If you’re running an Accounting firm right now, you’ll want to know the three most common pricing mistakes that can stand between you and your future growth.
Three Biggest Pricing Mistakes made by Accountants today
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Mistake #1 : Applying a holistic pricing strategy across all services
This includes measures such as:
- Annual CPI hourly rate increases; and
- Increase to all services across the board without considering which ones are actually delivering value.
Value add services enable bundling of products in order to achieve premium value for clients. Time-based pricing for basic services such as bookkeeping, financial statements, tax return preparations are vulnerable to price justification due to outsourcing and it solutions.
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Mistake #2 : Approaching pricing based on time taken to complete tasks
This old school approach to selling services hinders your ability to deliver value and establish yourself as an expert in your client’s mind.
I was a perfect case study:
- Our previous firm lost a client after charging for the time we spent preparing & facilitating a pseudo strategy board meeting with the client. After one quarterly session was billed, we received feedback that we had charged them for the hour we spent having lunch. Whilst the time had been billed for preparation and facilitation $1100, it was clear that billing by the hour put us under scrutiny and ultimately lost us the client.
- Months later we relaunched the same service as a package “Family Board Meeting”, based on the value we could deliver to clients. The package was presented at a flat price $1650 a quarter. As we converted our client base into our packages, we were some what surprised to find that the previous client came and asked if they could sign up for the new package.
Time based pricing sends the wrong message to clients. It’s basically telling them that you’re not certain of how it’s going to work or the value that it delivers, whilst putting the focus on the number of hours taken to complete a task.
Alternatively, package pricing keeps everyone’s focus on delivering value.
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Mistake #3 : Using Fixed Priced Agreements as the selling tool
Pitching and pricing jobs based on an FPA is the old chips and fries upsell (even McDonald’s has moved away from this!) The following examples will actually hurt a Firm’s bottom line:
- Proposals or client conversations based on what you do as opposed to what they get – this erodes value and doesn’t focus on what the benefit is worth to your client; and
- Pricing jobs based on production costs – this opens up arguments about your effectiveness to do the job. IT solutions and outsourcing have become a cheaper option.
The ultimate takeaway here is not to talk about what you do, but to talk about what’s in it for the client and value received.
Many partners experience a reluctance to setting price and fall into the trap of thinking that there is a formula to follow. Price is not a formula, but rather a combination of strategies based on:
- Clients
- Service Deliverables
- Market (what it will bear)
Value add Services enable bundling of basic services together in order to create premium values.
You can avoid these pricing mistakes and many more
Knowing about the mistakes to avoid is a great first step. But ultimately growing your business beyond it’s current limitations requires a refocus on the much larger picture. This calls for the planning and implementation of the Value Add Service delivery model.
Firms that have implemented the Value Add Service delivery model (by going about a Foundational restructure) are utilising:
- Buying facilitation
- Packages & products
- Value pricing options
This foundational shift involves reviewing and setting prices across the entire practice. Results include increases in pricing on various levels that extract greater profitability and in the end afford much greater recovery of average hourly rates.
