plus four things to learn about each prospective client.
by jody padar
radical pricing – by the radical cpa
how much would you pay for a bottle of water in the checkout line of a grocery store? maybe $2 or $3, right? you know it costs more per unit than buying a case of water, but at that moment it’s worth it even though it’s the same bottle of water. now, let’s assume you just made the long trek back to your hotel room in las vegas. they have the same bottle of water sitting there for $10. you’re thirsty and don’t want to walk to find a store, so you pay $10 for that bottle conveniently located in your room. the water isn’t different, but the value at that moment in time is subjective.
more: using change orders with scope | who needs to understand scope? | determining a price … and when to change it | perfecting the client needs assessment | create more meaningful kpis | five reasons to ditch timesheets for good | six steps to creating a standardized practice | value pricing requires defining your clients | stop selling time | three critical factors drive the value pricing trend | stop looking for talent that does not exist
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when we think about price, we really need to think about worth. what actually are you bringing to the table? lots of training. many years of experience. vision into similar businesses. it took you years to get here; don’t sell an answer to a question the client asks for the three minutes it took to answer.
structuring your pricing is vital to the growth and profitability of your firm. it’s a multi-step process that consists of:
- assessing your client. you need to know who you’re working with and what they need.
- creating categories. based on the client assessment, divide your clients into three separate buckets (something like small, medium and large), as defined by the client’s number of transactions, gross receipts and the risk they bring to your firm. these buckets also anticipate their service needs and how much attention they’ll require (i.e., are they a high-touch or low-touch client).
- structuring services. determine what you are offering your clients. list what your firm provides, what your strengths are and how you will offer those services. your firm can structure your pricing around any set of services you choose. if your firm has a strong tax arm, consider structuring your services to always include tax and tax planning services.
- developing packages. once you’ve defined your services, start putting them together in packages for your clients.
- determining add-on services. provide a list of a la carte add-on services priced separately from the recurring services clients are already buying. this will cover one-off financial events.
- evaluating costs. evaluate how much it costs you to deliver your service packages and add-ons.
- setting prices. you can set your rates based on your costs, the value of what you’re providing and market price points.
while one customer may value something at $200 and another that same thing at $500, you have to realize clients will pay a different price based on what they think it’s worth. this can vary greatly by business, though. for example, clients who only want compliance won’t value advisory … period. and those small clients who run itty-bitty kitchen table businesses aren’t in the market for the value-add you’re selling. but just because you have insight into a client’s financial information, don’t make assumptions about what you think the client can afford to pay. if the client perceives a service as valuable, they will pay for it. that’s why we have to think about pricing the customer and not just the service.
client service level assessments
in an old-school firm, where an hour is what you sell, a prospective new client could walk through the door and be handed a brochure telling them how great you are. then they’d be informed your fees are x dollars an hour. sign here.
in a client-centric firm, after the prospective client has been vetted, you will begin the client assessment to understand their needs in terms of onboarding, services, budget and what it would take to deliver those services.
this assessment goes both ways. you may be one of several candidates, so make sure to use the information you gather to show how you’ll be a good addition to their team. provide insights into how you’ll optimally position their business and give them actionable things to help them save money and be more efficient.
during this process, you’ll begin to develop a rapport and trust. being a little generous with information demonstrates you’re on their side and would make a treasured teammate.
assessing a new client is a process equal parts diagnostic, evaluative and consultative. during the assessment, you’ll want to determine four client-specific elements:
- client’s number of transactions and revenue
- onboarding process
- service level
- alignment on deliverables
some firms price according to the number of transactions and don’t take other factors into account. when doing this, you’re overlooking the risk that comes with high-revenue clients. for this reason, it’s also helpful to look at gross revenue because you could have a $5 million client with five transactions or a $500,000 client with 50,000 transactions. should these clients be paying the same amount? if you base your price on transactions alone, the smaller client with higher transactions would be paying more. however, the larger client with fewer transactions should probably be paying a premium for the risk your firm will carry.
once you scope the client, you’ll know roughly what it will take to get them onboarded; how much cleanup or catchup is involved, if there’s migration from quickbooks desktop to quickbooks online or anything else that could get in the way of seamlessly interfacing with them and their data. depending on the amount of work to be done, this is where you may decide to charge them an initial onboarding fee.
next, it’s time to agree on the level of service you’ll need to provide. all clients get to choose if they want to be serviced daily, monthly or quarterly. even your small clients, with low monthly transactions, will have a minimum service level consisting of accurate accounting and tax services, for example. this is an opportunity to explain to your clients the options they have and the breadth of services you provide. make sure you and your client are aligned.
don’t oversell unnecessary services. many small business clients have probably never looked at their financials. so, if you engage them on a quarterly service level, they’re going to jump from zero to four times a year. it’s a big leap. you don’t want push for a daily or monthly service level if quarterly is really good enough. take into consideration the client and where they need to be. set your service level expectations around what’s best for them.
every client should know they can upgrade their service level if they want services beyond the scope of their initial engagement. you can also pursue clients who are outsourcing elsewhere by highlighting the added value you can bring because of your familiarity with them and their files. often clients just don’t know about the additional services you can provide.
your new client-centric model is built to empower your clients to make the best decisions for their business and financial health. the more they know about you, the stronger your partnership will be. with that in mind, give your clients the power to choose which service level agreement they want. the airline ticket class is a great analogy for service levels: coach, business and first class are all options.
define what constitutes high touch/first class, medium touch/business class and low touch/coach class clients and service levels. regardless of level, everyone will get the same deliverables. the difference is the level of service and the amount of contact you have with the client. you will need to figure out what a first-class seat costs at your firm and what your service equivalents are for an open bar, warm cookies and fully reclining seat.
it’s helpful to break your clients down into buckets of small, medium and large based on their monthly transactions and gross revenue. these buckets will give you a good idea of who your coach, business and first-class clients will be and you can build your services around their needs.
with bucketing and service levels, you will avoid unsustainable situations like a client who pays the least amount but becomes one of the most expensive to service. however, because of the structure bucketing provides, you’re protecting your time and energy, allowing all clients to receive excellent service and value for the money they’re paying.
honoring a service level agreement makes the relationship between the firm and client transparent while also protecting the firm from overworking a file and dedicating too much time on a client paying for a lower level of service. healthy boundaries make for healthy relationships.
lastly, get aligned on what your deliverables consist of. for every deliverable, there will probably be elements a client needs to supply for that work to get done. make sure this is clearly articulated so everyone understands their role in delivering a service.
time frame is also an important part of the equation. if a client wants same-day turnaround service, make sure they know it’s possible but comes with an expediting fee. this is where service levels come into play. if a client is paying for first-class service, then maybe daily turnaround is included. but, if a client is paying for coach and expecting first-class treatment, you have an opportunity to re-communicate the scope of different service levels.
many firms try to treat all clients like they’re first class, but it isn’t necessary to do so in order to keep clients delighted. you simply need to communicate and make sure client expectations are appropriately defined.
alignment is the scope-creep and scope-seep defender. define your deliverables precisely so the client knows when they ask for more, it will be a separate engagement and fee.
the advantages of bucketing clients
categorizing clients as small, medium and large will have advantages beyond helping you to define service levels. it will also help you develop the architecture of your firm and your staff. once you decide to bucket clients, you have to ask yourself some tough questions:
- how many clients in each category can you effectively service? you have to figure out how many high-touch clients your firm, or a particular employee team, can take on and still deliver outstanding service every month.
- do you have the staff to handle new clients at a particular service level? this is another reason client assessments are so important. from the financial information you gather in the assessment, you can anticipate which bucket would best suit a particular client before considering if there’s room in that bucket.
- do you have good diversity in your client base? you never want to be in a position where one or two large clients can determine your future. quarterly clients should be your bread and butter. they aren’t overly complex and provide a wonderful opportunity to train younger staff on advisory services. you also want some big, very important clients (vics) because they pay you well and offer a wide range of challenges. typically, the more they pay, the less work they require. also, vics tend to want business-changing value compared to transactional work, which is done by lower-level staff but can be labor intensive.
start to view your client base as a portfolio of assets. you want a diversified portfolio. you do not want to end up with a portfolio heavily weighted toward high-touch clients without having the staff to service them. you also don’t want to lose your bread-and-butter clients who help you maintain profit margins.
as you construct buckets of services, it’s important to keep the needs and budgets of your clients front and center. at the same time, keep an eye on portfolio diversity, and weigh it all against the capabilities of your staff to find the perfect balance. as in all good things, balance is the key to happiness.