It’s now time for accountants and other professional service providers to free themselves from the billable hour and move beyond this archaic method to implement other methods of pricing their services.
If you have tried recently to book an airline ticket, you know that the price changes constantly. The airlines have developed their pricing on a complex set of algorithms based on
- Base fare
- Taxes and airport fees
- Competitors
- Days flying
- Departure time
- Fuel surcharge
- Service fee to issue
- Food
- Available seat selection
- Baggage and
- God only know what else
Now, isn’t everyone on the same plane and don’t they all arrive at the same time? The obvious answer is yes. So, how can the airlines charge so many different prices for basically the same service? Some of the pricing is determined by seating, first class, business, premium economy and economy. The needs of the passengers also differ and the price passengers are willing to pay differs. For example, if a business person needs to be in New York City tomorrow, she doesn’t argue with the airline about the price. Not that arguing would do any good.
If an airline ran its business like an accounting firm, there would be lot less variance in ticket prices and customers could always argue about the fee being too high. Airlines want to maximize their profits, not their revenues. While you might expect the airlines to lower their prices a few days before the departure date to fill the last seats, the opposite is true: Selling 20% of the remaining seats for $1,500 is more profitable than selling half of them for a discounted fare of $550.
Pricing of professional and non-professional services can be a complex and often a difficult task. Competition is fiercer today than ever. Firms continue to undercut audit fees. Technology may no longer provide a pricing edge. Clients are more sophisticated than ever, and are demanding more value for the fees they pay. Partners seems to be working harder just to stay even. They are hanging on to “this is the way we have always done it” attitude rather than taking advantage of newer technologies and global resources to reduce cost.
As you will see in upcoming articles, the fee you are able to charge for a particular service is predicated on the demand and type of service you are offering – commodity, brand name, hired for experience and unique service. You also have to take into consideration your competition in the market, their cost structure, ethical restrictions, and the fact that accounting, tax and consulting services are intangible and perishable. In other words, once you lose an hour, you can never make it up. It’s like an airplane that takes off with too many empty seats. They can never be filled. The airlines maximize the value of each seat sold, shouldn’t you maximize the value of each engagement in order to maximize your profits?
August Aquila
Author Bio: August Aquila is CEO of AQUILA Global Advisors, LLC, an international management consulting firm to professional service firms in the U.S., Canada, U.K. and India. Specialty areas include compensation design, mergers and acquisitions, strategic planning and owner issues. Recognized as one of the top 100 most influential people in the accounting profession by Accounting Today for more than 10 years and is the author of hundreds of articles and 10 books.