Raise Revenue by Changing the Way You Price

Congratulations! Your practice is growing, and that feels great. Question is, are you making a profit? If you’re not, it could be because you’re invoicing based on an hourly billing method. I relied on hourly billing for years, and I ended up undercharging for my services, losing track of my hours and, if you can believe it, sometimes even forgetting to invoice my clients!

I knew I was losing money working this way, but I never made the time to figure out how to change things. Then I started hearing the buzz around “value pricing” and “fixed pricing.” Could a new approach to pricing increase my revenue? I was willing to spend time and money to find out.

First, I signed up for a session at QB Connect with Ron Baker who is known as the father of value pricing. I also started paying attention to Mark Wickersham. Mark is an engaging guy with razor-sharp wit who is a pricing expert for bookkeepers and accountants.

I devoured Ron Baker‘s book, Implementing Value Pricing. I joined Mark’s mentoring group to learn why and how to make the switch from hourly billing to fixed- or value pricing.

I quickly discovered transitioning to value pricing or fixed pricing is a complex process. There’s a lot of confusion around what to do and which system will work best for your business. To simplify the matter, here are some of the key things I learned when I made this transition in my business.

The three main types of billing:

Hourly billing is the familiar (or old-fashioned!) way of billing your customer based upon the hours you worked. With this method you bill the customer after you have completed the work. This is not an optimal way of billing because, once you do the work, there is no way to "undo" the work. Sadly, you are at risk for not being paid for your work.

Fixed pricing is still based upon the hours you worked. You calculate those hours based on how long you think it will take to complete the work. With fixed pricing, you can charge additional amounts if you wind up doing work that was not in the scope of the original engagement. We call that “scope creep.” If that happens, I recommend creating a change order so the client understands they will be paying for extra services. Tip: Do that before you begin to work.

Value pricing means charging what the client can afford. The price is based upon the value of your services to the client and how much the client is willing to pay for the service. The yoga teacher in me struggles with this one. Why should a client who is struggling pay less than a client who is successful and really involved in their business?  But, by definition, that is what value pricing is.

Once you’ve decided to try fixed- or value pricing, here are three tips to keep in mind.

Success Tip #1:  Make the change with new customers

I started using value-based pricing for my new customers, and it was very successful. The product I sell is a clean set of records and unlimited support. Figuring out what (not how) to charge is the challenging part. One of my biggest takeaways from Mark Wickersham is, as he put it, “You are going to get this wrong sometimes. And then sometimes you are going to get it really right.”

This is so true! It might feel like you’re over-charging. But if a customer is willing to pay what you’re asking, it’s really not overcharging. The ones you get wrong (by either pricing too high or too low you) just have to live with for length of the engagement and then change the pricing accordingly. It’s that simple.

Success Tip #2:  Learn to price right

Figuring out what to charge your customer is not really that difficult, especially for an ongoing bookkeeping engagement. You know what kind of work is involved, and you know the value you provide. Ask yourself these questions:

• Is it a simple account that takes you an hour each week? Are you just reconciling a file that has the transactions downloaded? If the client has a simple service business, you may already have a figure in mind for this type of work.

• Is it a more complex file or a full-service bookkeeping? Is there accounts receivable or payable? Is it a specialized niche-business like a contractor, law firm, non-profit or real estate company?

When you first make the transition from hourly billing to fixed or value pricing, look at other, similar company files you have processed with the old system. Grab the most expensive month and round it up. As your business grows, keep increasing this amount. Test the market. You’ll soon find out which billing strategy is best for each client.

Success Tip #3:  Give the customer a choice

Present your customer with three price choices. On a psychological level, I’ve found there’s something really positive about offering three different prices and packages in a single quote. When you offer different levels of service, the customer can choose an option that works for their budget. This is how I value price:

1. Bare-bones pricing: This is the absolute minimum amount of service the customer would want from you. This will be your lowest priced option.
2. Mid-level: This is really what your customer is thinking about when they request a quote. You want to price this in a way that you are satisfied and the customer will get everything they asked for. This is the package that you want your customer to choose
3. Bells and whistles package: This is where you can really shine! This will be your highest priced package. Don’t be afraid to really mark it up. Add in specialty items like extra reporting, attachments of documents, one-on-one meetings with you and working together with their CPA.

Once you start using the three pricing options, you can really fine-tune your price point. If your new customers pick the highest-priced selection, then your prices are too low. If they generally select the bare bones option, your pricing is too high.

One more huge benefit of switching to value or fixed pricing?  Thanks to the automation in QuickBooks Online, you can have more customers than you ever had with Desktop. You’ll save time (and, as a result, money!) when you set your price, create the sales receipt or invoice and make it recurring.

I hope this article was helpful and that you, like me, will embrace a new approach to pricing. In my next post, I will walk you through the process of converting current clients to value pricing. Sure, it’s a little trickier, but I know you can do it!

Lynda Artesani owns Artesani Bookkeeping in Estero, Florida. She is our first QB Community Expert Columnist and excited to be part of the team to share her knowledge and love of everything QuickBooks and to help others start or grow their businesses.  She is also a member of the Intuit Advisory Council. Message her @lynda!