How are we going to get our pricing right in this new world?
Accountants work crazy hours and bend over backward to help clients, but many are not charging enough. The profession should be saying goodbye to the billable hour and redefining what pricing looks like. This becomes more imperative the more we dive into automation. The fact that we tend to undercharge in the first place does not help.
So how do you get comfortable with upping your fees and getting rid of the billable hour? By specializing and charging for the value provided.
Moving to value pricing
“There is insufficient training about pricing” in college and early CPA education, said Geraldine Carter of She Thinks Big Consulting.
You see the result of this when the default model is still the billable hour. Most accountants look to those around them for how they model their own pricing, and they find that everyone pretty much does the same thing.
“It’s totally arbitrary [and] self-perpetuating,” Carter said.
But the tricky part is how to get from there to here, with "here" being the new normal — the brave new world of advisory services.
It’s actually not that hard; it’s just really vague at first if you don’t know what you’re doing. And when you don’t know what you’re doing, you’re probably going to start off conservative.
The pricing strategy is shifting
The good news is that Carter estimates about 30 to 40% of people have already moved off of hourly billing, though she said “that feels awfully generous.”
She said we’re approaching a kind of saturation point where there will be so many podcasts and information on pricing out there that a tipping point will occur. She predicts there will be so many people who will start to implement advisory pricing, they’ll be successful at it and others will follow suit.
“It will spread like wildfire and they’ll teach each other,” Carter said.
And at that point, accountants will realize the profitability gains are so much higher when the pricing is done right, as much as five or 10 times more than what could be billed hourly. It’s amazing what can be achieved when pricing is based on outcomes instead of deliverables.
Technology will drive faster adoption, too. How do you bill two minutes? That was a key question when working in the cloud, but today there is artificial intelligence and automation to make things even faster.
Charging more is better for clients
So how will charging more serve our clients better? There are a few different ways this can end up being a positive for client service.
First, you’re not working as much, so you have more time. You can respond to client questions faster. Maybe you can even hire people to do more of the busy work, giving you even more time. Many accountants who make this switch often find they’re no longer resentful about getting underpaid because they feel more valued. A lot of accountants don’t know how to express value because they never really learned how. And sometimes — OK, a lot of times — clients have to be educated on the value they receive.
Clients who get charged more show up more. They’re prepared for meetings and organized. They actively try to get more value out of the service. A cheap accountant isn’t necessarily a good accountant, and that's a hard mindset to change.
“If you’re cheap, those are the types of clients you’re going to attract,” Carter said.
When you create value, you also attract like-minded people. It’s a virtuous cycle.
“But if you're thinking that being cheap is somehow noble and like the beneficial quality of character as a business owner, I can tell you you're dead wrong. It doesn't work that way,” Carter said. “If you want to grow your income, you need to be in a growth mindset.”
Niching provides pricing options
When it comes to communicating value, accountants need to understand and realize that value is not debits and credits.
“A good first step is fixed-fee pricing,” said Carter. “Number one, you need a niche; being all things to all people doesn’t work anymore.”
If you don’t need new clients, triple the fee and give yourself more time, Carter advises. If there’s a piece of your business that’s simply not making money, get out of it as fast as you can. Seriously.
From there, you’ll want to look at menu pricing — building out and designing advisory services for part of the client roster. You typically can’t do this for everyone; you design services for outcomes that a particular set of clients need. The menu pricing should give clients clear options that are separate, and then they can pick which ones they want.
“You give them a choice of yeses,” Carter said. “It feels vulnerable, but it’s where growth starts.”
Run your business as a business
“Pricing is a tool. And it’s not the tool that has broken. But if you don’t know how to use it and [no one] teaches you the basics, chances are excellent that you will use it wrong,” Carter said.
Changes to pricing are a practice management shift that will fundamentally change how you operate your business. And accounting is a business after all, isn’t it?
Something to keep in mind here is that you learn best by doing. You’ll learn more, better and faster by testing rather than just thinking. So stop thinking and just do it! It’s important to get help, though, so you’re not just flying blind.
“There is no single price for advisory,” said Carter. “Therefore, everybody’s price is going to be different.”
There’s not one good or bad way to price. The only bad way to go about it is to do nothing and continue with the hourly billing game as a generalist accountant. That’s not the way to the future.
If you value yourself and your practice, you’ll raise your prices and go for the value-based advisory pricing model. You’ll find more engaged clients and a happier, more profitable future for yourself.
