embrace the value pricing perfect storm.
by jody padar
the radical cpa
ron baker is known as the value pricing guru in the accounting space. he was way before his time in separating the price of labor from the value of a product. labor-based pricing is based on the difficulty of doing a task. value pricing looks at everything from the client’s viewpoint. his argument is as follows: the value you provide your customer, regardless of the deliverable, is worth way more than the hour.
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while value pricing isn’t new, automation has driven it to the forefront. automation gives cpas up to 90 percent more time to provide valuable services based on their expertise, knowledge base and experience.
although it was clear the cloud was going to have a disruptive impact on our business model, ron baker would always explain: it’s not the technology that’s going to make value pricing the way to go, the value’s always been there.
what is driving the value pricing trend? here are three factors:
1. comfort with subscription model pricing. recurring revenue streams are normal. we live in a world where everybody’s used to paying $10 a month for netflix, bill.com, apple music or any number of other services based on clearly defined deliverables. the price people are willing to pay for these services is directly related to how much they value them.
2. readily available machine learning and artificial intelligence. these technologies have automated many tasks. from dext to bill.com, the accounting space is flush with automated solutions.
3. growing acceptance of value pricing in the field. obviously, our value is worth way more than the time it took us to complete a task or solve a problem. firms are realizing they can be more profitable with a value pricing model.
not only do subscriptions help you with a more consistent revenue stream, but your customers like them, too. they don’t have to save up to pay one big invoice, which suddenly makes what you do more affordable. and for that, you will see a more loyal customer.
key value pricing terms
to make sure we are all on the same page, let’s run through and define pricing terms.
- hourly billing: this means tracking your time and billing according to the timesheet. most timesheets are riddled with incorrect data, so this method may not be as accurate as many people assume. under this billing method, you’ll take the hours noted and charge a predetermined billing rate for those hours.
- fixed price: this means that everyone will pay the same amount for the same service based on certain criteria the client fits into. under this pricing scheme, it doesn’t matter if the client is making $5 or $5,000,000. they will both pay $1,500 for a tax return. this may change based on the criteria used to group clients. you may group clients by the number of transactions, a specific type of form, their gross dollar volume or any other criteria that make sense to you. essentially, clients are grouped according to your criteria and then charged a uniform amount.
- value price: this is pricing based on the client’s perceived value of the service. the price isn’t set based on hours or a fixed cost for a service, it is determined by the value of the service to the client’s business. for example, a tax return incorporating significant reduction strategies may be of higher value to a client than a standard fixed-price tax return. it would, therefore, be charged at a higher rate.
value pricing is the more difficult pricing model because it demands spending a lot of time with each client to understand what they need and where they perceive value. this can be challenging for accountants and cpas because we chronically undervalue our services. tapping into our client’s perceptions can be eye-opening. the value pricing process does take a time commitment and attention to detail. considerations concerning both the client and the service have to be taken into account.
on the client side, a properly priced value engagement relies heavily on understanding the client’s needs, industry hurdles, goals and other factors to isolate where the client perceives value. on the service side, you have to scope all the desired services down to the finest detail. this front-end work can take hours, and you may not be paid for it.
if you want to do a true value pricing engagement, make sure it’s material enough to justify all the required front-end work. set an engagement threshold, and only clients who meet that threshold are value priced.