Much is written on value pricing for accountants. Frankly, (and rather unfortunately) a large proportion of what is written is wrong. In this article I aim to shine a light on what really is value pricing for accountants and how to use it correctly in your practice.
Value pricing for accountants: What actually is it?
There are typically only 3 pricing methodologies for accountants:
- Cost plus margin
- Reactive pricing
- Value priced
Let’s start with cost plus margin. Most firms price their compliance services using this method. Whether you bill based on time or have fixed fees for a job, you're still using "cost per margin".
When you raise your fees, but still charge either by time or fixed fee, you are still charging based on cost per margin. A lot of so-called pricing experts for accountants call offering fixed fees value pricing for accountants. This is poppycock! If you offer fixed fees and increase your fees you are not value pricing, you are just raising your margin. Your pricing only becomes value priced when the money you receive for the service can go up or down.
Reactive pricing is often used by one-man-band accountancy firms. When it's only you, you can charge what you like to whom you like. Once again, despite what some pricing experts for accountants say, raising your fees based on a ‘richer’ potential client is not value pricing for accountants. This type of pricing methodology works very well when it's just you that needs to price for your firm. However, it starts to look less attractive when you want others in your firm to start quoting for work. Or if you are doing a client portfolio analysis and wondering why your fees are all over the place.
Value pricing for accountants is where the fee you receive is directly linked to the value you deliver for your client. So the amount you can receive for doing the work could go up or down. You won’t know before taking on the work exactly how much you will receive at the end.
Value pricing for accountants: When to use it
Many accountants don’t like doing value pricing as they subscribe to the view that you should get paid a fair days work for a fair day’s pay. It’s not my place to challenge this view. However, value pricing for accountants works really well when you are totally comfortable with getting paid based on results.
Value pricing for accountants works exceptionally well in these scenarios:
- Taking a percentage of the finance you have helped secure for a client or prospect
- Taking a cut of the extra profit you have helped your client generate. This could be as a result of business coaching, mentoring or working with them to improve their profitability
- Taking a share of the savings you have helped your client generate as a result of tax planning. For example R&D tax planning.
More often than not if you have helped your client save £10,000 off their tax bill they are not going to resent paying you £1,000 to help them generate this saving.