Value Pricing: Aligning Your Interests with Those of Your Clients
The days of providing services first and billing later are dwindling. As this blog post by Jim Boomer, CIO of Boomer Consulting, Inc. indicates, an increasing number of accounting firms are moving into the digital age and transitioning their practices from billing in arrears to value pricing strategies, in order to better align their interests with those of their clients.
Billing: Where's the Real Client Value?
Accounting firms have been billing for, well, forever. Billing may make sense to you as a practitioner, but it may not to your clients. The truth of the matter is, clients are often baffled by that final bill―which can result in them questioning the real value of your services, or even worse, causing them to look for a better deal elsewhere.
Clients explain the scope of their project (taxes, auditing and the like), firms do the work, tally up the hours spent by partners, junior associates and administrative assistants and send out a bill for services rendered. However, as most firms can attest, a client's reaction to that bill is rarely, “Well that's not so bad at all!” Instead, it will result in an angry client creating perceived indifference between the firm and the client—the number one reason why clients leave. It isn’t about the price, it’s about the surprise of the price. Then before you know it, the client leaves.
- Place transaction risks on the client.
- Foster a production mentality instead of an entrepreneurial spirit among your staff.
- Fail to recognize the effectiveness of a firm’s project management abilities.
What is Value Pricing?
Value pricing is a business strategy which sets prices based on the overall perceived value to the customer instead of simply billing clients for services provided on an ad hoc basis. It is increasingly becoming known as a better way to do business in the digital age by:
- Eliminating the receivable function.
- Allowing your firm to cross-sell additional services, price bundle and focus on the totality of the firm’s value proposition instead of the price for each service.
- Raising a client’s switching costs which may result in increased loyalty, trust and long-term profitability.
The Win/Win of Value Pricing
Value experts such as Ron Baker, founder of the VeraSage Institute, say that value pricing business strategies produce a win/win situation as they better manage, clarify and allow firms to exceed—not just meet—client expectations. According to Baker, “A value pricing business strategy is a holistic approach in the transition from being a professional service firm to becoming a professional knowledge firm.”
Professional service firms use billing and perform accounting services for clients on a case-by-case, or project-by-project, basis. However, once those specific services are completed, can you be absolutely certain that the client will come back to you in the future?
Professional knowledge firms use value pricing and focus on the overall relationship—not just those services—between a firm and its clients. Open discussion and ongoing communication are the foundation for professional knowledge firms who meet with clients about all of their accounting needs for a specific period of time and quote a price for everything—soup to nuts.
Accounting Firms Should Be Relevant to the Process
Remaining profitable in the digital age will continue to encompass all of the skills and efficiencies used in the past; however, it will also require CPAs to make themselves relevant to the process on a continual basis. Value pricing is one of the many issues that can be better solved when working in a more technology-integrated model. For more information on value pricing, visit the Pricing and Profitability webpage on the AICPA’s Firm Practice Management—Private Company Practice Section website. You also may want to consider attending the Digital CPA: 2012 CPA2Biz Cloud User Conference from Oct. 28 to 30 in Washington D.C.
Mark Koziel, CPA, CGMA, Vice President, Firm Services & Global Alliances, American Institute of CPAs.
Business person and dollar sign via Shutterstock.