The first lesson our firm learned in pricing was from a graphic designer. I engaged a friend to help us with a logo. He delivered on a set of options, all of which beautiful, but none that we loved. The biggest shocker? The price. At the time our pockets were not the deepest, and the first question my partner asked was “how many hours did that even take?”
That was our first run-in with “value pricing.” The graphic designer was an experienced professional, talented, and had delivered on his value proposition. As two guys who had just came from the time tracking world of public accounting and management consulting we weren’t buying it. We’ve since learned our lesson.
The accounting industry has been a per hour billable rate industry for 3-4 generations. Major change didn’t occur until Ron Baker and the VeraSage Institute came along. He’s embraced his mission of “To, once and for all, bury the billable hour and timesheet in the professions.” Enter value pricing.
The issue with “billing” is that it’s historical in nature, there’s nothing strategic to it. And given that we all have a maximum range of hours we can work in a given time, an hourly billing system automatically caps revenue. From a Journal of Accountancy article on the topic, hourly billing looks like this in diagram form:
Compared to a value based system when the diagram looks like this:
See the difference? Price is purely derived from external value to the client. That’s all. And given this methodology, the ability to increase income comes from value, not more time. Accountants are no longer operating in a specified range, they’re existing in the stratosphere of value. One of my favorite Ron Baker quotes is we are all “professional knowledge firms.” CPAs should not want to sell commoditized time, they should sell knowledge.
Another false mindset is we only pay for the end product when engaging a firm. In reality, a professional “experience” is all encompassing. For those clients who think the only thing they’re receiving each month is reconciled financials, they’re probably wrong. And if that’s the way your clients feel, you should probably reset expectations. Want to hear more on the topic of value pricing? Check out podcast #7 between accounting firm guru Jason Blumer and creative Dan Mall. It’ full of great insights and tips.
3 Things Our Firm Does on Pricing
1) We display our pricing. The schools of thought on this are varied, and I won’t tell you what’s right or wrong. But being up front and transparent about our pricing has done several things. It’s avoided any confusion about who we are and what we offer. It’s also attracted a segment of clients we enjoy most, young entrepreneurs, e-commerce businesses, creatives, and startups. Why? Because these people are used to transparent pricing in everything they do. The downside (or upside) of this is when our pricing is off, we know immediately.
2) We push the limits. Right our wrong, we’ve learned by trial and error, as many firms do. When we see a huge influx in leads, we know something is up so we typically raise prices. Try your best to eliminate fear and push the limits of your pricing until people stop saying yes. Worst case scenario? Lower prices back down. Maybe we lost a few opportunities, but we stand to gain more over the long run.
3) We give options. People like options. No one wants to be put into one price that is too expensive or too cheap. Allowing options gives the opportunity for a client to join and grow with you over time into a relationship that works best for both parties.
We’re by no means experts on pricing, and it is always a tricky and sensitive subject. But we’d love to hear what your firm is doing about pricing!