Value pricing for Accountants: How and when to use it to boost your firm’s profitability
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. These are:
- Cost plus margin
- Reactive pricing
- Value priced
Let’s start with cost plus margin. Typically most firms price their compliance services using this method. It doesn’t matter whether you still bill based on time or fixed fees for a job, this is still using the pricing methodology of cost per margin.
When you choose to raise your fees, but still charge either by time or by a 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 valued 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. After all, when it is only you working in the firm you can often charge what you to whom you like. This is the scenario that your price changes depending on who is sitting in front of you. 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 can work very well when its just you that needs to price for your firm. However, this methodology 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. This means the amount you can receive for doing the work could go up or down. But you wouldn’t know before taking on the work exactly how much you will receive as a result of doing the work.
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.