3 Steps to Using Value Pricing In Your Practice
As more and more professionals embrace value pricing, the way accountants charge for their services is changing. For those of you unsure of what it is and how to implement it, we spoke about value pricing with Ryan Lazanis, founder of Xen Accounting, an innovative accounting firm that has used value pricing since its inception. Xen Accounting is a Montreal-based firm that focuses on providing an end-to-end, stress-free accounting experience for tech-based small businesses.
Lazanis’ past experiences at the start of his accounting career influenced him to embrace a different approach to his business. His firm handles the entire A to Z accounting process for small business owners, which lets Xen Accounting control the experience, he says.
When accountants price on an hourly basis, they consider internal costs first, such as wages or rent, and then add a markup. This pricing model is based on thinking of the business first, while value pricing requires a 180-degree shift in thinking, he says.
“Value pricing is about trying to put yourself in your customer’s shoes and understanding the value you and your skills bring to them,” says Lazanis. “It’s thinking about a price that makes sense for the business first and then looking internally to see if that makes sense for the business last.”
With the old hourly billing model, one common frustration customers have is receiving surprise bills in the mail. Value pricing allows Lazanis to give the customer insight into the upfront cost and the service they will receive for the set price. This gives clients visibility into what they’re getting into, helping Lazanis avoid the unpleasant conversation around the traditional additional hourly charges during or after the work has been completed.
Lazanis warns that switching to value pricing is one of the most difficult things to implement. His business started with value pricing right off the get go, but it took him two years before he felt comfortable with the pricing model. As value pricing is a constant learning process, he continues to improve the way this approach is employed by speaking with colleagues in his field on the subject.
Step 1: Read Ron Baker’s Book
For those looking to make the pricing switch, he suggests reading Ron Baker’s book, Implementing Value Pricing: A Radical Business Model for Professional Firms, as a first step to guide you through the shift. You’ll learn about:
- Business model innovation
- The foundations of creating value
- An eight-step model to assist firms to implement value pricing
- Two frameworks for scoping complex engagements
- What, specifically, replaces hourly billing and timesheets
Step 2: Experiment with Value Pricing
Once you’ve done that, you need to experiment and try different ways to build packages. “You’re going to find things that don’t work and you’re going to make mistakes,” he says. “You have to be comfortable with knowing you’ll have to bite the bullet on a few things, especially at first.”
Step 3: Turn Mistakes into Lessons; Adapt Accordingly
Getting comfortable with these mistakes is step 3 since you will need to constantly tinker with your pricing model. “You’ll soon become comfortable knowing how to price certain things and for other things you’re not comfortable pricing, maybe you shouldn’t be doing it in the first place,” he says. “You’ll learn about a lot of things during the (value pricing) process.”
While value pricing can be a tough nut to crack, there’s potential to be more profitable if employed correctly, says Lazanis. With hourly pricing, there’s a cap once you add your markup, but with value pricing, the customer isn’t focused on the markup. Their concern is whether the service they receive, and the price, makes sense to them.
“It is a shift in mentality, not just for us but for the customers, because they’ve had it jammed down their throat that what we do is tied to the amount of hours we spend on a file,” he says. “But, that’s not where our value comes from. At the end of the day, it’s in our end results and the overall service we provide.”
Do you charge clients value pricing? Why or why not?