{"id":97510,"date":"2022-05-15t12:00:41","date_gmt":"2022-05-15t16:00:41","guid":{"rendered":"\/\/www.g005e.com\/?p=97510"},"modified":"2022-12-22t00:40:14","modified_gmt":"2022-12-22t05:40:14","slug":"make-cas-money-in-the-middle","status":"publish","type":"post","link":"\/\/www.g005e.com\/2022\/05\/15\/make-cas-money-in-the-middle\/","title":{"rendered":"cas pricing: money in the middle"},"content":{"rendered":"
<\/a>consider your pricing tiers carefully.<\/strong><\/p>\n by hitendra patil<\/i> when your prospects shop for client accounting services, what they find out about pricing methods and trends defines their 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.<\/p>\n more: <\/b>how to cas: first, break bad habits<\/a> | how much cas profit per person?<\/a> | make sure your differentiation is truly different<\/a> | two tech approaches to cas<\/a> | show your priciest cas package first<\/a> | how cas drives virtual cfo billings<\/a> | the roi on identifying clients for cas<\/a> as they say, it\u2019s easier to ride the horse in the direction it\u2019s going. 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. 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:<\/p>\n 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.<\/p>\n based on the above-mentioned guiding principles, cas firms use the following methods to create the \u201cpackages\u201d for their cas offerings:<\/p>\n 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\u2019s 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<\/strong> 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\u2019s cost of doing business. clients will and should pay only for the value of the outcomes they receive.<\/p>\n in the cas-fit assessment wizard that i created, i also created sample cas packages and their pricing level estimates. this wizard is not meant to be full-fledged consulting advice 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. to obtain this ms excel-based, easy-to-use wizard, 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\/<\/a><\/p>\n 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\u2019 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.<\/p>\n 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 \u2013 and many cas firms figured this the hard way \u2013 is to ensure you minimize your cas pricing risk by getting the client to agree to:<\/p>\n 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.<\/p>\n 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 a case, you can extrapolate the trend into the future and work out the likely volume of work you will do \u2013 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 \u201cpricing revisit\u201d clause to six months to a year, depending on the business volume trend. this method does not apply to startup companies and those that are in business for less than a year because you cannot easily estimate their business growth.<\/p>\n most business owners who are reasonably confident about their business growth prospects will not haggle over this \u201cpricing revisit\u201d clause.<\/p>\n 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. \u201cpsychological pricing\u201d 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.<\/p>\n show your highest-priced cas level package first<\/strong><\/p>\n 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 \u201cgood to have\u201d services just because they 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 \u201canchoring effect,\u201d 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 \u201close\u201d some benefits of the highest package if they opt in for a lower package. this triggers another fundamental human need \u2013 the fear of loss, i.e., loss aversion need. several psychological experiments have proven that \u201closses loom larger than gains\u201d (kahneman & tversky, 1979). fear of loss is considered about twice as powerful as the pleasure of gain. in other words, pitching \u201cyou will get these additional benefits if you purchase our higher cas package\u201d is likely to be half as effective compared to pitching \u201cif you purchase our next lower level of cas package, you will not have the benefit of these x number of actionable insights.\u201d<\/p>\n the same anchoring effect also applies to the dollar price of your packages. if your prospect gets a \u201csticker shock,\u201d let that happen first in the pricing discussion. if the prospect feels it is too expensive, it could very well be because the prospect\u2019s 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\u2019t 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\u2019s mind compares the price with the \u201canchor price.\u201d 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 \u201ccheapest,\u201d and more often than not, the prospect would want to avoid being seen as the one who made a \u201ccheap choice.\u201d it is, therefore, critically important that your intermediate package is as profitable as possible for your firm.<\/p>\n give your pricing \u201cwhy\u201d<\/strong><\/p>\n your prospects and clients are not<\/strong> 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, they may perceive your pricing as \u201ctoo expensive\u201d or even \u201ctoo low\u201d (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<\/strong> 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:<\/p>\n 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.<\/p>\n we discussed that you need to explain the why <\/strong>of your cas pricing. a price is a measurable number. \u201cvalue\u201d of each of your cas components also needs to be reasonably measurable for your clients and prospects to understand the why. this is easier said than done, and you need to keep rewriting the value statements, testing them and revising them.<\/p>\n the best way to define the measurable value of each of your cas components is to state it from the client\u2019s perspective, i.e., which business decisions the client can make based on the information\/insight\/intelligence you provide in a given cas component, and under which circumstances. then state the measurable impact of such business decisions. e.g., <\/em>\u201con an average, we help our clients reduce money stuck in inventory by 11 percent, which in many cases results in lower overdraft interest costs by about 1.3 percent annually.\u201d without the numbers in your value statements, clients can feel you are pitching marketing fluff.<\/p>\n
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\n<\/p>\npackaging cas offering levels<\/h3>\n
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cas pricing risk management<\/h3>\n
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how to pitch your cas packages<\/h3>\n
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defining the measurable value from each cas component<\/h3>\n