If value pricing were easy to do, everyone would already be doing it. So where exactly do most go wrong? One of the biggest mistakes accountants and bookkeepers make when making the shift from hourly-rates to value pricing, is failing to do a proper 180 degree turn around in both their approach and mindset.
Unsurprisingly, this is exactly why so many of you have ended up with a fixed fee approach (which is really just a derivative of cost-plus pricing). And fixed fee pricing, while superior in many ways to hourly-rates, still falls very short of the ultimate model, which is value pricing.
Understanding value pricing
When you price your services by the hour, you must by definition approach your customer with your service and your cost structure front and centre in your mind. Your client’s needs and values don’t factor in to your price. Price is all about what you need to charge in order to earn a decent return based on the cost structure of your practice. This approach hurts you because your client associates every hour you work for them with pain (i.e. the clock is ticking) and you are often feeling undervalued for what you do. Under this scenario, no one wins.
Service > Cost > Price > Client > Value
Unfortunately, fixed fee pricing is also backwards in terms of your approach/perspective.
Client > Service > Cost > Price > Value
While it may put the client first as opposed to your service, the pricing is still essentially driven by determining what it will cost you to deliver certain services and then the mark up you will use to ensure that you make a profit. Client value is not taken into account when setting your price.
Fixed fees are definitely superior to hourly-billing (because it’s fixed and you should get the money upfront in advance) but it still isn’t value pricing. With value pricing, the second element after client should always be VALUE.
Client > Value > Price > Cost > Service
Value pricing inverts the continuum completely – to prioritize the economic truth that your client is the ultimate judge of value. What this means is, in the absence of understanding, quantifying and acknowledging that value upfront, a value price cannot actually be set.
Unlike fixed or cost-plus pricing models, value pricing turns the order completely inside out. Your accounting services do not magically become more valuable because you have applied a mark-up to the costs involved so that you can make a profit. A firm committed to value pricing would never ask a question like, “What price do we need to cover our costs and earn a profit?” However, they might ask, “What costs can we afford to incur given the price we are able to secure from this particular client, and still earn a decent profit?”
Can you see the difference in those two perspectives?
And this is a really crucial distinction to make for another reason. Most of you will already have a pretty good handle on your costs to complete certain tasks, hours spent by each team member, effort expended, efficiencies, risks and other inputs. However, how much information do you measure and monitor around the value you actually create for your clients?
It’s a confronting question isn’t it?
If you are now in the business of delivering value, when is now a good time to start tracking and keeping an eye on value?
That is right. The correct answer is now.
The truth is, clients are only willing to invest in solutions that solve pain points (the stuff that keeps them up at night). That is why you must price the client and not the service. It all comes down to their pain points and their willingness to pay. In most cases, the value price will always be higher than hourly, fixed, or cost-based price because the value price is predicated on a custom, unique solution that cures key pain points and is higher in both actual and perceived value.
Are you ready for change?
If you are ready to change your thinking around how you price each client and become a firm of the future, then join us at a Get Connected Event in September 2018. We are visiting major cities across Australia and there is also a virtual event you can attend from the comfort of your own office.
Together we are going to explore what you need to do in order to stop thinking/talking about value pricing and actually start implementing it. This is a hands-on workshop where you will learn some powerful strategies, participate in demos and exercises, and have an opportunity to be held accountable. If you have ever thought about shifting to value pricing but were not sure HOW to do it, then this workshop is perfect for you.
Register for your free ticket to Get Connected and you’ll explore a practical, 6 step process to transition your clients from time based to value pricing. Join us in one of 4 locations Australia wide in September, or, from the comfort of your home or office at our virtual Get Connected event on Tuesday, October 16.
Rhondalynn is the founder of Businest and Make the SHIFT™ (the world’s first advisory training and certification program focusing on the soft skills you need to succeed). Rhondalynn is a lawyer, chartered accountant, business coach, author, & advisory expert. She’s distilled the secrets to success & produced a step-by-step process that you can apply to attract more high-value clients & build a thriving advisory practice.