The content in this article is based on an upcoming webinar designed by Liz Mason; the webinar "Setting the Right Price: Understanding your value, niche & how to measure profitability," is being presented on July 28 at 2:00 p.m. Eastern Time. You can register here.
Accountants undeniably offer valuable services to their clients. Unfortunately, though, all too often they don’t manage to adequately charge for those services.
When it comes to value, there’s a clear disconnect between offering services and knowing what to charge for them. For many firms, the solution to the problem is switching to a value pricing model. Value-based pricing allows you to charge rates that are actually in line with the value you offer your clients.
Once you properly measure the value of your services and decide to set your rates accordingly, you’ll never have to worry about underpricing again.
The Price Quality Matrix
To truly understand value pricing, you need to first understand where you fall in the price quality matrix. Are you selling high-touch high-value services? Are you selling low-touch less expensive services? Understanding exactly where your target market falls on the matrix will help you identify how to price and how your value is perceived by your market.
Examples of where certain type of firms fall out are as follows:
price matrix
Although this matrix includes generalities about firms, there are many ways to service different markets and price to meet their expectations. You can adjust your services lines and prices to reflect the expectations of the clientele you are trying to acquire.
Pricing Theory for Accounting
As with any business or service, there are multiple possible models when it comes to pricing services. The most popular models have shifted in recent years as firms invest more time in making strategic decisions about pricing.
Traditionally, nearly all accountants charged hourly fees – the total price was directly dependent on the amount of time it took to perform the service. Over time, customer expectations shifted, however, and there was a much greater preference for up-front pricing. This initially took the form of fixed-fee pricing – firms would create set prices for specific tasks and apply them across the board based on an average, even if they actually took more or less time for a particular client. Firms often struggled to find the right values to charge that would adequately represent those averages.
More recently there has been a shift toward value pricing. Like fixed-fee pricing, value pricing is up-front pricing, but unlike fixed-fee, it varies from customer to customer. Firms undertake a pricing exercise to determine a dollar figure that represents the value of the services being delivered to a particular client in a particular situation.
Measuring Value and Setting Value Pricing
As technology is constantly getting more efficient, firms are increasing the amount of value they can offer their clients. Failing to understand the value of your services and price them accordingly means you’re missing out on profitability and setting yourself up for failure, because you’ll soon see diminishing returns on your underpriced services.
Measuring value can be difficult, and it’s not without its emotional aspects. How you view the value you create and how your clients view the value you create don’t always align. It’s important to take a serious look at how you’re creating value. For example, if you’re helping clients develop business strategies that allow them to sell their business for over $20 million, but you’re only paid $50,000 over two years for that work, there’s a significant disconnect in value.
Measuring value starts with understanding your niche, or the things you do uniquely better than your competition. Find what you’re good at and what you want to bring to the table, and then determine how those things align with the firm’s offerings in the big picture. The more relationships and experiences you offer, the more value you add.
Setting the Right Price
Once you understand your strengths, you can ensure that you’re setting the right price for them up front. When setting value pricing, ask your client probing questions to figure out what they value most and whether or not your services are a good fit. When you find things that align, you’ll be in a better position to charge more, and they’ll be more willing to pay more when they’re receiving the exact services that make their lives easier. While you may no longer be charging hourly rates, you can still take labor costs into account when you’re laying out a project. A given project will only be profitable if you can charge a rate that covers what you provide.
If you’re looking to implement value pricing, start by determining your biggest value propositions and focus your efforts there. For the right clients who value those specific services, the transition to value pricing, when based on the right information, can be seamless.
For more information on this topic, register for the webinar "Setting the Right Price: Understanding your value, niche & how to measure profitability," presented by Liz Mason on July 28 at 2:00 p.m. Eastern Time. You can register here.