5 Fundamentals of Value Pricing for getting a better price

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1 50 5 Fundamentals of Value Pricing for getting a better price By Mark Wickersham FCA Author of Effective Pricing for Accountants

2 Value pricing is transforming the way many accounting firms are now pricing their services and the profits they are making. The challenge is, it isn t easy. We have to understand the basic fundamentals and here are 5 of the most critical ones. 1st Pricing faceto-face You absolutely must have a price conversation face-to-face with your client (ideally in the same room, but online meetings using webcam are also very effective). The reason for this is very, very important. You have to involve the client in the process. You have to ask the client questions to understand what they want, and what they value. Until you know what they value you can t come up with a value-based price. And as part of that face-to-face meeting, once you fully understand their wants, needs and what constitutes value to them, you have to agree the price with them. Let me share with you the big mistake I always made, so you can avoid it. When I ran my own accounting firm, which I started back in 1996, I had many meetings with prospective clients. During the course of the meeting I would impress them with the things that I could do (tax planning ideas and business advice) then inevitably they asked the question, So how much will it cost? Panic would set in and I would say, I don t know, I ll have to go away and think about it. And so I would go away and create a written proposal and send it to them. 2

3 That is the worse thing you can possibly do. When you send your price proposal through the post or via you are out of control of the process. It is almost certain they will immediately skip to the section showing the price. And they ll make an instant judgement (usually, that s expensive ) based on that price, without reading the rest of the proposal. So you have to keep control of the process by revealing price in the meeting so you can deal with any price objections and make sure you fully paint a picture of the value. So how do you do that? You need a system. I ll cover that in Fundamental 5 below. But first we have to understand a few other fundamentals. 2nd Certainty and choice There are 2 things that we want whenever we buy anything. The first thing that we want is we want certainty we want to know exactly what the price is going to be. That s the trouble with the old-fashioned way of pricing in professional service firms. We price based on the hour; we have an hourly rate. So when we say to the client, It will cost you 100 per hour, the inevitable question they will ask is, How long is it going to take? That s because they want to know exactly what the price is going to be so they can plan and budget. It s why increasingly firms of accountants and bookkeepers are moving away from time-based billing and starting to move towards giving fixed prices. You absolutely must give certainty in your pricing. The second thing customers want when they buy anything is choice they want to be in control of the buying process. 3

4 For example, when you buy an iphone, Apple gives you a choice of model (you can currently buy the 5s, the 6 or the 6s). You can choose the colour. You can choose a larger size with the 6 and 6s. You can choose the amount of storage space. Customers like choice. We don t all want to be treated the same. How do you give your clients choice? Let s look at that next. 3rd Menu pricing No two clients place exactly the same value on any given service. I said in the last section that many firms of accountants and bookkeepers are moving towards fixed pricing. Although this is fairer on your client (it gives them certainty), it s not fair on you. If you give people a single fixed price I can guarantee that is always the wrong price. Let me explain. Everybody values things differently. Let me give you an example to illustrate. Imagine someone walks into your office because they want to buy your tax return service. They ask, How much? You say, 500. The number they will have in their mind is almost certainly not 500. The probability of the number they are prepared and willing to pay being that exact number is pretty much zero. The number they will have in mind is either bigger or smaller. If it s a smaller number your price is too high, so you lose out they don t buy. If their number is a bigger number, great, they will buy from you. However, you still lose out because they would have paid you more money. Fixed pricing is a crazy way of pricing. 4

5 You have to price based on value and one of the ways that we can do that is by using what I call menu pricing. This is where you give people a choice of 3 packages. This allows you to tap into what I call The Magic of Three. When you offer your client a choice from 3 carefully constructed packages each one more valuable and expensive than the previous you will get a better price. Some clients will choose to buy a bigger bundle, based on their assessment of the value of each one. Over the last 16 years teaching accountants many have told me just mastering this one fundamental results in their average prices being 20% higher. When you master this, your profits will typically increase by about 50%. 4th Get paid Pricing is not only about agreeing the price. You also have to get paid. Your payment terms are an important part of the pricing process. In fact, you can use payment terms creatively to help you get a better price. But the starting point is to get paid. It staggers me how many accountants and bookkeepers have debtors on their own balance sheet. They give credit and that s crazy! We are in the service industry nobody else in the service industry gives credit. If you go to the dentist for a check up, before you leave you go to reception, book your next appointment and pay the bill. If you take your car for a servicing, afterward you pay the bill before you get given your keys. And in some services, you would even pay in advance. For example, we are used to now paying for our utility bills and mobile phone contracts by monthly Direct Debit. 5

6 So why do we give credit! We re very lucky in the UK. We can use Direct Debit. It s by far the best way of paying for professional services. And the best solution is GoCardless. It s amazing. So simple to use (for both you and your clients) and very inexpensive. I ve been using GoCardless for nearly two years. Every UK accountant on my mentoring programme pays me using GoCardless. It s so simple. Not only that, almost all of those firms I work with now use GoCardless to get paid monthly in advance. Here are two examples: We have sort of managed to achieve no debtors, although our listing shows about 5k. In saying that the listing represents a number of clients to whom we issued monthly invoices for 2015/16 services but they haven t signed up to GoCardless just yet; but then again we have not actually done any of the work so far! So they are not real debtors. And we will now need full payment for the services once we hit 5th April and they will be asked to sign up to GoCardless for 2016/17 (to start paying in advance). Kieran Phelan, K Phelan & Co, 4 February 2016 With one exception all of my limited company clients pay monthly by Direct Debit through GoCardless. Patrick Cracroft-Brennan, Bambury & Co, 4 February 2016 At the end of the day, if you have cash tied up in debtors, that s a choice. Kieran and Patrick have now made a different choice. It s transformed their cash flow. 6

7 5th Systemise your pricing Do you remember Fundamental 1? You must have a face-to-face price conversation. So how do you do that? You need pricing systems and there are essentially 2 systems you need. System number 1 You need a professional looking brochure for each of your services. There are two reasons for that: 1. Packaging is one of the 4Ps of marketing when you package your services with a professional brochure, it influences people s perception of the quality. And when they perceive that your quality is higher, they will expect to pay a higher price. I 2. Your system your brochure becomes your structure, your agenda, your aide memoire, to remind you what to say so that you fully explain the benefit (value) to your client of your solution. With this system the client will better understand the value and will be ready to buy. The only thing left is to agree the price. That s your second system System number 2 The problem with pricing accounting, bookkeeping and tax systems is every client is different. There are so many variables. Some clients are big, some are small. Some want extra added value, others just the compliance. Some are limited companies, some are sole traders. Some have awful books and records. They re all different, they all want different things and they all value your services differently. The only way to give everyone a unique price, in a way which maximises your price, is software. Pricing software has a number of big benefits: When software reveals the price and shows how it is built up you have complete transparency over price and increased credibility. The client is less inclined to 7

8 negotiate compared with the situation where they perceive you ve plucked a figure out of the air. Using software in front of the client involves them in the pricing process. When you involve the client in the process the client feels in control. When they re in control they end up spending more money. Apple do this very, very effectively when you buy a Mac computer from their online store. If the price is too high, and the client can t afford it, rather than you losing out on the sale you simply use the software to change the package (and the price). You can keep changing the package and changing the price until you end up with a price the client can afford and is willing to pay. This significantly increases the number of times you end a meeting having made a confirmed sale (and at higher prices) Summary Too often accounting professional undervalue themselves and that leads to low prices. That in turn leads to a profession where too many accountants are working too many hours for not enough reward. That needs to change. To become better at pricing we need to be confident. Confidence comes from having the knowledge plus the tools and systems. When the 5 fundamentals become fully understood and ingrained you will price with confidence. And when you price with confidence you will get better clients, better results and have more fun. 8

9 GoCardless has teamed up with Mark Wickersham to support accountancy professionals take control of their payments and get paid the right amount at the right time. GoCardless is the UK s leading Direct Debit provider, offering a simple way to take recurring payments. Sign up in just 5 minutes and join 13,000 other merchants processing over 1 billion each year. About the author Mark Wickersham FCA Mark Wickersham Chartered Accounted, public speaker and #1 best-selling author is known as the most sought after profit improvement expert in the accounting community. Mark is also a widely published author on practice issues. In May 2011 his book, Effective Pricing for Accountants, was a number 1 Amazon bestseller. You can get a free copy of his ebook, How to price accountancy services for maximum profit here and download a special VIP voucher code where you can get a free version of his Cloud Pricing software. 9