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....
When your customer buys from you there are two things they want. Every time. You must understand these.
So what are these two things?
Your customer needs CERTAINTY
When you buy you want to know exactly what you're getting and how much it’s going to cost. The problem is, the old way that as a profession we’ve priced - time-based billing - is a redundant way of pricing, and by definition pricing based on time gives no certainty for the customer. Whilst you might tell them your hourly rate, they will never know until the job is done how many hours it will take. So we must get away from time-based billing because customers hate it.
Your customer needs CHOICE
The other important thing for a customer is CHOICE! We want to have the freedom to decide things on our own, to make choices because we are all different. We want a solution that meets our own specific needs.
As an example, think about the most profitable company on the planet – Apple. ...