Why quoting an hourly rate can be fatal for your business
In this post I want to share why it's crazy – even fatal – to quote an hourly rate. And, to prove it, I’ll give you three very good reasons.
If you prefer to watch rather than read you can watch the video here.
#1 There’s no value in hourly rates
Quoting an hourly rate doesn't convey any value. Think about it: your clients don't buy time. They don't wake up in the morning, remember they've got a meeting with you, and think, “Fantastic! I'm off to buy an hour of my accountant’s time.”
No one does! There’s no value in time, so it makes no sense to quote an hourly rate.
#2 Hourly rates increase payment pain
This is to do with what behavioural economists call saliency – or payment pain. A good example is from the taxicab industry. In the old days, when we jumped in a taxi – a black cab in London, or a yellow taxi in New York – we’d sit and, as...
Never, ever send a proposal if you want to win clients
As the author of the Amazon number-one bestseller “Effective Pricing for Accountants”, I’d like to share why you should never, ever send a proposal through the post.
If you prefer to watch rather than read you can watch the video here.
How to lose clients. Or, what NOT to do …
Probably the best way to illustrate this is by telling you about the mistakes I made when I started my accounting firm, back in 1996. For the first two and a half years, even though I grew very quickly, I had no idea about pricing. This meant, for example, that although I did a lot of marketing and saw a lot of potential clients, often impressing the heck out of them with my background in tax planning and all the ideas I came up with, at the end of the meeting, having done all the hard work, I’d blow it. They'd say, “Mark, this sounds brilliant. We want to work with you. How much will it cost?” And...
Why fixed pricing is always wrong
Or to be more precise… when you have a single fixed price
It’s always wrong.
Essentially it goes back to the basics of economics. I have always been fascinated by economics – so much so that I took a degree in it. One of the most important things I learnt was the theory of the equilibrium price.
Or in other words the fact that price should be set where the supply and demand curve intersects.
When you look at a visual representation of that it shows an area above the equilibrium price and below the demand curve that is the consumer surplus.
That is also the amount of profit available if we can tap into the fact that different customers will pay different prices.
You can watch the video here.
The concept of magic price
In a previous video I looked at the concept of magic price and how you figure out your magic price. I looked at the situation of you selling a tax return that costs you £50 in...
Taking the law of supply and demand to the next level
So what is a magic price
Essentially, it's the price that maximises your profit.
The law of supply and demand
When I started to study economics, even at school one of the very first things we learned was the law of supply and demand. That the point at which the supply curve and the demand curve intersect is the equilibrium – or ideal – price. The trouble is that while that works in theory, in practice it's difficult to measure.
If we could, if we knew, for example, exactly how many tax returns people would buy at £200 or £300, we could easily plot a demand curve. And then, if we worked out the profit for each price point, we’d end up with a bell-shaped chart. One that basically shows that a zero price – giving your stuff away for free, while still having to cover all of your costs – means you’d be making a loss.
Similarly, at the other end of the scale, if you price too high...
Debunking the myth of price sensitivity
One of the big myths I hear over and over again – and one of the main things holding us back with our pricing – is that our clients are price sensitive. But, as the Amazon number-one best-selling author of “Effective Pricing for Accountants”, I can tell you that they’re absolutely not.
Let me explain.
Most accountants and bookkeepers I speak to think their clients are price sensitive. But research by behavioural economists suggests that the number of price-sensitive people in society is about one in five, or 20%. And a typical example might be someone who’s retired, who collects the free newspapers and goes through them every weekend meticulously cutting out the 3p-off food vouchers.
So I admit all they care about is price. They’ve got time on their hands. But what I also know is that they’re not your clients. And, if they are, then you may want to revisit your ideal client process!
3 tips for pricing one-off jobs
When deciding how to price projects such as annual accounts it’s relatively easy. It’s repetitive, predictable and we are able to create a package solution to suit that makes it easy to price.
But what about when it’s a one-off job? How best do you price it then?
Here are 3 tips to help you do it more effectively:
Tip 1 – Establish the value to the customer
The one-off job, or special job, is just that – it’s unusual and so pricing for it is unusual too.
The first step therefore is in quantifying its value to the customer. What is it that they want you to do and – more importantly - why do they want you to do it?
Getting the answer to the second question will help you in determining the benefit to them of what they are asking you to do – and therefore the value to them. It may be subjective but that’s fine.
You need to create a picture of what’s at stake. That will help you work out...
Why believing in a market price could mean you’re missing out
As the Amazon number-one best-selling author of “Effective Pricing for Accountants”, I want to share with you why there's no such thing as a market price.
Often, if I tell an accountant they’re charging too little for something, that they should increase the price of doing a tax return, for example, they’ll say, "But Mark, you don't understand my client base. I’m charging the market price – I can’t charge any more."
But I’m going to tell you exactly what I tell them: that they’re wrong. That’s there's no such thing as a market price. And I can prove it.
Staggering results from benchmarking survey
In 2014 I was privileged to carry out the single biggest benchmarking survey of the UK accounting profession. In it, I asked 725 accounting firms a whole bunch of questions about how they price as a profession. In particular, I looked at 25 different accounting, tax...
A glossy brochure doesn’t only grab people’s attention. It also increases what they’re willing to pay.
In this post I want to share three reasons why you need to have a professional-looking brochure for all your accounting, bookkeeping and tax services.
# 1: The Power of Context
The Power of context is part of price psychology. What it means is that the context in which we deliver our solution influences people's expectation of what it will cost.
Back in 1983, one of the world's leading behavioural economists, Richard Thaler, carried out an experiment to prove this. He asked a group of executives to imagine they were lying on a beach on a hot day, and that a friend offered to get them a beer from the only place nearby – a small run-down grocery store. When he asked the most they’d be willing to pay, the average was $1.50. But, when he asked another group, changing the grocery store to the bar of a smart hotel, the average increased to $2.65.
Would you like to increase profits? Then perhaps it’s time to move clients to a new way of pricing…
One of the most common questions I get asked is, "When we move to value pricing I understand how to use the new approach with new clients, but what about existing ones?"
It’s a great question, and it includes two separate issues. The first is simply about transferring clients to a new way of pricing.
What does every customer want?
Research shows there are two things every customer wants:
· certainty – about what they’re getting and, most importantly, its price
· choice – everyone has their own wants, needs, and things they’d like to avoid.
The problem with time-based billing is it doesn’t meet either. First, a price based on time means there's no certainty. Customers won't know the price until the job’s finished.
The 3-step value pricing process
Value pricing for any accounting, tax or bookkeeping service is easy if you follow my structured step-by-step process.
“So, what do I need to do?” I hear you cry.
The 3 step process
Step 1 - Create value
Value pricing doesn’t work if you don’t actually create any value. You want to create the best value for your potential client as you can.
So this is the first step. Look at your solution – whether it’s bookkeeping, annual accounts, payroll or cash flow forecasting. Think about how you can create as much possible value as you can.
Think about the different packages and what you can add in to make a real difference to the lives of your clients.
Step 2 – Communicate that value
Next comes actually sharing that good news. Communicating the value.
The best way of building up your value proposition is through a conversation with the client. Ideally this should be face to face but...