Accounting and bookkeeping professionals aim to exceed their client’s expectations. Satisfied clients are less likely to leave your firm— and may even refer new business. As a result, your firm offers a competitive hourly rate.
At first glance, an hourly rate appears fair. Everyone pays the same price for your services. The hourly rate; however, has hidden pitfalls.
The tug of war
Imagine a heavy rope where your clients hold one end and your firm holds the other end. Then you each start pulling the rope. Charging for your time creates a similar tug of war between you and your clients.
Your clients want you to work as quickly as possible to pay as little fees as possible. Since they don’t fully grasp accounting, a handful of question why certain work took so long. Challenging your invoice causes you to defend your fees and justify your time.
You may wonder how this price strategy is unfair to firm owners. Well, it discourages you from becoming more efficient. It’s easy math—less time means less money.
Technology has changed the profession. Whether it’s filing taxes or monthly accounting services, what was previously done manually is now automated. Tasks that historically required hours are now completed in a fraction of the time.
The longer you work in the profession, the more knowledge you gain. Compare the quality of your work now to the early years of your career. You know so much more now than you did then. And, you’re probably faster than when you first started.
Measure your firm’s value
Firms continue to charge an hourly rate because it’s efficient. Calculating time by your hourly rate is easy and straightforward. It’s standard procedure.
“What’s your hourly rate?” is one of the first questions potential clients ask. When you compete on price, you quickly answer that question. Responding to the dreaded pricing question too soon dismisses the TRUE value of your firm’s services.
Enrolling new clients, when you no longer connect your fees to time, is an advanced move. Clients consider three things prior to hiring your firm:
1. Clients deeply care about the client relationship. The initial consultation gives them a sense of what it’s like working with your accounting firm.
2. Service delivery. Clients need to trust your firm. This answers three concerns:
- Skill set. Do you possess the knowledge to do what they need?
- Tools. Do you have the tools and know how to use them correctly?
- Timeframe. Will you deliver the completed work within the time frame that you agreed to?
3. As a rule, people seek the best value for what they can afford.
Clients prioritize quality and service delivery over price. The only clients who prioritize price are price-sensitive clients. Those clients have a greater loyalty to low rates than they do to your firm.
This model flips the priorities; price is the #3 spot on the list. If you want to separate your fees from time, emphasize the client experience and service delivery. As a result, clients realize your expertise and the value of engaging your firm’s services.
Value is subjective
Firm owners value time and costs. As an accounting professional, you invested time, money, and effort to work in the profession. With that consideration, charging for time appears logical.
What you value is different from what your clients value. From your clients’ perspective, what you know is your highest value. Your expertise has greater value than your workflow or how many hours you spend working.
About 75% of your clients hire your firm to fix a financial or tax problem. The other 25% engage your firm to help them achieve a specific result.
As you know, different clients have different needs. So, it’s important to tailor your services to meet their various needs.
Economy, mid-size, or luxury
Notice all the vehicles around you when you are out driving. Typically, they fall into three categories: economy, mid-size, and luxury. It’s evidence that people have different priorities they consider when purchasing a vehicle.
- Basic. Economy vehicles will safely get someone to their destination, but skips the comfort and performance features.
- Mid-size. These vehicles include additional amenities and upgrades, such as seat warmers and back-up cameras.
- Luxury. The top tier of owners want a certain driving experience and concierge customer service. And these vehicles represent status.
Even among makes and models, vehicle manufacturers offer a menu of upgrades. They realize different customers want different things. And customers willingly pay more to get the specific features they want.
Your clients have different needs, too. Some simply require the basics necessities. Most clients fall into the mid-range, requiring more than the basics. Premium clients have more complex needs, they expect quick turnaround time and value your expertise.
Because of this, you earn more when you separate your fees from time.
Value pricing simplified
Fixed fees and value pricing are often confused. The only similarity is the set monthly fee. Fixed fees are determined by calculating time, costs and, possibly profit margin. Value pricing, on the other hand, prices the client not your time or costs.
Value pricing is when the client believes that the gains from using your accounting services outweigh the fees they pay you. Essentially, the benefits outweigh the costs.
Start to value price your accounting services
The concept of value pricing has appeal. But you wonder how to get started.
The path to separating your fees from time is a process. It’s similar to first learning how to ride a 2-wheel bike. Since you’re a bit unsteady in the beginning, you use training wheels. Once you fain balance, you remove the safety net.
We’ll use the good, better, and best model as the first steps to value price your services.
Good Rate. New clients inquire about your services. Determine the fixed monthly fee you would normally charge by calculating time by your firm’s hourly rate—let’s say it was $100. Now multiply that set fee by 1.5. Your proposal will be the new good rate of $150.
Enroll three new clients into the new good rate. You start to realize that not all clients are price-sensitive.
Better Rate. After enrolling three clients into your new good rate, you move to tier 2. This will be your better rate. Once again with new potential clients, determine the original fixed fee you would charge. Let’s continue to use the example of $100 as the original fixed fee. Now multiply that fixed fee by 2. Your new better rate for that client will be $200.
As you enroll new clients into your firm at the new better rate, you realize they are a higher quality client. Your ability to educate clients about the value of your firm’s services is also improving. By the way, you now earn double what you originally charged without any additional time spent working.
Best Rate. After you enroll three new clients into your new better rate it’s time to move to tier 3. This is your new best rate. Similar to the previous tiers, calculate what you would originally charge a new client for your services. Then multiply that by 3. Now the proposal states the fee is $300 instead of the original $100.
Doing this requires courage, not confidence. Now you earn 3x more than your original fee. The quality of service your firm delivers has improved since you don’t need as many clients to meet your revenue needs.
As you move up the tier, you gain back personal time without lowering your revenues. As a result, the burnout gradually withers away. Here’s the step-by-step resource to separate your fees from time.
Take charge of your firm
Separating your accounting firm’s fees from time rewards efficiency. Your profit margins start to rise. And your clients value speed. They prefer fast results to a long, drawn-out process.
The first steps to value pricing using the Good, Better, and Best Model has you earn two to three times more without working additional hours. What would you do if you could reclaim your precious time?
Moving in this direction puts you in charge of your firm instead of your firm taking charge of you. These clients respect you, value your services, and follow through with your recommendations. Working with a higher quality client who isn’t price sensitive puts you squarely on the path to your dream firm.