When value-based pricing works (and doesn’t work) for an accountancy firm
Value pricing for CPAs – what is it and is it the best pricing method for you? This article explores the pros of cons of value-based pricing for accountants and how to make it work for you and your firm.
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What is value-based pricing?
Value pricing for CPAs (Certified Public Accountants) is a pricing methodology where the end fee charged to the client is directly linked to the value delivered to them. As the fee you receive as the accountant directly depends on the results that the client achieves, this fee can go up or down accordingly.
Value-based pricing examples include:
- charging a success fee for tax planning.
- taking a percentage of the financing you arrange for a client.
The pros and cons of value pricing for CPAs
Like all the other pricing methodologies and tactics (e.g. reactive pricing and cost + margin), value-based pricing offers both advantages and disadvantages to CPA firms.
When done right, value pricing can:
- lead to ‘fair’ levels of ‘enhanced’ profits.
- be easy to get clients to sign up as they only pay if the firm is successful.
When done ‘wrong,’ however, this is usually due to the drawbacks of this pricing method, such as:
- The fee you charge can go down depending on the results you achieve for the client.
- It is difficult to predict the final fee for the client and the budget for this.
- It is not easy to price consistently across the firm.
How to make value-based pricing work for your firm
While value-based pricing may sound like the best option for your firm, you need to be sure that it is before implementing it. You need to know exactly who your clients are and what pricing methodology would make it easier for them to buy, i.e. what will enhance the value of your firm’s services.
To make value-based pricing work for your firm, here are 4 things that you need to do beforehand.
1) Choose your firm’s niche
Your niche is where your firm’s particular passion and technical talents are used to cater to one particular specialist audience. Remember that the narrower you are able to define your niches for your firm, the easier it is to create more perceived value for your firm’s Prospects
To help you draw up a short-list of potential niches for your firm, do a Client Portfolio Analysis. A good choice for a niche will be one where all of these four conditions are satisfied:
- You and your team are passionate about the type of work or business.
- You or your firm are seen to be credible for this type of work.
- There is a big enough market for your firm to achieve its growth aspirations
- There is a good fit for your firm’s strengths and what the niche wants from their accountant.
2) Identify your firm’s Client Personas
Client Personas are fictionalised representations of your ideal client(s) and these help you bring them to life. They are there to focus your firm’s marketing strategy, in particular, the messages your firm puts out into the marketplace. They are useful in pricing because it helps you identify WHAT your Clients are really buying and WHAT they will really value.
For each Client Persona, give them a name and answer these key questions:
- What are their business or personal challenges?
- What are their particular accounting challenges?
- What are their key Pain Points?
- What sort of accounting and business questions will they be looking for answers to?
- What’s their background?
- What’s their employment history?
- What’s their family situation?
- What are their goals and aspirations in life?
- What are their hobbies and interests?
- Where do they spend their time – both physically and online?
- Who are they well connected to?
- What size and shape is their business?
3) Decide on what services your firm will offer
Your research will have helped you already to identify the Pain Points which will be the underlying reason why your niche market will want to buy your firm’s services. These Pain Points will then form the basis of the services you offer to your clients.
For each of your Client Personas, identify the types of services they would value. For example, do they just need basic compliance services? Or would they value more advisory type services such as cash flow planning and business planning?
You are now going to group together the service offering for each of your Client Personas. The likelihood is that each Client Persona will have a standard package with optional add-on services. The golden rule is that each Client Persona will have one package.
Now look at your Client Personas and cluster them into similar types of businesses or requirements. Science has shown that 3 is normally the optimum number of pricing packages for one particular market you service. However, you may find that 2 or 4 rather than 3 is the optimum number of pricing packages for your firm.
When you have chosen your packages, you then need to give them a meaningful name! Make sure to give each package a name that instantly means something to your clients and a short description of who it is for to help them make a quick decision to work with your firm.(Discover Why your accountancy firm’s pricing package names really matter)
4) Choose your prices
Now you have your service offerings for each of your Client Personas, what will you charge them and how will you charge them?
Before you consider your actual prices you need to decide on your pricing mechanism. Will you charge them a fixed price? Bill them based on time? Or just charge a success fee? The best way to make the right decision for your firm is to draw up a table for each Client Persona from a client perspective of what is valuable to them, and also from your firm’s perspective of what is valuable for you. Once you have this, you can then see the best way to bill your client and can make better decisions when you set your actual prices.
When it comes to setting your firm’s prices, you need to:
- Look at your personal and business goals.
- Decide on a price point which will be seen as good value for your current and future clients.
- Benchmark your fee levels against your peers to remain competitive.
- Decide on your pricing method and test it out with current clients and in business development meetings with prospects.
Read: How to easily increase the perceived value of your accountancy firm’s services and How your self-esteem determines how you will price your accountancy firm’s services
Make sure value-based pricing is the right pricing method for you
If you have completed the 4 essential steps above when it comes to choosing the pricing methodology for your accounting firm and you have chosen value-based pricing as the best option, then you can be sure that it will work for you.
Only when you focus in on the type of client you want for your firm to service and know their specific pain points and values can you reign in the benefits that value-based pricing brings. Just remember to bundle your firm’s services into packages that immediately convey the value offered to your clients and you’ll make it as easy as possible for them to choose to work with you.
Learn more about value based pricing for accountants by reading the first 4 chapters of our new book “Profitable Pricing for Accountants” for free here!