Bundling and Pricing Strategies For CPAs

Today we're focusing on steps 3 and 4 of our 10 Steps to Value Pricing webinar. If you haven't already watched it, you'll definitely want to do that before reading this article. If you are in need of more background information, check out Ron Baker's "Pricing on Purpose" or Jason Blumer's "The Value of Puppies".

For those of you that already understand the basic framework of the 10 steps, you're here because you've done your preliminary research and have a plan of action to implement value pricing for your practice. At this point, you're ready to begin creating your bundled packages but are perhaps unsure of what exactly to do first. Both steps 3 and 4 can be broken up further into sub-steps. Here, we will go through each sub-step in detail, so that by the end, you'll know exactly what to do next and how best to get it done.

"Picture yourself in your prospect's shoes. How do you like to buy? Chances are you like a buffet of choices at a consistent price. Prospects generally appreciate the same thing." (Chad Ridner, President of Two Roads)

Create your bundled packages

To make it easy for prospective clients to understand what services you provide, what services they need, and what services they should add, we construct three bundled packages to present and discuss. The three bundles act as a way to frame with conversation and educate prospective clients on what is possible and what is recommended. Why three bundles? From research, the presentation of three bundles is simple for the client to understand, and it also anchors the conversation around the middle package. In a value conversation, prospective clients are at once able to understand what they are giving up when they choose the smallest package and enticed to sign up for more services based on the conversation of what each additional service will provide them.

Step 3A: Make an exhaustive list

The first step in creating your bundled packages is to know what you have to offer. That means writing down an exhaustive list of all the services you currently provide. While drafting this list, think also of those services that you do not currently offer but would like to and are capable of providing now, but that you would like to and are capable of providing now. Over time you will need to come back to this list to optimize your bundled packages. Keeping it up to date will make it in an easy point of reference in the future.

"Make sure when determining your list of services that each service provides value. You don't want to throw in "fluff" that really doesn't provide a tangible benefit to the prospect. You'll end up having to explain something unnecessarily and then be asked to reduce your price because the prospect saw no value." (Chad Ridner, President of Two Roads)

To get you thinking, I have outlined the 7 major service offerings you might provide with some detail on the underlying services you might offer.

Step 3B: Determine bare minimum to serve

Next, you must determine your bare minimum to service a client profitably. Every service you provide takes resources, the most valuable of which is your time. Look over your list; what is the bare minimum number and type of services a prospective client must engage your firm to provide to make it profitable for you while providing meaningful client service to them? Remember, your goal is to have only high-value clients. Drawing such a minimum line will help to ensure that you have only high-value clients. This “bare minimum services” list will become the basis for your first of the three bundles. Remember that this is your minimum for a reason, and so there is absolutely no going below it to take a client who requires less of your firm.

Step 3C: Create your "recommended" package

After this, look back over your recent clients. What services did you typically provide to them? This is your average. Now, put on your thinking cap. What other services could you have provided to these average clients that would have made them a bit more profitable or made the engagement that much more meaningful? What should you be doing for your average client to better serve them? These few things you would like to do with your average client become your “ideal”, which then becomes the basis for your second bundle. It’s essentially what you typically do, plus a little more.

Step 3D: Choose your bundle strategy

From here you can begin to put together your three options. It’s important at this stage to select a framework for your packages. There are a number of different options to choose from, but we have whittled them down to our two favorites. The first is the “Good, Better, Best” model (GBB). In this model, your packages are structured as completed options with little to no room for change. This model works well with a fixed fee price structure. In this model, the “Good” option is not your bare minimum to serve; it is the bare minimum plus a bit more. Your “Better” option would then be your ideal set of services that you would give to every customer. Finally, your “Best” option is not your exhaustive list of services. Instead, it is a slightly pared down list from your exhaustive list that your best customers tend to opt for.

The second option for a framework is the “Minimum, Typical, Open-ended” model (MTO). With this model, your “Minimum” package would again be your bare minimum to serve plus a bit more. Your “Typical” package would again be your ideal set of services. Finally, your “Open-Ended” package would be the à la carte option, that is, a completely custom package unique to each customer. It is by definition more than the “Typical” option, but how much more is up to the customer. You allow the customer to pick and choose more options from a “critical services list”—a modified version of your exhaustive list of services. This model lends itself well to a value pricing structure. With a value pricing structure, price is determined in part by how much value the customer perceives themselves as getting prior to the services being delivered. The packages themselves are also more open to being modified. Overall, the MTO model is a more flexible structure than the GBB model but requires more experience in value pricing

 “Packaging your IP means anyone can sell - even my PA talks about Bronze, Silver and Gold packages to clients. Packaging is leverage, and leverage is what every partner needs to grow their firm.” (Jamie Johns, CEO and Founder of Sky Accountants)

Step 3E: Categorize the services in your packages

While the models diverge in their flexibility, they both rely on some basic building blocks. The first is categorizing your services to a critical few. If, when you build your packages, you fill each with every single service you will provide to your customer, your packages will become overly complicated. This will make it difficult for a customer to decide which package is right for them. So instead of detailing every service, break your services down into meaningful categories, e.g., Bookkeeping, Accounting, Tax, etc. These headings will be different for every firm, based on the types of services you provide and the clients you serve. Best practice dictates that there should be no more than 10-12 line items for the largest package. The next thing both models have in common is that each package builds off of the next. If your “Good” package contains five services, your “Better” package contains seven services, the first five of which are the exact same five found in the “Good” package (or slightly different in the way they are delivered, e.g. monthly vs. annually). In the same way, your “Best” package may contain up to ten services, but up to ten services, the first seven of which are included in the “Better” package. Each package builds from on last to allow a potential customer to easily compare how the next level package differs from the one previous. This makes choosing a package easy.

The last commonality between the two models is the power of threes. This concept will come up again in pricing, but in this context, having three options rather than four or two helps to anchor the customer. This works by way of psychology. The customer doesn’t want to get the “worst” package on the far end, but may also be unsure if they require everything in the “best” package, so they gravitate towards the middle—your ideal package. This provides an opportunity to have a conversation around the importance of each service as it applies to their business and for you to articulate the value of each service as only your firm can provide them. In the end, the client gets what is right for them while understanding the full range of options on the table, while you get the best value and the best opportunity to serve them.

Set your initial prices

Once you've constructed your packages, it's time to price them. Like we saw in bundling, the power of threes works here as well in terms of helping you to determine your price per package, and your set of prices presented to the client.

Step 4A: Form a pricing committee

Your first step when setting initial prices is to form a pricing committee. The committee’s job is to give you feedback on your prices to see if you’re on track or off the mark. If you have no other employees, use your spouse. Seriously. Your spouse has just as much to lose if your prices are off the mark as you do and they will be able to give you feedback on what prices seem appropriate. It’s also a good idea to draft a questionnaire for clients to assess their needs to help you hone in on your best prices further on down the line.

Step 4B: Understand your costs per bundle

The next step is to figure out your relative cost per bundle. The “relative” part of that is important. Don’t worry about being exacting here. You know your business and you know what your time is worth. Look at the services in each bundle and come up with your best estimate of how much each will cost you in terms of time and resources. This will let you determine how much you need to charge over to make a profit. Remember that profit is the goal here.

"To estimate our cost for each fixed monthly fee package, we worked backward instead of trying to track time. For example, we estimated that an accountant could handle at most 10 "large", 30 "medium", or 60 "small" bookkeeping/accounting clients on her roster each month. Then, all we had to do was take our average total cost per head and divide by those numbers to get our monthly labor cost per client for each package." (Blake Oliver, Director of Technology & Marketing at HPC)

Step 4C: Develop your three prices per bundle

Now comes the actual pricing. Again we are going to be using the power of threes. Here, you will develop three prices for each package: BATNA, Expected, and Ideal. Your “BATNA” or “Best Alternative To a Negotiated Agreement” price is the lowest price for the bundle that still turns a profit. It is the absolute minimum profit you are willing to take for this package. The Ideal price is the highest price for the package that you could imagine anyone reasonably paying. Most customers would not pay this price, but a select few might be willing to pay it for the extra satisfaction for the extra satisfaction they expect to get from working with you with you and your firm. Finally, the Expected price is somewhere between the BATNA and the Ideal that you would be happy with. You could make it the average, but it should be a price that you really feel good about (typically a bit higher than the average).

It's important not to undersell your services here. You know what you are worth; don't be afraid to ask for the compensation to match that value. Again, you are developing three prices per package. If you have three packages, that's nine prices total.

Step 4D: Fixed fees or value pricing?

The next step is to determine if you’re going to be using fixed fees or value pricing on your packages. If you’re not so sure in your sales skills or are just starting out, it might be useful to start with a fixed fee system based on your Expected price. Later, once you’re more comfortable, you can move into a value pricing structure. With value pricing, each package has a range of prices that you have already come up with. As the package is modified and as you add value to the package by way of communication with your client, the price can slide up and down the scale from your BATNA to your Ideal. As such, the price of the package will vary from customer to customer.

Step 4E: Do a dry run and repeat

The last step, of course, is to do a dry run and repeat the process as necessary. Bring your packages to your pricing committee. Pitch the packages and prices, and have them look over everything and see if it all makes sense. Modify as needed until the packages and their prices are a good fit and both you and the pricing committee.

“When you package services you give options, and clients get to choose if they ‘want fries or not’. You never leave money on the table.” (Jamie Johns, CEO and Founder of Sky Accountants)

While creating bundled packages and pricing them may seem like a complicated endeavor, as you've seen the workflow can be managed easily if broken down into simple, straightforward tasks. By taking your time and really focusing on each task you can ensure the success of your packages and their pricing structures. It's important to be unafraid of making pricing mistakes; with each mistake, you will be able to get closer to that perfect price point of each of your packages. It is a marathon and not a sprint.