Many small firm accountants are trying to raise their prices for their existing clients. To make this easier, it helps to understand the way in which our brain takes decisions to be able to carry out a pricing process or to increase your accountancy client prices without much resistance. Check out this video to understand how the decision-making process goes and how it can influence the pricing in your accountancy firm.
One of the things that many small firm accountants are trying to do is raise their prices for their existing clients. Whether this is because of long term legacy clients that are low fee, low recovery that you signed when you started or maybe your business plan has changed, your business model has changed and you need to be able to price more in order to afford your overheads and get the income you need out of your firm.
This is a really hot topic at the moment. So, I will dive into what's going on on in our head that influences the pricing decision, because after all pricing is both a science and an art.
First of all, if somebody is going to buy from us, that means we need to know what influences their decision to buy. So we're going to look at first and foremost at what influences their decision to buy. Secondly, we're going to look at a neuroscientific level, how do then people take those decisions, and what are some of the ways our brain puts shortcuts to make that decision.
Let's first look at how people make decisions. First and foremost, we don't make decisions rationally. I know that sounds very strange. But we don't make decisions rationally. We start the decision-making process in our subconscious brain. Our subconscious brain takes input from our senses; it takes input from our limbic system; it takes input from our gut.
Our subconscious brain has no power of logical thought; it is in influenced by our emotions. It runs things through our past experiences, what's happened to us before, and it makes a subconscious decision that is based upon motion, not rational, logical thought.
They've done studies, and they've watched poker players, and they've seen that the subconscious mind is directing what the player is going to do before they're aware of it in their conscious mind. Fascinating.
So, what happens then is that when you start to become aware of that decision you're going to take in your conscious mind, your prefrontal cortex to be exact, starts to put rational thought around it, logic round it; basically because we don't like to be thought of as emotional creatures.
So what's the first thing that you need to understand about how people buy? They buy emotionally. So, what does that mean when it comes to pricing? It means that unless you can get someone at an emotional level, get them connected at an emotional level with what they need and what you're offering and how you are going to help them, then it's going to be hard to get the price you want.
Now, the second thing is that our brains are the most energy-hungry organ in our bodies. They take over 20% of the available oxygen and over 20% of the available glucose energy in the blood. So our brains are always trying to do things in an energy-efficient way, which means they're always looking for shortcuts.
Daniel Kahneman, in his Nobel prize-winning work on behavioural economics, probably describes it the best. He talks about System 1 and System 2 thinking. So System 1 thinking is the one that the brain wants to use. It's quick, it's automatic, and it uses the brain's shortcuts. It uses what we call biases and heuristics.
You know you're doing a System 1 type thinking when I say I ask you what's 2+2. Instantly in your mind, I bet 4 popped up. Your brain is on autopilot, and that's your preferred state for your brain. It doesn't want to think hard.
Whereas System 2 is where you have to think hard. It is slow. It is a very, very brain-hungry energy thinking mode. It is where you could only do one thing at a time when you're in System 2 thinking mode. So if I asked you to calculate 24 x 17. You can't listen to me and do that. That's an example of a System 2 thinking.
Now your brain, when it comes to thinking about is this a good price, is this not a good price, is ultimately using a whole lot of biases to help it determine is this a valuable price? So let's look at some of those biases that it uses.
The first thing is it uses mental accounting. Our brains tend to have a budget for each period. Now, each period maybe a week for them. It may be a month for them, it may be a quarter for them, we don't know, but they tend to have a mental budget for each period. If you go over that in your quote, you're going to come up against friction, and you're going to push them out of a System 1 thinking into System 2.
When it comes to pricing and getting someone to say yes quickly, we ideally want them to use System 1 thinking. So what does that mean for how you quote your price? Well, it means that you want to quote typically by month rather than by year because that's what people are thinking. They're thinking of budgeted 300 pounds a month for my accounting, not 3,600 and that sounds much, much bigger.
Now, the brain also has no power of being able to context a number on its own. If I said the number 27, it would mean nothing to you, but your brain is always trying to relate it to something. So if I said the price is 400 pounds, your mind is instantly going to contrast it to either what it was expecting, or to what it previously was.
How can you use the contrasting way when you're pricing? Well, particularly if you're doing a fee increase, think: how much does it equate to a coffee and a cake at Starbucks each week or each day? If you can't contrast it to that figure, maybe contrast it to: "it's only an extra 5-10 pounds a month," or "it's only 3% more than what you're currently paying". That's going to seem a lot better than instead of 200 -300, or "it's a 100 pounds extra a month."
How can you contrast that a hundred pounds a month? "That's just a meal out with your partner in life". It's not that much. If you can contrast it to something that they're used to budgeting, used to pay for, that seems a lot less even better.
The next thing is the bandwagon approach. People are more likely to take an option if it seemed to be the most popular option; if others have taken it; if that's what their peer group has done. You may know that through the work of Cialdini called social proof.
Tell people if it's your most popular option; if this is the one you recommend the most for people; if most of your clients are on this; if the person that referred them as on a similar type package.
As well as this, let's consider anchoring and priming. It comes back to what we've already touched upon that our brains cannot identify what a number means in isolation. So it's always anchoring it or priming it to something that we've already done and sometimes that can be a number in complete isolation.
So, they did an experiment, and they asked people to draw balls out of a bag, and all those balls had a number on it. Some people drew out a low number, and some people drew out a high number. They then asked the participants what they would pay for a bottle of champagne. The participants that drew out the higher numbers said higher prices. The ones that drew low numbers said lower prices.
What does this mean for you in terms of pricing? It means a couple of things. Number one, you need to start that conversation around price a lot earlier in the process because if you don't, your prospect is going to be taking other numbers: that's probably what they've paid for before; what maybe they've looked in their website research; what they've asked other people; and they're going to be comparing and contrasting your fee to that.
You need to get in their mind an approximation of the ballpark. As Bryony Thomas, author of Watertight Marketing, says: are they buying Primark or Prada? This is going to happen on your website, which is why it's so important to put a front figure, so people get an idea of what it is that they're likely to be paying.
We've gone into a lot of depth about how our brain works, about how we make decisions when we're buying. But a very simple level is you need to make sure that you've got people in System 1 thinking. That's quick, that's automatic, and you can do that by:
- Making sure that you're priming them, by giving them an idea of what it might cost on your website.
- Not shying away from that pricing conversation early
- Quoting the final figure in a monthly fee rather than that on a yearly, an annual fee
- Letting them know if this is the most popular option; if this is what most of your clients pay.
Those are the ways that you make it a lot easier for your clients to accept the price you're giving them.
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