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...
As an industry we don’t want to make mistakes.
Yet time and time again I see two massive mistakes that accountants and bookkeepers keep making. And it has a real impact on their businesses.
So what are those mistakes and how can they be avoided?
Mistake 1 – Using fixed prices on a website
Don’t do this. Seriously. Don’t.
Fixed pricing is not value pricing. You cannot value price until you have found out what actually constitutes value for that particular person. The only way to do that is to have a conversation – either face-to-face or online.
Understand the potential client’s circumstances, what they value, what they want, what they need and what their pain points are.
You need to understand all that before you even begin to price.
As well as implying you don’t understand the client’s needs (beyond price) fixed prices on a website are usually far too low.
It’s no surprise really. We are used to using the internet for price...
Fixed pricing is a bad idea – it’s not value pricing
Fixed pricing isn’t just a bad idea. It’s a really, really bad idea.
When I started teaching pricing back in 2000 almost every accountant priced based on time. In the last 15 years or so attitudes amongst accountants changed. They realised the old way no longer worked and that a move to value pricing was more sensible.
But that’s not necessarily what has happened.
Struggling with the concept
Many people are struggling with the concept and instead, time and time again I see fixed prices.
Bad idea remember?
Ok, so it’s better from the customer’s point of view because it’s no longer based on time. Except it is. It’s based on the accountant’s or bookkeeper’s best guess as to how long a job will take.
It has nothing to do with value to the customer.
It’s even worse when someone has a single fixed price. Let’s...
3 reasons why a software approach to pricing gets better results
When it comes to value pricing using a software systemised approach will give you a much better result.
When you ask a client a series of questions they identify – based on their answers – what they value. You in turn come up with a price that meets their perception of value. It makes sense.
When you do that using software in front of a client it’s even more powerful.
There are three key reasons:
Reason 1 – Greater transparency
The client can see how the price is being built up. There’s transparency, credibility and trust. They know you aren’t just plucking a figure out of the air. They believe you.
Reason 2 – The psychology of putting the customer in control
It’s well known that when the customer feels like they are in control they will spend more money. I can vouch for it. I recently bought a Mac computer online from Apple. I knew exactly what I wanted and its...
Why the old way of pricing is unethical
Actually I don’t just believe that the old way of pricing – time-based billing – is unethical. At times I think it actually borders on negligence.
A few years ago AVN founder and head of research Steve Pipe and I were involved in a research study that looked at more than 150 accounting firms to find out what the most successful were doing differently.
As part of the study we looked at what proportion of errors those in the survey found that a previous accountant had made when they took on new clients.
The results were staggering. 45% of firms found mistakes made by the new client’s previous accountant. 42% found things the previous accountant had missed.
Such figures are worrying.
And, whilst you may not think you make mistakes, perhaps one day ask the same question of accountants that have won work from you. You might be surprised.
So why does it happen?
It’s not like we don’t have the knowledge....