Tell me, what is your pricing strategy?
Oh, you haven’t got one?
Neither did I when I started my accounting practice back in 1996, and I made every mistake under the sun.
I didn’t have a pricing strategy, so the way I priced was crazy.
I Was Way Too Cheap
I wanted to grow my business, and I naively thought the best way to do that was to be the cheapest.
I’d deliver loads of value in meetings with prospective clients, then when they asked for the price I told them I’d think about it and let them know.
I’d ask for a copy of their last set of accounts telling them I would look for more tax saving opportunities for them. What I was really doing was flicking to the last page where it says ‘Audit and Accountancy Fees’, and checking what they were paying their previous accountant.
Then, I’d make my price LESS than the previous accountant.
In hindsight, this was totally crazy.
I’ve since conducted a lot of research into how much the accounting profession price for their services, and how much profit they make. In reality, pricing your services at the same price as everyone else, charging an average price, doesn’t ever get you a good outcome.
The average profit of an accountancy firm in the UK was less than £70,000.
This was interesting because in a sole trader, you don’t put your market salary, you live off drawings. Yet, studies by the professional institute said that ‘the average salary for a Chartered Accountant was more than £70,000’.
In other words, if the average firm was to properly account for the value of their own time, if the business owner put a market salary in, they were actually making a true economic loss.
Put it this way: in the UK, over half of accounting firms are making a loss.
This is largely because the way we price is very average - we copy everyone else.
That is not a pricing strategy.
So What Should You Be Doing…
When we understand pricing, other than being average, there are only 2 other options you can take…
1 - Low Cost Leadership
This means you build a business that is purposefully cheap.
It’s only successful if it is built in a certain way that has a unique cost structure that is lower than anybody else and that nobody else can copy.
It can be a great strategy, there are some businesses that pursue this and do it extremely well. Think of EasyJet in the low budget airline industry, or Aldi in the supermarket industry.
However, to win at being a low cost leader is very difficult, there are many different criteria that need to be in place that are critical, including the fact that, in any market there is only ever enough space for 2-3 businesses to be successful with this method.
I would agree that in the accounting profession, it’s not possible.
The only people in our industry that can pull off low cost leadership will be the large software companies.
We are seeing this already with some companies developing low priced automated bookkeeping services.
So, the only other strategy left is…
2 - High Value, High Differentiation
This strategy, instead of focusing on being the cheapest, focuses on being the best.
You add more value than anyone else, give the best possible service, give the best results to your clients, are different to everyone else, and charge a premium price.
The most profitable companies very often use this strategy. Think of Apple and Starbucks.
When you are better than everyone else, you can charge a higher price, and that’s how you make more money.
If you would like to learn more about value pricing, I run free live online training session 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, then you can join my Facebook Support Group here.
Wishing you every success on your pricing journey.
Chartered Accountant, Public Speaker and Author of Amazon No.1 Best Seller, “Effective Pricing For Accountants”
Your Pricing Journey gives you access to my pricing training delivered every month in easy to digest, and easy to implement, steps.
So if you sometimes find yourself working too hard, for too little money, this programme will solve that problem.