consider at least five issues when deciding how much to charge clients for your services.
by jody padar
radical pricing – by the radical cpa
what is the lowest monthly fee paid by any of your clients? you probably don’t want to bring on any new clients at a lower fee, so use this as your new business baseline. no one enters your firm without paying this baseline monthly service fee.
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however, the question remains whether the client will be billed on a fixed-price or value-priced basis. here are five issues to consider as you make this decision:
- annual billings: follow my $25,000 rule, and if the engagement costs more than $25,000 per year, the value price of it should be included. otherwise, you’re probably wise to stay with fixed pricing. from your prospect interview, you should know where this client will fall.
- number of transactions: the variations here will impact price, but many fixed-price engagements clearly spell out a range for the number included at that set price.
- amount of risk: you can base your decision on gross receipts. the larger their gross receipts, the greater the risk on your end because if you make a mistake, it will have a larger impact on the client’s business. adjust the price to account for this risk. you may also want to control it with a relationship of open, ongoing communication that comes with value pricing.
- services: what services are they buying from you? are they only buying a tax return and quarterly check-ins, or are they buying payroll, bookkeeping, tax, advisory, etc.? more services lead to more value.
- opportunity for fixed with a value-add: the fixed portion can rise or fall based on client conversations, but you’ll want to make sure to value-price those services you’ll provide that the client truly values.
with fixed-price clients, you will engage in a limited scope; with value-price, your scope will be more involved. remember, for value-price clients, price becomes less important because you’re focusing on the value of a deliverable. in this scenario, the provided solution is far more important than the cost of getting there.
fixed-price clients have a lower price point based on costs and inputs determined by transactions, gross receipts, risk and the services you will provide. these services are more standard, consisting of quarterly check-ins and advisory services on the simpler end of the spectrum (more repeatable and less specialized, performed by managers, not partners).
fixed-price clients are also subject to a value-added bump. the client may receive a menu of services from which they choose a service level and create a package suited to their needs. throughout the process, you can determine which services the client perceives as valuable. then, you can add a value bump to those services. this means pricing subjectively to reflect those services the client perceives as valuable.
during the scoping process, you may also determine whether a client is high-maintenance. so high, you may want to add a value bump to reflect the extra time you’ll put into the business.
all of these little bumps create a buffer so you don’t lose your shirt if a client ends up being more demanding than anticipated or if something unexpected happens.
some firms stick with a very strict fixed-price model, but making room for subjectivity is worth the effort. look at things through the eyes of tech support. if you buy tech support, you will typically get so many hours in a month to cover live support. the provider knows approximately how long certain things will take, but they typically tack on additional fees for a handful of support hours because they know computers often break. they know you may use some of those “wiggle room” hours, but you also may not. regardless, those hours are built into your fee.
the same thinking applies to value-added bumps when pricing accounting or advisory services. they allow room for higher-maintenance clients and tasks while you still make money. if you have a client who eats up more hours than most, hopefully, it’s covered because you’re looking at it as a collective whole, not as individual clients.
last but not least, when you’re working on these fixed-price agreements, remember most of these clients are small and will not realistically be able to pay for the true value they perceive you’re offering. so, ensure alignment between the value you’re delivering and what the client can realistically pay. don’t get hung up on trying to measure the value they perceive or a lengthy scoping process because they can’t afford it. for these types of clients, keep the scope and value-add to a minimum and focus on delivering services at a reasonable service level. you also want to automate 80 percent of the work for this client. because it’s mostly compliance-based, it’s very repeatable by lower-level staff or customer service professionals.