Stop Competing on Price!
Pricing your services can be tricky. It’s one of the toughest challenges bookkeepers and accounting professionals face. The pricing equation factors time, expertise and customer perception. Beware, however, that your mindset will influence your rates.
Like many professionals, you may undervalue your services, or give away work for free. Well, these things affect your cash flow. Not understanding your value and how to price your services reduces your potential income. Well, there’s some good news. Your income will grow significantly when you stop competing on price.
Checking out the competition is the most popular pricing strategy. Those other bookkeepers and accounting professionals probably did the same thing, too. They didn’t have a clue about what to charge so they researched the range of fees for similar services.
New business owners typically set their rates slightly above the lowest end of the fee spectrum. Then, they gradually raise their rates to somewhere around the middle of the pack.
Pricing Your Value
Trading dollars for hours isn’t a highly effective strategy. Your clients care about value, customer service and service delivery. Many clients consider ‘value for money’ as more important than simply cost or price. This means professionals who compete on price are leaving money on the table.
Basically, industry leaders don’t want to blend in. So, professionals who desire to stand out don’t compete on price. If you’re seeking expert status, then break free of the traditional hourly rate.
Your clients benefit from your services. And, your prices ought to reflect that value. Value pricing is the best way to stop competing on price. This approach encourages you to partner with your clients so you’re positioned as an investment instead of an expense.
Many professionals believe buying is a logical decision, but it’s not. Buying is an emotional decision that is then justified with logic. That’s why value pricing talks about perceived value.
Here’s what value pricing is not:
- Time. Your clients don’t really care how much time you spend on a project.
- Profit. Ideal clients do not question your profit margin.
- Formula. Determining the value of your services is an art, not a set formula.
- Importance. Features, apps and software are more important to you than to your clients.
- More work. Your profits increase without additional time spent working.
Accounting professionals overlook 5 factors when they compete on price:
- Expertise. This is known as intellectual property. Experience from time in the field is valuable. You know things that new professionals may overlook.
- Urgency. Last minute deadlines can be priced differently. That’s because you have to re-prioritize your schedule for rush projects.
- Limitations. Maybe, your practice is near full capacity. You can charge a higher rate when your availability is limited (airlines do this all the time).
- Complexity. Consider the complexity of a client or project. Charge higher fees when the work is more complex.
- Benefit. Understand the outcome your clients receive when they choose to use your services. Either you help them resolve a specific problem or achieve a particular result.
Pricing is an Art
Value-based pricing is an art, not a science. That’s because it’s messy. No hard and fast formula exists. Through trial and error, you determine how much your expertise is worth.
Clients decide to sign on with you based upon their perceived value. Remember, your clients either want you to solve a problem or achieve a result.
Kate and Allen are both QuickBooks ProAdvisors®. Kate figures her fixed cost and then adds markup for profit and time. Allen doesn’t compete on price. His rates reflect perceived value.
Kate and Allen have contrary views about their bookkeeping business. Kate believes that she’s selling bookkeeping services. Basically, she’s created a job for herself. Since she’s trading dollars for hours, and time is finite, her income is capped.
Allen advises his clients on ways to improve profit. QuickBooks® is one tool that helps his clients understand their cash flow. His rates reflect his expertise. The amount of time he spends working on their books is incidental. He positioned himself as an advisor. QuickBooks is his primary tool.
Kate is happy to make a comfortable living as a bookkeeper. Her pricing formula earns about 25 percent profit. Justin’s pricing isn’t an exact formula. Since he prices on value, he averages about 75 percent profit. His clients understand the value of his services. And. his business has grown beyond his local community.
Focus on the Results
The switch from hourly billing to value-based pricing was a mindset shift. Since his fees are higher than average, Allen doesn’t expect every consult to turn into a client. And, yes, sometimes he undercharges.
He learns from his mistakes by routinely reviewing his proposals – the good and the bad. It’s a constant process. Allen’s profits are significantly greater than Kate’s.
Follow these 5 steps to price for your value.
- Discover. Discover what your clients really care about.
- Develop. Develop fantastic questions that you ask during your consult. Aim to uncover the core concerns. Include questions about motivation, problems, numbers, value and consequences.
- Decision makers. Speak directly to the person who makes the buying decision.
- Detective. The answers you hear during a consult are clues about what a potential client values. Pay attention to their answers and take great notes.
- Describe. This one takes practice. Get comfortable explaining the benefit a potential client can expect from your services.
Work Only With Ideal Clients
Imagine going through this proven process with current and potential clients. Instead of winging your consults, you follow a systematized discovery process every single time. This way, your practice fills with fantastic clients.
When you stop competing on price, you decide who you work with and what you offer. This solution puts you in charge of your business and increases your profitability.