Are you interested in boosting your accounting firm’s bottom line and building trust with your clients? One way to do this is to adopt value pricing. Sure, some situations require hourly billing, fixed fees, or contingency fees, but in many cases, you might find that value based pricing is a win-win situation for both your firm and your clients.
What Is Value Pricing?
When you use value-based pricing, you sell your accounting services based on the outcome, rather than on the time and effort it took you to provide your services. In other words, the price of your accounting services is based on the value they generate for your client. For example, say you’re preparing taxes for a client. Instead of invoicing them for the hours worked, you bill them for the finished product, namely the finished paperwork for filing. With value pricing, you set your rate based on what you believe the client is willing to pay rather than on the value of your time plus profit. This approach gives you a higher potential ceiling for how much you can earn.
Value-based pricing sounds a little like fixed fee pricing, but there’s an important difference. Value-based price structures help you determine the highest amount a client is willing to pay for your firm’s knowledge and experience. You may have to use sales tactics that prove that your services are actually worth what you’re charging. With fixed-fee pricing, on the other hand, you offer your services a la carte to reach a broad client base. The cost of fixed fee services is typically based on an hourly rate. Think of value-based pricing as a premium option for clients who are willing to pay for added value, where fixed fee prices tend to be more straightforward—what you see is what you get.
Benefits of Value-Based Pricing
In Canada, the average hourly rate for an accountant is $29.49. If it typically takes you around four hours to prepare a client’s taxes and you charged the average hourly rate, you would earn $117.96. However, using value pricing, you could charge $175 flat regardless of the time you spent on the job. Because preparing taxes may take more than four hours, it’s a smart idea to crunch some numbers and figure out a price point that keeps your services profitable without driving away clients.
Beyond opening up the possibility of higher revenue, value pricing can improve transparency for everyone involved. Your clients know exactly how much they’re going to pay and what they’re paying for. You also have reliable income that helps you to monitor and plan your cash flow.
Also, clients may be hesitant to enter into a business agreement based on hourly pay if they might need to ask questions or request consultations. After all, that time can really add up. But when they buy your bundled service, those extra services are factored into the cost. Your clients never have to wonder if you’re overcharging, so value-based pricing can also build client trust and loyalty.
Is Value Pricing Right for You?
While you can use value pricing to increase profit, you’re still sharing the risk with your clients. Using the previous example, if it took you six hours to complete the tax preparation services at the average Canadian accountant’s rate ($29.49), you could have earned $176.94 if you had charged an hourly rate. On the other hand, if it only took you two hours to complete the project, you would have only earned a mere $58.98 if you had charged an hourly rate, harming your own profitability.
You should also consider your typical clientele. Are they high-worth individuals who are willing to pay a flat rate for comprehensive accounting services? Or do you mainly work with smaller companies that prefer to pay only when the clock is running? Are you able to provide value that’s genuinely worth your rate? If another accounting firm can do the same exact job for cheaper, you may have a hard time retaining clients. Learning how to value a business and estimate what clients are willing to pay, while also recognizing your firm’s unique selling points and shortcomings, is a valuable skill.
Other Billing Options
If you’re thinking about switching over to value pricing, it’s always smart to consider your other options. Here are some of the most common billing structures used by today’s accounting firms:
- Fixed Fee: As mentioned previously, fixed fee and value based pricing are very similar. However, a fixed fee pricing structure is essentially a menu of services that your clients can choose from, with little to no wiggle room. You’re not focusing on boosting your profits by adding more value — you’re simply offering standard services at average rates.
- Hourly Rate: An hourly rate billing method simply means that you set an hourly rate and bill your clients accordingly. If you work at an accounting firm, and your employees have varying hourly rates based on experience and skills, you may want to charge a blended hourly rate, which is when you find an average rate to charge that fits somewhere between your lowest and highest-earning team members.
- Contingency Fee: Another option is to charge based on potential results that may occur in the future. Of course, this pricing method only works for certain circumstances. For example, say you’re providing consulting services for a company looking to sell their business for $5 million. You could earn a two percent contingency fee if the business is sold for the desired amount. However, if you’re able to sell it for $6 million, you could earn a three percent fee instead.
Transitioning to Value Pricing
If you decide that value pricing is the right approach, it’s important that you communicate with your existing clients. After all, you don’t want to tell them that you’re going to charge more but continue doing the same work. Explain that your plan is to raise prices, but also raise the value you provide. And, make sure you genuinely do offer more value. As long as both parties agree that the change is mutually beneficial, you should have no problems.
Changing your pricing structure may also mean reevaluating your service offerings. For example, if you’re going to charge based on value, you could include unlimited consulting services and custom-tailored solutions as added value. If your new offerings aren’t worth the higher costs, you may end up losing clients. It’s up to you to decide if moving forward with value pricing is worth losing clients so you can earn more profit in the long run.
Beyond refining and updating your services to reflect your pricing changes, it’s important that you also market them effectively. Often, clients aren’t able to perceive the true value of what you’re offering, so it’s up to you to make it clear that they’re getting what they’re paying for. Your perspective is different than theirs, so it’s crucial that you help them understand how they’re still winning in the deal.
Finally, if you’re updating your billing methods, you may need modern accounting software to help your team work more efficiently and monitor your revenue changes. Never underestimate the power of cutting-edge accounting software to help you improve your service offerings so you can charge more while using less time. Collaborate with clients, stay on track, and grow your firm with QuickBooks Online Accountant. Sign up for free today to experience the difference.