We asked Mark Wickersham, author of Effective Pricing for Accountants, to share 7 powerful tips for how you can maximize your pricing based on value. Here are Mark’s top tips.
I’ve spent many years advising accountants and bookkeepers on effective pricing and I’ve found some common factors that hold them back. Most firms believe clients are focused on price when in fact they’re looking for value. If a client ever says, “That’s a bit expensive,” it’s not because you’re too expensive.
You’re not. You’re too cheap. You’re not charging enough.
The reason clients say, “That’s a bit expensive,” is because they don’t understand the value. They can’t see how they benefit. So we have to change the way we present our solutions and present our prices.
Firms also often lack confidence in setting prices as well as lacking knowledge of pricing psychology and strategies.
Here are seven top tips to get you started in overcoming these pricing problems that I’ve learned over the years.
1) Have a Price Discrimination Strategy
Value is a relative concept — no two people will place exactly the same value on something. You need to figure out ways to charge different customers different prices. This is what economists call Price Discrimination.
One way to do that is offer a range of packages. I call this Menu Pricing. There are two big benefits of this approach:
- First, clients get to choose the package they want. That’s important. When we buy anything we want choice because we are all individuals with unique wants and needs. Your clients are the same. They want choice.
- Secondly, when you offer them different packages some will choose a more expensive package. The end result is you make a bigger sale and make more profit.
2) Add More Value
I believe our primary focus should be to add as much value as possible to clients. It’s the right thing to do.
Of course, when we focus on the client and do more for them — and providing we price based on the value we create — we get to charge higher prices.
So before you present your solution to the client, ask yourself this question: “What more could I possibly do to give the client an even better solution?”
Make a list of all your ideas.
Once you have your list, you can either build those things into your more expensive packages or offer them as optional extras. If the client places value on those additional things, they will choose those packages and options.
For example, you could add value to your tax return preparation service by offering a meeting to review the entries on the return and provide some tax saving tips. Clients who want that will happily pay for the extra value. If you don’t offer it, clients cannot possibly choose it and you lose out on potential extra revenue.
3) Explain the Value
Clients aren’t really interested in how many hours you spend on a job; they only care about the value.
The problem is, clients don’t always understand the benefit to them. And if they don’t understand how your solution benefits them, they will see your price as too expensive (as we discussed earlier).
So what do you do?
You have to use techniques to better explain what you do, why you do it — and most important — how the client benefits. Tell them exactly:
- What the end result will be,
- The pain you are taking away, and
- How their life will be better (through cost savings, peace of mind, saving time and so on).
4) Discuss Payment Terms as Part of Your Service
Your payment terms are an important part of the pricing process.
By default you should be getting paid in advance. If you want to give the client the option to pay after, make sure that is an option with a much higher price. That way, either way you win. You either get the cash up front or you make a bigger profit.
The client will be happy because they get a choice. And we all like choice when we buy anything.
5) Link Price to Value
Traditionally, accountancy firms have charged based on billable hours. That’s cost-plus pricing. It’s not value pricing.
There are many reasons why time billing is crazy. The most important is that clients hate it. They dislike it because they don’t know what the price is until after the work is done and the hours added up.
Instead we should link the price to value. Time is not important. Clients don’t care how many hours you spend doing the work. They only care about the outcome, the result or solution. So price based on the value of that.
6) Understand Price Psychology
Price psychology is a relatively recent study (only a few decades old). What we are learning from the price psychologists is that the way we express our price has a profound impact on the customer’s perception of the magnitude of price.
In other words, presenting a price in a different light can change it from seeming expensive, to seeming like a great offer.
For example, the order in which you present your prices makes a very big difference. The first price you reveal creates a reference price (referred to as an anchor by price psychologists).
7) Price Is the Most Powerful Lever in the Profit Equation
Changing your price can have a profound impact on your profits. If you want to make more money, they fastest way to get there is change your price. It’s not through cost cutting or winning more clients.
So take some time out to learn about value pricing.
I offer free online training every month. If you would like to learn more about how to price more profitably, click here, register your free VIP place, and then — once a month — I will send you an invitation to the next live online training session.I look forward to seeing you online soon.