how to prepare for a value pricing opportunity.
by ed mendlowitz
202 questions and answers: managing an accounting practice
question: i just heard from a client we hadn’t heard from in seven or eight years and he says he has an “emergency.”
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here’s the story: he had started a business eight years ago and he used us for a couple of years until some big money was raised and they switched to a big four firm. he also stopped using us for his personal return, switching to the big four firm. then, just last week, he called us to ask for assistance in evaluating a multimillion-dollar termination package. he needed to meet with me right away because he did not want the offer to slip away. he then asked what the rates would be and could he have a discount because he was once a good client (he was – seven and eight years ago!). the asking for a discount left a bad taste in my mouth.
ed, how should i handle it? i feel like i could bill $2,000 to $3,000 and i want to do the work. is that the right price?
answer: after thinking about it, i called him back and said he should ask for a $7,500 retainer up front, and that he will present a bill when finished based on the value added to the transaction.
i told him to explain that he was not charging for his time, but for the 30 years of experience he had with many people in similar situations as well as also representing employers in these situations, and he fully understood the dynamics from both ends. he should say that if it were mishandled, it could cost the client hundreds of thousands of dollars between a lower payout, unfavorable and tenuous terms and timing and bad tax structuring.
further, the cpa should say that:
- this work involved the highest skills he had;
- it had to be handled on an “on-demand” priority basis;
- the deal structuring wasn’t work that could be delegated; and
- the tax structuring would be done by a top tax expert in this field. (even if you need to run the tax plan by an outside employee compensation tax consultant to make sure nothing was missed.)
this was premium work and would be billed accordingly.
also the client needed to understand that the fee was not relevant to the total transaction and he had only one shot at the best deal and he shouldn’t blow it by looking for a bargain basement accountant and fee.
i also told him not to chase this work if he couldn’t get the retainer up front. based on what he told me, i did not feel he would be able to get a larger retainer, so we settled on $7,500. i also referred him to my value billing memo and engagement letter language.
in the end, the accountant agreed with me. and the client was told. then the client said that a two- or three-hour meeting would not do justice to his situation and it needed a thorough analysis that could only be done based on the proposal just made to him.
the cpa made a decision that a short meeting with many extra phone calls by the client would not be profitable and would be too disruptive to make it pay. he anticipated extra calls by the client trying to get the fee down.
a follow-up call to me a week later told me he was very happy with the way he handled it, even though he didn’t get the work. he felt he was now better armed for future situations of a similar nature.