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Making the switch to value pricing in accounting firms

Jason Blumer  Blumer & Associates, CPAs

Jason Blumer  Blumer & Associates, CPAs

Value pricing and fixed pricing are becoming popular in our profession and starting to become a normal way of doing business for many firms. Like many trends, there is usually more than meets the eye when implementing new changes in a firm. This article will address what is involved in implementing new value-based ideals at your firm, focusing on how a change in fee structure is not only a new way to make money, but, more importantly, a philosophy of value that must be absorbed throughout the whole organization.

Let’s set some ground rules with definitions:

Pricing

This is always done before a service is ever started. This is a huge change to how most firms still manage their money. For most firms, work begins first, then a bill is sent later.

Billing

This is done after work has been completed. Bills and prices are completely different things, so these words are not interchangeable.

Scope

This is an often-overlooked part of pricing. When you move the money exchange with clients to before the service (pricing) rather than after the service (billing), then you must become excellent at the skill of scoping the work you are about to perform.

Value Pricing

This is about assigning a financial value (price) for each particular client that comes into your firm. Every client has a different price because every client values your services in different ways.

Fixed Pricing

This is still pricing (because the price is set before the service is begun), but it is not value-based because all prices in the firm apply to all clients in the world. A price is fixed to a service, not a client.

Hourly Billing

This has the word “billing” in it, so it means the money is exchanged with clients after the service is complete. The bill is determined by totaling hours and multiplying them by an hourly rate.

With these definitions laid out, we can discuss how this philosophy of value truly affects firms in unknown ways. There are a few big surprises that can hit firm owners when they decide to switch their firm from an hourly billing model to a value pricing model.

Value pricing surprise #1

The first surprise is the upfront strategic planning that will now be involved in producing and calculating the right value price. That is, when you have to give an up-front price to a client before serving them, you know in incredible depth exactly what you are agreeing to do. Exploring this will force you to spend more time with the potential client trying to figure out what they need, and why they came to your firm in the first place. This is surprising because of how slow it can be to work out the scope (or plan of work) with another human that isn’t truly sure what they want or need.

Value pricing surprise #2

The second surprise is what the slowness of this philosophy does to cash flow. Since everything in the firm slows down, so does the money as a result. Working with clients based upon a philosophy of what they value about your firm and their service, you will need time to determine their wants and needs, develop a price to serve them, and then go through a process to put that list of work into your firm’s workflow system. You may also want to implement client minimums when switching to a value-pricing model.

Value pricing surprise #3

The third surprise is the firm owner’s need to sell their services in new and creative ways. Firm owners must become skilled at selling and negotiating (convincing) to help a client believe in you enough to pay you money before their service ever begins. Clients are purchasing “invisible” services from accounting firm owners, so they need a lot of help understanding the value of what they are about to invest in. Further, if services are based upon value, the prices will tend to be higher, thus leading to a firm owner needing to sell with skill even more. You may also consider updating your marketing strategy to grow your advisory services.

Why switch to value pricing?

At this point, you may be asking, “why would anyone switch to value pricing if it changes everything so much?” Great question! Making a move towards value pricing may slow everything down, at least temporarily – but the result is a group of deeply aligned clients who believe in your work and are highly committed to your firm. Clients need to make a deep commitment to an accounting firm partner to maximize the service. Value pricing is the best way to get them to agree to the value they are about to receive before the service ever begins, eliminating confusion later.

Once clients understand value-based services and pricing, their level of trust increases and they expect more from you, solidifying your role as their trusted advisor. You, in turn, are better able to challenge them, help them grow their businesses, and lead the relationship. The philosophy of value must then infiltrate every part of the firm. The owner must first believe in leading with value (not the arbitrary historical passing of time that hourly billing is based on). Then the client must believe what the owner is selling (before they have ever received the service). Finally, the team must believe that what they are doing for clients is much more valuable than transactional services for clients they barely know.

Leading a firm with a philosophy of value upends the whole firm. Many struggle with these changes, but if firms are properly prepared then they can begin to truly influence the lives of their clients, help them grow, and begin to weed out the clients that do not need or want valuable services (commodity shoppers). It takes guts and courage. Are you up for the challenge? It’s worth the change, as long as you know what you are signing up for.

 

Do you embody the future CPA?

Building the accounting firm of the future starts with changing your mindset. Your clients and your prospects expect more from you. Reform your accounting business to exceed those expectations. Take the first step by reading our new white paper, The Future CPA: Make Your Practice The Accounting Firm of the Future. You’ll learn about the seismic changes affecting your profession, along with a roadmap to help you navigate them.

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