went on to explain that their fees typically equal 0.1% to 1% of the value of the deal they’re working on, and sometimes go beyond that. One-percent of billion-dollar deals is how firms achieve the hyper-growth that hourly-billing can never achieve.
This potential upside is not limited to elite firms working on billion-dollar deals. For the typical firm billing hourly, there is a proportion of clients who would be willing to pay more for the right services, because the value they can receive can be so substantial to them. They will also appreciate having a set service fee to count on, as opposed to bills that fluctuate wildly each month, increasing client satisfaction and retention. Value pricing unlocks this potential for your firm, providing increased revenues and solid growth.
Real transformation takes effort, but those that undertake it enjoy the spoils.
This article was written by Bruce Coombes and Justin Cross from QuickFee.
QuickFee believe strategies like value pricing allow forward-thinking firms to grow and thrive today, while helping them set the scene to scale in the future. They are excited to be sponsoring Karbon Academy's value pricing lectures.
To fill the accounting industry’s gap in education, Karbon is launching Karbon Academy. Combining proven theory with practical examples and group coaching, you’ll be taught in your four tracks (strategy, management, efficiency and growth) by the best practitioners and lecturers from around the world in an MBA-like curriculum that has specifically been built for accountants.
Join us this August to take your accounting practice to the next level. Learn more and enroll at karbonhq.com/academy.