pricing based on efforts is all wrong.
by w. michael hsu
how often do you hear from clients that you’re too expensive or xxx firm can do it cheaper? the lesson in having that conversation is that it can’t be ‘can you afford it’ it’s: “can’t afford not to.’
more w. michael hsu: seven principles to work less and achieve more | how do firm leaders learn? | why your approach to cas and cfo services is wrong | your client base is global |
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the concept of “you can’t afford not to” is a popular one in the world of entrepreneurship and one that cpas, especially those pricing cas services, need to learn. it is the idea that sometimes, even if something seems costly, you cannot afford not to do it because the cost of doing nothing or doing it yourself is even greater.
this idea is often applied to outsourcing or hiring, where entrepreneurs may feel they cannot afford to hire someone else or outsource a task. however, the truth is that they cannot afford not to.
cpas love to explain why they cost so much, so i suggest maybe don’t do that so much. if you have confidence, you don’t need to go into so much detail. you can say x costs y and a costs b, and that’s that. then you show it in your service. you should not be pricing off of your effort. you will know for sure by asking what your client’s needs are, as well as what is working and what’s not. in short, peel the onion and don’t look at individual tasks. actually, be generally curious, then you can come up with a menu of services that you will deliver. this way it shows you are on the same team with your client.
feelings aren’t always right
here’s a scenario: i have daily cash reports and alerts when balances dip and saw this happen recently. i remembered my cash report and didn’t see the dip coming, but sure enough, we had a big client that month say he wanted to pay by credit card and it did not flow into the bank. as such, it didn’t reflect the cash flow.
when unforeseen things like this happen, and they invariably do, it affects the most valuable resource, which is your energy. you can’t have confidence in your pricing and deal with client pushback if your energy reflects panic, desperation, or lack of confidence in your pricing.
the buyback principal
one way to determine whether you cannot afford not to do something is to use the buyback principle. if someone else can complete a task in a fraction of the time it takes you, or for a lower cost, then it makes sense to outsource it.
for example, if an entrepreneur spends 10 hours trying to figure out how to do their own accounting, but a professional could do it in just one hour for a reasonable fee, then the entrepreneur can’t afford not to outsource the task. their time is better spent on tasks that require their unique skills and expertise.
as a firm leader, your time is valuable, and it should be spent on the things that only you can do. if someone else can do a task more efficiently, then it is worth the investment.
the cost of doing nothing
another way to evaluate whether you can afford not to do something is to consider the cost of doing nothing. while actually doing nothing is always a choice, it may have consequences. sometimes, fixing something or investing in it can lead to a significant improvement in your business. in such cases, you cannot afford not to do it.
for example, let’s say you want to invest in creating a real-time dashboard to deliver more value to your clients. the cost of creating the dashboard may seem high, but if it leads to more clients or higher pricing for existing clients, you cannot afford not to do it. conversely, the cost of doing nothing may mean that you are stuck where you are.
the concept of “you can’t afford not to” encourages entrepreneurs to consider the long-term costs and benefits of their decisions. as firm leaders, it needs to be remembered that sometimes the cost of doing nothing or doing something yourself is even greater than the cost of outsourcing or hiring someone else. by applying this principle, you can make better decisions and achieve greater success in your practice.