One of the key characteristics of value pricing is that normally - not always, but most of the time - we are giving a fixed price upfront.
We have to make sure we properly scope the work. We need to understand what is needed, what work is required so that we can give that proper fixed value based price.
We come up with scope partly from experience.
Sometimes we will get it wrong. Occasionally, you will give somebody a fixed price for a piece of work, do the work and something unexpected crops up. We just have to learn from that.
Make sure you have a system in place for coming up with a price and make changes if something unexpected comes up.
What are the questions we should ask? Every service is different.
If you want to watch the video I did on this topic you can click here.
For bookkeeping we might ask how many transactions there are in a month. Clearly, the more transactions, the more scope and the higher the price should be.
But it’s not just transactions that impact on the scope of the work. There will be other factors too. For example the number of bank accounts.
You could have two businesses both with the same number of transactions, but one uses one bank account whilst the other uses 10. I’d say you’ve got more reconciliations to do, so the amount of bank accounts might have an impact on your price.
The type of industry the client is in might make a difference to the price. You might want to increase or reduce the price for a certain industry, profession or trade because of certain complexities they might have.
How many credit cards do they have?
Do they have overseas transactions?
Are they registered for sales tax?
The starting point is to come up with a list of all the things that could impact on scope. Once you’ve figured that out you attach a price to those elements. Build your price up based on the scope of the work.
When you’ve done that, you can test it. Run the system through a few clients.
Cloud Pricing is a great tool for doing that. You can learn more about that here.
Once you’ve got your system in place for coming up with a price based on the scope of the work, just run it past a few existing clients to see if the pricing is right. Test it and change it until it’s coming out about right every time.
You must remember that you are not trying to get exactly the same profit margin on every single client. You’ll always have some clients that are more profitable than others.
We are figuring out the scope questions to give as a great approximation for what the price should be. Sometimes, the job will be easier or harder, put we can’t predict everything. We just have to give our best guess.
One of things you need to be doing to make sure you don’t make a loss, is to give people a higher fixed price than you would have given before.
When you move to value pricing, when you give a fixed price upfront, you are giving the client certainty. You are taking away their risk because they know what the price is. They didn’t under old fashioned time based billing.
You now have the risk. Because you are taking on more risk that the job may over run, you should charge a higher price.
Some people are worries that if they use value pricing they might make a loss on a job. But the reality is, it’s so much better than time based billing.
My my experience of working with accountants for the last 20 years is that we often just write time off. We see the time sheets, and we use some commercial judgement, and we decide that we can’t possibly charge that, so we write it off. For that reason, time sheets is not an accurate way of billing anyway.
Let’s move to value pricing. Let’s accept the fact that sometimes we will make super profits, sometimes we might not. But we will increase the number of times we get it right as we improve our system for properly scoping out the work first.
If you need more advice on this, I run a free monthly online training session, where I discuss subjects such as this one and you can ask me questions. If you would like to attend you can click here to register and I will send you an invitation to the next session.
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Wishing you every success on your pricing journey.
Chartered Accountant, public speaker and amazon #1 best seller of “Effective Pricing for Accountants”
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