3 key pricing strategies you could adopt in your business
To grow a successful, profitable business you have to figure out your strategy. It’s the foundation of your business so you have to figure it out pretty quickly. Fail to do so and you are relying on just one thing.
And luck doesn’t always go your way.
Of course an essential part of that strategy has to be around pricing. So how do you define your pricing strategy? There are essentially three different pricing strategies that you could follow:
Find out more about the 3 types of pricing strategy you could adopt in the video here.
Option 1 - Low cost leadership
At its heart this strategy is actually about being the cheapest. But it’s cheapest with a difference. It’s cheapest because we create something within the structure of the business that’s unique. It’s about enabling a different cost structure that isn’t able to be copied.
That in turn means no one else can compete with us.
A great example of this sort of strategy is Richer Sounds – a business founded by Julian Richer and one that has appeared in the Guinness Books of Records several times thanks to the sales per sq. ft. it manages to generate.
They sell TVs and hi-fi equipment significantly cheaper than their high street rivals.
How do they do it?
They have something very unique about their cost structure that no one else can copy. As a result they are extremely successful.
The trouble is that when this translates to the accounting profession I’ve yet to see someone pull it off. As soon as someone else copies your model then they can compete on price. And that means suddenly you are in a price war.
Option 2 – Create a highly valuable and differentiated business
This is generally the model I’ve seen be the most successful. It’s where businesses focus on adding value and then charging a premium price.
Amongst the most successful firms I’ve been fortunate enough to work with over the last 16 years this is the option most follow.
They focus on being more valuable. And on being more expensive.
When it comes to the accounting, tax and bookkeeping professions I would argue that this is ALWAYS the best option.
If you decide it’s the one for you then think about how you will establish that point of difference? How are you going to be better than everybody else and what will you do to add more value to clients?
Option 3 – Default strategy
This is the strategy that most businesses actually follow. But it can get you into all sorts of trouble.
When I originally started my firm I tried to competitive with my rivals down the road. Basically this meant being cheaper than them.
How did I manage that? Well, in the early days of my accounting firm I would go and see prospective clients. I would work hard to impress them in my meeting and would also do everything I could to get a copy of their latest annual financial statements.
Then – on the pretense of commenting on things like margins – I would flick to the back page and look at the detailed profit and loss account. But I wasn’t looking at margins. What I was really looking for was the line that detailed annual accounting fees. This was the fee that their previous accountant was charging. Suddenly I had a base price from which to work from.
And magically when I would quote my price it was always 10% lower than their previous accountant.
The default strategy was one I followed for two and a half years.
In that time I didn’t make any money. And my business was a mess. All because I’d tried to be clever.
It’s the mistake most accountants make. They are too cheap. They don’t know how to price.
In fact the worst thing we can do is try to copy – or beat – the firm down the road. These people are already too cheap themselves so we are creating a recipe for complete disaster.
Instead look again at option 2 – focus on being different and better.
Not on being a copycat.
Every month I provide free online training helping accounting professionals get results from value pricing. If you want to get access to that free training click here to register your place on the list of people I invite.
Wishing you every success on your pricing journey
Chartered Accountant, public speaker and #1 best-selling author of
“Effective Pricing for Accountants”
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