value pricing gains traction. step 1: change the way you think about your business.
start here: join the study; get the benchmarks.
by rick telberg
at large
accountants are catching on to the notion that their clients may place a greater value on their services than they think.
accordingly, there’s a discernible movement toward so-called value pricing or value billing models, in which rates are based on the value perceived by the client and away from the age-old model of the billable hour, or the common market pricing model based on what the competition is charging. according to bay street research, about 27 percent of cpa firms say they use value pricing, compared with 26 percent for market pricing and 35 percent using billable-hour (cost-based) pricing. the remaining 12 percent cited a mixture of strategies, including combining value pricing with market and/or cost-based methods.
value pricing was barely a blip on many practitioners’ radar screens before author and lecturer ron baker began evangelizing it at cpa conferences in the 1990s. but cpa consultant charles larson deserves the credit for writing the first book on the movement long before. today, it may be finally be becoming mainstream. see how much do you think you’re worth?
still, cpas remain intensely sensitive to pricing decisions. few, it seems, dare to differentiate themselves from competitors on pricing strategies.
when sean fraunfelter launched his own accounting business in west chester, ohio, in 2000, his rates were mainly designed to attract clients. an advocate of value pricing, he has since raised his basic service rates 140 percent and is working toward another 20 percent increase.
debra roskamp, a sole practitioner in sutter, ill., who value bills her audit services, says the strategy is “fair and equitable to clients” and motivates her to stay on top of her specialty areas in order to deliver the higher-quality service that merits higher prices.
irving l. adler of adler, blanchard, and freedman in burlington, mass., says his firm is moving toward a strategy that combines value pricing with its existing cost-based pricing because “too many times our pricing policy is defensive — afraid to lose clients. this, we would like to change.” he says the firm wants a strategy that maximizes revenue and profits while it also retains clients.
“we must realize that all we do has value,” says value-biller bob powell in fort worth, texas. he notes that value pricing is particularly critical in attest services, adding that market-pricers risk becoming victims of the most desperate low-priced competitors.
wesley ann taylor of elizabethton, tenn., says she moved her accounting and consulting practice to value billing after reading a book on the topic and learning that billing by the hour “resulted in lower fees for most services.”
however, collette corliss sellers, whose jacksonville, fla., practice includes valuation work, believes market pricing is the way to “gain and retain respect and be fair to all clients.” renita owens in greenville, s.c., adds that market pricing has effectively resulted in her charging more than she would have otherwise.
robert bell, a business valuation specialist in kalamazoo, mich., counters that value pricing has led him to charge hourly rates, higher than those charged by many of the lawyers who hire him.
“value-priced billing allows me to give the client an upfront bill, which i expect to be paid when the work is complete, and it also eliminates a lot of unproductive time doing billing,” says cheryl brown biondolillo of gloucester, va. she adds that some items need to be billed by the hour because it’s too hard to determine their value pre-engagement.
a.j. raiber, a tulsa, okla. tax practitioner who specializes in small businesses, says he’s sticking with a cost-based model that sets prices below the local market rate averages in order to gain market share. “the individual invoices are smaller, but the profit margins are higher,” he says.
brian bulkley, in the chicago office of the regional firm virchow krause & co., says the office uses cost-based pricing for traditional services because that’s “the time old way of doing things,” but is value billing for consulting, a service area in which that billing practice is “more acceptable.”
these are just a few of the strategies cpas are deploying in turning away from total reliance on the billable hour.
and good that they are: there is a clear correlation between strategic pricing and high-performing firms. there’s no question of which comes first: you must decide to change the way you think about your business before you can start to think about economically sensible pricing policies.
[first published by the aicpa]
2 responses to “are you earning what you’re worth?”
carole stewart-heron, cpa
you are right on the button.
i have been at my firm for 10 years. the partners hold the key to employee retention. treating employees like vips (even if sometimes we are not).
betty
i just finished reading the survey about “bill what you’re worth” and i don’t understand why cpas including myself have issues charging clients well for our services, when other professions and trades don’t. for example, the exterminator came to my house last week and charged me $50 for less than 10 minutes work, and i had to paid before he left. our clients complain about our prices and pay us three months after we deliver their reports.
i have been in public practice for the past two years. the first year, i worked for “free”because my partner a very good cpa could not afford to pay me because he was undercharging his clients. now we have been increasing our prices, which have generate a few complains but most clients have stay. we are still suffering but learning to do value pricing and i know we will be successful in the next few years.
thank you for bringing up the issue and teaching the profession to value ourselves.
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