The Concept of Optimal Pricing

value pricing May 05, 2020

Are you working crazy long hours and making very little money?

You’re not alone.

The root cause of this issue is that accounting professionals are pricing too low because we are terrified of being rejected.

We hate it when someone says ‘no’ or ‘that’s too expensive’.

So, we make the mistake of giving a price that is low because we want the client to say ‘yes’. But when they do say ‘yes’ to your first price, it means you have priced too low, and left money on the table.

I’m going to share with you the concept of optimal pricing - it’s a better way of thinking about how to price and it’s the best approach to make sure you get the maximum amount of money for every job.

You can watch the video here.

 

Optimal Pricing Works Like This…

The price for anything falls somewhere between your costs and the value to the customer.

But it’s not quite as simple as that because you want to make a profit, therefore you wouldn’t price it at the same level of the costs, you’d price above that to allow for a profit margin.

This price is called the seller’s reservation price. It’s the minimum amount of money the seller is willing to accept for their services.

The customer will also have a buyer’s reservation price. This is the maximum amount they are willing to pay for your services.

Your price can’t exceed the value otherwise the client won’t make a profit on the deal. They need to perceive the value as higher than the price.

Your price has to fall between those two points.

 

But Accountants Are Too Cheap

Unfortunately most accounting professionals tend to set their price towards the bottom of this range. But, really, you want to be as close to the buyer’s reservation price as possible.

You may be thinking it’s unfair to charge a high price, but I would argue it is actually much fairer than charging a cheap price.

If you charge a low price, you end up having to take on a lot more clients to make ends meet, working a lot harder, longer hours. You are likely to end up cutting corners, rushing jobs or missing out on valuable opportunities - not on purpose, just because you are so overwhelmed.

Many of my students have told me they wish they could spend more time on advisory services, but they are just too busy keeping up with compliance work. (How To Move From Compliance To Business Advisory)

Who loses out?

You certainly do because you are overworking and under earning, but the client is missing out too! If you can help them build a better business, but can’t spare the time to do it because you’re too busy, the client is missing out.

You owe it to your client to charge a higher price so that you can deliver a highly valuable service.

 

How Do You Find That Maximum Price?

You can’t just ask your client what their maximum willingness to spend is. They would not tell you that number, they may not even know it themselves.

You need a process of finding that price. Here’s what you do…

Make your first price too expensive.

If you start low and the client says yes, you can’t backtrack and try and up the price - you’ve left money on the table.

But if you start high and they say ‘that’s too expensive’, you know you are somewhere above their reservation price and you can work with them to alter their service to bring the price down until they are happy. (Why You Should Involve The Client In the Pricing Process)

Is this ripping the client off?

Absolutely not!

I don’t feel like Apple rip me off, yet all of their products are really expensive. I am happy to pay that high price because I know that I am getting a lot of value from them.

Some customers want the very best, and they are willing to pay for that. You should give them the option to choose a high price, otherwise you will be overworking, cutting corners and doing them a disservice.


If you would like to learn more about value pricing, I run a free live online training session with a new topic every month, which you can attend and ask me questions. Click here to register and I will send you an invitation to the next session.

And if you would like to join a community of like-minded accounting professionals learning to price more effectively and confidently, you can join my Facebook Support Group here.

Wishing you every success on your pricing journey.

Mark Wickersham 

Chartered Accountant, Public Speaker and Author of Amazon No.1 Best Seller, “Effective Pricing for Accountants”

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