I was speaking with an accountant yesterday about his small practice. He was telling me that the practice is scaling well. (Or supposedly well!) They have more work than they can handle. However, the owner was struggling to make a living out of the practice. When the staff costs, rent and software costs were taken out of the pot, there really wasn't anything left for him. It was at this point that I said you have two problems. A pricing and an efficiency problem. Your pricing is too low - almost definitely. He agreed with me!
This article is all about helping you identify the 5 signs that your pricing is too low.
You've not reviewed your prices for the last 12 months
Your practice is a living and breathing organism. Stuff changes over time and your pricing needs to reflect this. Of course, your prices may be just where they need to be to achieve your objectives for your practice. But this normally isn't the case!
You are struggling to make an income for yourself out of the practice
I see this many, many, many times. The owner of the practice is paying members of staff more than they can take out of the practice as income. Just think about this. If this was happening with one of your clients, you'd be giving them gentle or not-so gentle advice to change stuff quickly. So why do you let it happen in your practice?
Typically this situation happens for one of three reasons.
- Your fixed overheads are too high
- You are not setting the right fee levels for your clients
- You are very inefficient with how you do things.
Given that most of my clients are accountants, it's rare that their fixed overheads are too high! For most practices, it is a mixture of pricing and inefficiency that is stopping the owner from getting an adequate reward for their hard effort.
You convert over 90% of your leads to clients
This is a bit controversial, but the reality is that if you are pricing right you wouldn't be right for all of your potential leads. The actual sweet spot for lead conversion rate is nearer to 50-70% (depending on the strength of your brand) rather than 80-100%. You may be thinking that your sales skills are so great because you convert over 80% of your leads. Very often it's nothing to do with your sales skills but everything to do with you being too cheap.
You've taken on new major costs and not reviewed your pricing structure
When it was just you in your practice working from your home office, you could afford to have your fees on the low side. After all, your overheads are practically zero and you are making a very healthy net profit margin. However, moving to premises costs money. Taking on staff costs money. Suddenly that net profit margin is being severely eroded. But if you've not remodelled your fee structure after taking on these costs, your fees are probably too low for you to earn a decent income out of your practice.
You are running at full capacity but still struggling to make a decent income out of the practice
Just think about it, if your practice is running at full capacity you should be at maximum profitability for your practice. This means making a decent income. If you are not, then there is one of two problems happening. Either you are not charging enough and/or your practice is too inefficient. In my experience, it's normally both!
Get your pricing right and it increases your profit margin and turnover without the need to win a new client. In addition, it frees up cash in order to fund the growth of your practice.