survey reveals the top four pricing strategies.
by hitendra patil
the definitive success guide to client accounting services
pricing your services correctly to ensure reasonable profitability is a significant decision you will make in your client accounting services practice.
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our survey results revealed how cas firms price their cas offering:
- the topmost method of pricing cas offering was fixed/flat fee, which 41 percent of the respondents used.
- the following most common pricing method was a mixed method of pricing (a mix of hourly, fixed, and value pricing), charged by 36 percent.
- hourly billing was used by 33 percent.
- about 28 percent used value pricing.
the top four pricing methods
when asked, “how’s your pricing policy working out for you?” several firms shared their experiences.
- one firm owner shared that “(the pricing method works) great! we keep hours yet to verify that our value pricing is correct. keep billing at an even rate for clients to budget easier.”
- another noted (because of our pricing), “we achieve higher realization on cas than other practice areas.”
- one firm cautioned, “hourly rate can lead to large bills, and we end up discounting. fixed prices need to be reviewed every six months, or they lag the costs.”
- another firm owner echoed the cautionary approach, “we have done fixed fee with an initial 90-day review period.”
cas pricing methods have evolved over the last three years or so. trends indicate more and more shift toward fixed/flat fee arrangements, with some variables included to provide for work volume and expertise-level requirements that usually come up after working with a cas client for a few months. these pricing trends may guide your firm’s cas pricing decision, but you will need to keep revisiting and refining your cas pricing through the initial few months of your cas journey.
the underlying insight on cas pricing methods
the cas business model can provide firms with a powerful ability to charge more profitable fees than traditional services. the cas business model has emerged not just because of technological advances but also because of increasing client demand and changing client expectations.
when people “need” something, they are price-sensitive. but when they “want” something, price sensitivity reduces. cas provides opportunities to clients to buy something they want, e.g., professional accountants’ advice while making their business decisions. you will need the expertise to understand and quickly identify the difference between each client’s/prospect’s needs and wants for your cas pricing to be effective.
why fixed and mixed fees are more popular in cas
my interactions with several cas firms made it evident that the value of cas is not just transactional and hence not precisely measurable. for example, the value of an accountant’s advice in a specific business situation can save thousands of dollars for the business or help make critical business decisions, e.g., lease versus finance.
such value-delivering services cannot be quickly billed on an hourly basis, as there is no certainty in clients’ minds about how much they will need to pay. however, with fixed and mixed methods, there is reasonable certainty that makes clients know how much they will pay the accountants, even if it means just ballpark amounts. survey results indicate that it is comparatively easier to sell a cas offering with such pricing methodologies.
the effect of cas pricing methods on firms’ profitability
the survey results revealed that 62 percent of the firms that offer cas agree that cas provides superior profit margins (compared to other services offered by the firms). cas firms provide about twice the number of services compared to non-cas firms. combined with pricing methods, the higher revenue from each cas client also leads to higher per-client profitability.
several accountants whom i have interacted with agreed that among all the services that cas firms offer, including tax-related services, cas provides higher profit to their firms.
why cas provides superior profit margin
- this result indicates that firms that offer cas are seeing better utilization of staff time because of efficiencies gained by doing more types of work for the same clients. it is easier to correlate the critical information while you work on a particular client than to switch between multiple clients to do only a few types of tasks for that client. the classic benefits of the “account management” methodology seem to be up for grabs in cas.
- further, automation and integration of multiple technologies are increasingly more and more possible, leading to less data entry work and more information management and analysis work. the staffing cost per client reduces as a result. as a result, it leads to improved profit, even when packaged under a fixed-fee arrangement.
- cas allows firms to offer deeper and broader financial insights to their clients. it helps clients make better and timely business decisions. it, therefore, augments the value of the accountants as the most trusted advisors, assisting secure higher fees for consulting, advisory, and outsourced cfo services. cas pushes the profit per person because of its ability to sell higher-priced services.