Practice Management Small Business

3 Fundamentals of Value Pricing for Getting a Better Price

Written by Mark Wickersham

Value pricing is transforming the way many accounting firms are now pricing their services — and the profits they are making.

The challenge is, however, is that value pricing isn’t easy to implement. We have to understand the basic fundamentals and here are three of the most critical ones.

Mark Wickersham will present the sessions, PRICING SECRETS: THE VALUE PRICING FORMULA THAT REVEALS HOW TO GET A BETTER PRICE, and CHANGING CLIENTS’ LIVES THE FAST WAY: THE NEW SERVICE OFFERING EVERY FIRM OF THE FUTURE WILL WANT TO OFFER, at Accountex 2017.

1st Fundamental: Pricing Face-to-Face

You absolutely must have a price conversation face-to-face with your client.Value Pricing

The reason for is very, very important. You have to involve the client in the process. You have to ask the client questions in order to understand what they want, and what they value. Until you know what they value you can’t come up with a value-based price. And as part of that face-to-face meeting — once you fully understand their wants, needs, and what constitutes value to them — you have to agree on the price with them.

Let me share with you a big mistake I used to make, so you can avoid it.

When I ran my own accounting firm, which I started back in 1996, I had many meetings with prospective clients. During the course of the meeting I would impress them with the things that I could do (tax planning ideas and business advice) and then inevitably they asked the question, “So how much will it cost?”

Panic would set in and I would respond, “I don’t know, I’ll have to go away and think about it.” And so I would go away and create a written proposal and send it to them.

That is the worst thing you can possibly do.

When you send your price proposal through the physical mail or electronically, you are out of control of the process. It is almost certain they will immediately skip to the section showing the price. And they’ll make an instant judgement (typically, “That’s expensive”) based on that price, without reading the rest of the proposal.

2nd Fundamental: Certainty and Choice

There are two things that we want whenever we buy anything.

The first thing we want is certainty — we want to know exactly what the price is going to be.

That’s the trouble with the old-fashioned way of pricing in professional service firms. We price based on the hour, we have an hourly rate. So when we say to the client, “It will cost you $100 per hour,” the inevitable question they will ask is, “How long is it going to take?”

That’s because they want to know exactly what the price is going to be so they can plan and budget. It’s why, increasingly, firms of accountants and bookkeepers are moving away from time-based billing and starting to move toward giving fixed prices.

You absolutely must give certainty in your pricing.

The second thing customers want when they buy anything is choice — they want to be in control of the buying process.

How do you give your clients choice? Let’s look at that next.

3rd Fundamental: Menu Pricing

No two clients place exactly the same value on any given service.

I said above that many firms of accountants and bookkeepers are moving toward fixed pricing. Although this is fairer on your client (it gives them certainty), it’s not fair on you.

If you give people a single fixed price, I can guarantee that is always the wrong price.

Let me explain.

Everybody values things differently. Let me give you an example to illustrate. Imagine someone walks into your office because they want to buy your tax return service. They ask, “How much?” You respond, “$500.” The number they will have in their mind is almost certainly not $500. The probability of the number they are prepared and willing to pay being that exact number is pretty close to zero. The number they will have in mind is either bigger or smaller.

If it’s a smaller number, your price is too high, so you lose out — they don’t buy. If their number is a bigger number, great, they will buy from you. However, you still lose out because they would have paid you more money.

Fixed pricing is a crazy way of pricing.

You have to price based on value, and one of the ways that we can do that is by using what I call menu pricing. This is where you give people a choice of three packages. This allows you to tap into what I call “The Magic of Three.”

When you offer your client a choice from three carefully constructed packages — each one more valuable and expensive than the previous — you will get a better price. Some clients will choose to buy a bigger bundle, based on their assessment of the value of each one.Value Pricing

Over the last 17 years of teaching accountants, many have told me that just mastering this one fundamental resulted in their average prices being 20% higher.

Summary

Too often, accounting professionals undervalue themselves — and that leads to low prices. That in turn leads to a profession where too many accountants are working too many hours for not enough reward.

That needs to change.


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About the author

Mark Wickersham

Mark Wickersham – Chartered Accounted, public speaker, and #1 best-selling author – is known as the most sought after profit improvement expert in the accounting community. Mark is a widely published author on practice issues. In May 2011 his book, Effective Pricing for Accountants, was a number 1 Amazon bestseller.

He is the author of A Practical Approach to Value Pricing and How to Build a Successful Bookkeeping Business. He is also the creator of "Price Consulting: Changing clients' lives the fast way by helping them price more profitably."

Mark has a monthly live training program where you can join him to learn value pricing and get your questions answered. This is completely free and you can register your complimentary place here. When you register here you will also get the opportunity to purchase his books at a special price.

4 Comments

  • Well just spent 10 minutes replying and it bombed. But anyway – I don’t waste my time driving to and from clients – I can discuss things over the phone, give them an estimate and be told yes or no. If I drive to and from and waste that time and the hour meeting and still get told “gee I can’t afford that” then I am out 4 hours of my day. With clients all over the country it’s not feasible plus I never see my clients face to face that I have now other than 2 – one for picking up work and one for lunch once a month

  • And my fixed pricing is based on the project details. I can absolutely say 1,700 a year for accounting (for example) based on my experience with like projects. 95 percent of my clients are on hourly for 3 months then flat rate averaged from the first 3 months costs plus a buffer of extra to allow for working with the year end CPAs – they understand that the flat rate includes one bank account, one credit card and month end. If they add payroll that’s additional, if they add another bank account or paypal that’s additional too. It’s all spelled out in their engagement letters.

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