look at it from the client’s point of view.
by hitendra patil
client accounting services: the definitive success guide
when your prospects shop for client accounting services, what they find out about cas pricing methods and trends defines their pricing expectations. if you follow very different approaches to price your cas offering, it will take significant effort on your part to educate the prospects (and existing clients) about why you are pricing cas the way you are. as they say, it’s easier to ride the horse in the direction it’s going.
more: want higher profitability? turn to cas | cas requires reaching out more | cas reports are better. here’s how. | is it time for your firm to outsource? | raise cas awareness among your clients | which clients are best for cas | how much can automating bank feeds save you?
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it is good to first conform to the perceptions of prospects when it comes to your cas pricing. once you ride the horse, you can direct it to the destination you want to take it to. once you conform to the pricing method (not the dollar value) expectations of the prospect, their anxiety, and perception of risk (what value will they receive in the price they are willing to pay) reduce. after that, they are more open to evaluating the choices you present to them.
packaging cas offering levels
the main precursors of your cas pricing levels (dollar amounts) are the components of your cas offering levels. the most prevalent methods that firms use to package cas offering are generally based on:
- whether clients offload only after-the-fact work, part of the work or entire accounting work to the firm
- the types of work (number of services) firms do for different types of clients
- periodicity of service delivery
- level of predictability in the periodic amount of money client will pay in cas fees
- flexibility to charge for out of scope, finite, non-recurring projects
you might also want to take into consideration the pricing levels in your market, but let that not be the key guiding factor to set the dollar amounts of your cas packages.
based on the above-mentioned guiding principles, cas firms use the following methods to create the “packages” for their cas offerings.
- three levels, e.g., basic, intermediate, premium (or bronze, silver, gold)
- within each of these levels, firms define the periodicity of service delivery, e.g., basic can include monthly reporting whereas premium can consist of even daily or at least weekly service delivery
- level and depth of insights increases as the package level increases
- the expert-time “included” in package “consultation and advisory” phone calls/meetings increases as clients opt for higher-level packages
- firms define “scope of work” for each package, but cas firms also illustrate clear examples of “out of scope work.” such out of scope work can be charged on a fixed fee basis if it can be more or less well defined, or on an hourly basis if the complexity is not so easy to determine and the completion time expectations are aggressive. many firms call it the “one-time projects work.”
you will be tempted to base your dollar amounts per package based on the time your firm takes to complete an estimated, average volume of work in each of the three levels of your cas packages. but you will need to resist the temptation to do so. it is because you may not have yet fully optimized your cas processes and technology stack. in other words, your firm’s inefficiencies can increase your cost of producing cas work, and it is not fair to charge clients for such inefficiencies. remember, cas is about the usable outcomes you deliver to clients. time taken to produce the work is not an outcome that clients can use in any way. most clients will not even bother to recognize how you produce the work and how much time it takes to produce the work. for example, if you hire a new staff member and that person takes six months to become reasonably productive, you cannot and should not bill the cost of training that staff to the client. it is your firm’s cost of doing business. clients will and should pay only for the value of the outcomes they receive.
in the cas-fit assessment wizard that i created, i also crated sample cas packages and their pricing level estimates. this wizard is not meant to be a full-fledged consulting advise to help your firm work out your exact, customized cas pricing packages but just to give you a ready-made structure and guidance to get you started on your cas pricing analysis. because you bought this book, you can get this wizard for free. you can obtain this ms-excel based, easy-to-use wizard by submitting a request at https://forms.gle/juklwfavgihhtrjra.
alternatively, you can connect with me on linkedin and send me a private message there. my linkedin profile is here: https://www.linkedin.com/in/hitendrapatil/
cas pricing risk management
cas clients prefer the fixed-fee pricing method because it removes the uncertainty of how much they will pay every month, i.e., it reduces clients’ risk. but this method can create a risk for your firm because if you do not estimate the volume, and the expertise required to deliver the services to each client, you can jeopardize your cas profitability.
it is, therefore, an absolute necessity that you include a beginning or trial price and an adjusted price clause in your cas engagement letter and the discussion with the cas prospects. the best way and many cas firms figured this the hard way, is to ensure you minimize your cas pricing risk by getting the client to agree to:
- review the cas engagement after 60-90 days to relate the final cas pricing to the actual volume of work of each client.
- review the cas engagement every year to relate the growing or reducing volume of work based on the business volume trend of each client.
- you may include a clause that allows you to increase the price if the client’s work volume increases or decreases by, say, 10 percent or more.
prospects may balk at such clauses, and that should be your first alert about the client possibly being not a good fit for your higher level of cas package. but, it is also likely that prospects may not have experienced such clauses from their previous accountants, and hence it is essential to explain why you have that clause in the cas engagement letter.
if your prospect, who has been in business for more than a year, provides you (and ideally, you should insist) with past accounting databases, it will be possible for you to identify business transaction volume trends and the quantum thereof. in such as case, you can extrapolate the trend into the future and work out the likely volume of work you will do – and let such prospect know which of your cas packages will work the best for the prospect. give your reasoning to the prospect. in such cases, you can safely extend the “pricing revisit” clause to six months to a year, depending on the business volume trend. this method does not apply to start-up companies and those that are in business for less than a year because you cannot easily estimate their business growth.
most business owners who are reasonably confident about their business growth prospects will not haggle over this “pricing revisit” clause.
how to pitch your cas packages
once you have crystallized components and pricing of your cas packages, the next important thing is to pitch the packages correctly to your prospects. this is where an understanding of human behavior science comes into play. “psychological pricing” is a fascinating line of consumer research, and there are tons of insights about it available online. i am taking some of the methods that i figured accounting firms are already leveraging out there. let us see what those are.
show your highest priced cas level package first.
by design, your highest priced cas package will have the largest number of services (and outcomes) listed under it. by first showing this to the prospects, you are making them aware of what all your firm can deliver to them. many times, prospects forget to ask for some “good to have” services just because there are trying to move away from a current problem (pain point) on which they are focused. when they read all the service items listed, it creates an “anchoring effect,” i.e., a cognitive bias in which humans tend to rely too heavily on the first piece of information they see. the information that follows the first piece of information is invariably, subconsciously compared with the first piece of information. for cas packages, when you present the highest level package first, it can result in prospects feeling they will “lose” some benefits of the highest package if they opt-in for a lower package. this triggers another fundamental human need – the fear of loss, i.e., loss aversion need. several psychological experiments have proven that “losses loom larger than gains” (kahneman & tversky, 1979). fear of loss is considered about twice as powerful as the pleasure of gain. in other words, pitching “you will get these additional benefits if you purchase out higher cas package” is likely to be half as effective compared to pitching “if you purchase out next lower level of cas package, you will not have the benefit of these x number of actionable insights.”
the same anchoring effect also applies to the dollar price of your packages. if your prospect gets a “sticker-shock,” let that happen first in the pricing discussion. if the prospect feels it is too expensive, it could very well be because the prospect’s business does not need higher, more profound levels of intelligence or the prospect may not have understood the value of such business intelligence (if so, please explain how such intelligence converts into what types of practical business decisions the prospect makes). the “price tag” will create a pressure on the minds of such prospects who haven’t grown their businesses to the level of receiving the ultimate intelligence professional accountants can provide. the moment such a prospect reads the services listed in the next lower level of your cas packages and the price tag thereof, the prospect’s mind compares the price with the “anchor price.” because the next price level is lower than the anchor price, the price pressure gets released immediately, and the prospect becomes more open to explore the next cas package. at the same time, your lowest priced cas package can feel the “cheapest,” and more often than not, the prospect would want to avoid being seen as the one who made a “cheap choice.” it is, therefore, critically important that your intermediate package is as profitable as possible for your firm.
give your pricing “why.”
your prospects and clients are not professional accountants or even educated in accounting. they simply do not know what it takes to produce the levels of work required to deliver the intelligence and insights they see in your cas packages. because they have little knowledge of your actual costs, the investments you have made into acquiring the accounting expertise needed, and your profit margins. hence, they may perceive your pricing as “too expensive” or even “too low” (creating doubts about the quality of your work). these perceptions are based on external factors such as market price trends or what they have been paying until now. to overcome these external perceptions, you need to tell why your prices are what they are. it helps prospects correlate the cost and quality equation to make the pricing feel reasonable. some examples of your pricing why could be:
- “our <client industry> expert who will work on your account has helped x number of similar businesses in your industry based on our expert’s y number of years of experience in his/her career. about z percent of our clients in your industry have grown year on year by n percent.” or
- “a licensed cpa/bookkeeper/financial advisor will review your numbers every month to make sure you are getting the power of expertise what we have.” or
- “we guarantee 100 percent accuracy, and if we ever make any rarest of rare mistake, we will rectify the mistake at our cost and bear the statutory penalties, if any, because of our mistake.”
resist the urge to relate your price to your cost or the time it takes for you to produce the work. it is because a non-accountant cannot fathom why it should take so much time to produce the work and why it should cost so much.