“If I do a job in 30 minutes, it’s because I spent 10 years learning how to do that in 30 minutes. You owe me for the years, not the minutes.”
This quote evokes a lot of emotions, especially from people who work freelance or charge by the hour. The power of pricing goes beyond timesheets and can show more value to your clients and ultimately increase your bottom line.
For accountants and accounting firms, the good news is that many are moving towards value pricing and ditching the constraining billable-hour method. But why this transition? What are the disadvantages of traditional pricing in accountancy services, and how does value-based pricing stack up?
In this article, we’ll answer all these questions and explain the top 5 ways an accountant can demonstrate awesome results with value pricing.
Traditional Pricing Structure in Accounting Firms
Accounting companies usually have two types of pricing structure for their services, including:
- Hourly Basis: You calculate prices based on the time taken to finish the tasks and multiply them with the price of an hour’s work.
- Volume-Based Pricing: The prices are calculated based on the number of documents processed/data entered.
These pricing models have various disadvantages, including these top three:
- Failure to See the True Value: Clients fail to appreciate the value created by CPAs and select them based on their hourly prices. It hampers your company to foster the right relationship with customers.
- Less Profit: When charged by the hour or volume, there is a constant bidding war that forces accountants to work faster. This creates unwanted stress while being less profitable.
- Cannot Justify Rising Prices: If you want to increase the prices of your services, then your business is easily replaceable since you will be judged on the volume of work you complete rather than the value you add.
What Is Value-Based Pricing?
Value-based pricing is a concept that allows you to price your services based on the perceived benefits clients will receive. This method includes the value your clients associate with the advantages they will get for the money they pay.
Value-based pricing is a customer-centric strategy that turns traditional cost-based pricing on its head. In the cost-based pricing model, you establish a price based on the cost of various factors such as time, labor, etc., and then top it up with your margin.
In contrast, value-based pricing lets your customers decide the worth of your offerings and whether they will pay a premium price for them. It is a subject pricing model that will let you charge differently to different clients.
How Does Value Pricing Work?
To implement value-based pricing in your company, here are a few points to keep in mind:
Have a Single Market Segment
Identify the market segment that is willing to pay for the value of your services. If you have multiple customer segments, create different pricing for each of them based on the effort demanded by the client.
Understand the True Economic Value (TEV)
TEV is the sum of two components: the cost of the next-best alternative and the value of the performance differential. In other words, you should obtain a list of prices that your competitors are charging and set your prices accordingly. The second step is to quantify the differentiation value your services will be able to create. Identify your unique services and quantify the same.
Top 5 Ways an Accountant Can Benefit in an Era of Value Pricing
1. Earn More, Spend Less
Say goodbye to investing time in handling payments and billings. With value-based pricing, you can concentrate on executing more paid work for your customers. With the billing process accelerated, you can focus more on creating rewarding results for your clients.
2. Faster Onboarding
When you work on value-based pricing, you onboard clients quickly instead of taking days or even months. Without billable hours, you can get customers up to speed for starting the projects and improve efficiency and overall customer experience.
3. Unmatched Agility
At a time of economic uncertainty, accountants need to be nimble and adaptable. They should be able to work remotely on cloud-based tools amid growing disruption and unexpected outcomes.
Value-based pricing provides accountants with the time and resources needed to get work done faster without compromising the quality. This helps you deliver the much-needed agility to your clients.
4. Higher ROI
Circling back to the quote in the beginning, you can charge a higher price for your service due to your subject matter expertise and vast experience. A happy client won't mind paying a premium for quality, error-free work.
5. Avoid Surprises
Since the cost is fixed even before the project kicks off, there are no last-minute, price-related surprises that can upset the client. It brings transparency, and there is no guesswork in terms of cost.
Conclusion
Value-based pricing has introduced the accounting world to a plethora of benefits - from quickly onboarding customers to improving overall business agility. Take advantage of the value pricing era for your accounting company or career by putting some time back in your day.
Author Bio: Bryan Kesler is a renowned CPA exam mentor and founder of CPA Exam Guide. He aims to provide affordable mentoring and tutoring solutions to smart accountants to pass the CPA exam. You can connect with Bryan on Linkedin and follow him on Twitter.