Value pricing

Value pricing

Didn't find your answer?

I've just read a Xero flyer in this topic. Not very informative for me as I've reward loads of this stuff before.

I can see why the theory of value pricing is so attractive. Get paid based on the value perceived by your client. This gives higher pricing for similar work for clients who value it more. This can if you wish lead to cutting on certain clients/work whilst maintaining profits.

But if you practice is largely compliance based, in a geographical area which is mega price sensitive, and lots of clients don't see ANY value in compliance work (rather see it as a necessary and costly evil), how does value pricing work?

Or is it, as I suspect in such circumstances, a dead duck?

Not looking for an in depth debate on this topic, just the practicalities. How do I price what my clients perception of value is? Ask them what they want to pay?

The more I type, the less I believe the hype! Lol

Replies (129)

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By andy.partridge
16th Apr 2014 18:07

This is the type of question that gets 50+ responses and then taken down by the moderators.

Good luck! 

Thanks (9)
Kieran Phelan
By KPEM online
16th Apr 2014 18:13

Taken down?
Why? Just too many responses getting a bit cranky? Lol

Hopefully not, I'd really love a constructive, practical response!!

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By mrme89
16th Apr 2014 19:13

Bob??

If you're there, knock on the table 3 times.

Sorry, just saw the words value pricing.

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Replying to lionofludesch:
Locutus of Borg
By Locutus
17th Apr 2014 02:07

Ahh ... Bob Harper

mrme89 wrote:
Bob?? If you're there, knock on the table 3 times. Sorry, just saw the words value pricing.

For anyone that doesn't remember, around 2 years ago there was a legendary thread about value pricing started by Bob Harper.

I swear it must have reached over 500 comments, before it eventually got pulled by the moderators.

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Replying to Tax Dragon:
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By chatman
17th Apr 2014 07:45

The "marketing" man

Locutus wrote:
For anyone that doesn't remember, around 2 years ago there was a legendary thread about value pricing started by Bob Harper.

I swear it must have reached over 500 comments, before it eventually got pulled by the moderators.

Haha. I think I remember that thread. I didn't know it got pulled, but I can imagine why.

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Teignmouth
By Paul Scholes
16th Apr 2014 19:12

You still use value pricing it's just.....

boring.

Hi Sparkey999, a can of beans is a can of beans and so both Tescos & Aldi charge say 24p a can for their own brand and they have "valued" that as being acceptable to their customers or maybe as being the best they can get this week.

Waitrose however charge 35p because, presumably, their customers are attracted to visit them for other higher quality (and fashionable) stuff and, whilst in store smacking their lips at the wines & cheeses (and lovely veg), are happy to pay 35p for something they are pretty sure they can get far cheaper up the road.

The large compliance based firm is your Aldi, nothing wrong with that, they stack 'em high but may only have a few % of buffer on their value pricing.  My firm, partly through choice (from boredom with compliance) and partly because of luck of location, doesn't want to be in that market, so whilst I might get my first bite by offering compliance stuff (at low Sainsburys prices) my target is clients who want more than that and where their pricing margin between cheap & expensive is far greater.

Having valued per client now for 6 years there really is no mystery to it it just takes a bit of imagination and intuition over what the client is looking at.  

I've said it many times though, I might work for the same clients and decide to switch to a menu pricing structure or even, god forbid, a time based billing basis, and chances are I'd end up with similar core revenue to what I achieve at the moment.  I chose to use value pricing because it makes sense to me to include the client in the equation, I've tried everything else, it suits how I work and, on the money side, has provided some spectacular opportunities to earn extra sums from several clients that I'm sure I'd not have done had I still been using time sheets or price lists.

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Kieran Phelan
By KPEM online
16th Apr 2014 19:23

@Paul
Thanks for that Paul. I get the concept and I do want to make it work, my question is how? Let's say I have a new prospect. Initially they want company formation, annual accounts/tax/returns, VAT reg, payroll.

But they also want quarterly reviews, analytical reports, moving cash flow forecasts. I introduce Xero for them and other spreadsheet tools to get numbers for what hey need, to assess their quarterly results, benchmark against industry average etc.

The compliance stuff can be menu priced. What is the value price of the rest? How is it computed?

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By GuestXXX
17th Mar 2015 16:56

.

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Man of Kent
By Kent accountant
16th Apr 2014 23:00

Not ahh - arrrgggghhhhh!

Picking up on Paul's comment I suppose to some extent quite a few of us use value pricing without really thinking about it.

You know - charging one client £900 for a set of accounts and another £1,500 for essentially the same work. You might say the difference is because one client can afford to pay more - but isn't that value pricing?

I'll get my coat...

 

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Glenn Martin
By Glenn Martin
17th Apr 2014 00:34

I am starting to be converted.
I was never a fan of value pricing bit I am starting to come around to it. I think it is difficult with compliance work as I find it very competitive where I am located. I do have some like Kent accountant where I have a similar amount of input but earn 1800 for 1 and only 1250 for the other.

I think value pricing is more likely to pay dividends for specific one off tasks. I was approached by a non client a few weeks ago who had started a £2million redevelopment project and was 2 months into it when he private funder pulled out. So the guy had to raise the money from his bank like yesterday.

He wanted a business plan and finance proposal putting together for a presentation on the following Monday morning (it was Wednesday when he called me). I am assuming his existing accountant couldn't have dealt with it in the timescale. I agreed to do it for a % of the finance I could raise. He accepted as I was his only option, I dropped everything worked on it night and day, finishing it at 2.00am on the Sunday night, for submission to bank the following day. He got his money and that will be my best fee this year. I am also doing some CA claims which my fee is based on a % of tax saved.

Paul Scholes makes a good point about pricing jobs but I find can be difficult at a first meeting to gauge what someone values your service at, and your first fee is what future costs are based on so it can be harder to uplift fees beyond inflation in future years.

For compliance work I have a rough menu for basic compliance work I apply in most cases but try and get better fees where I can, say if client is from a lot bigger firm so is used to higher fees so you can charge less than them but do a better job.

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Kieran Phelan
By KPEM online
17th Apr 2014 06:35

@glenzy
Thanks for that and all of the responses are what I expected. I subscribe to the theory of value pricing but the practicalities are difficult for normal services in competitive market.

I am drawing up menu pricing at the moment. Can I ask how you went about this in terms of setting your prices or range of prices?

For example for payroll do you price per payslip/FPS?

For accounts prep, is it based on turnover or some other marker? How do you factor in hours or hourly rates (perish the thought Lol). What about quality/type of records? I.e. One client provides paper bank statements and cheque stubs, another provides a csv export of bank statements, another proves Xero reconciled bank account - all 3 have turnover of say £250k, and say 2000 bank transactions? Or do you, as I am thinking if doing, simply insist on electronic format as a minimum for import to VT or Xero cashbook?

All pointers greatly appreciated.

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By chatman
17th Apr 2014 07:06

My Pricing Guidelines

I insist on electronic records, eg an Excel or csv file with one complete transaction per line, but Excel/csv would cost more than say, if the client used Xero or Clear Books. I always ask if the prospect has internet banking, and if they want to provide paper bank statements, I would add on an extra fee per bank statement line. Paper purchase invoices/receipts would be charged extra and would go straight to Receipt Bank. If I had to go through cheque stubs, I might charge by the hour for that part of the work. I find the writing on cheque stubs is often illegible or insufficient so you have to go back to the client with queries anyway.

For payroll, most people on AWeb seem to price per payslip, with a higher rate for less frequent pay runs, and a minimum annual fee.

I prefer to base the fee on the number of transactions than the turnover, as it is a better guide to the amount of work involved. You can get the client to estimate the numbers of sales and purchase invoices and make clear that the quote is based on that assumption.

Having said all that, I still hate quoting.

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Glenn Martin
By Glenn Martin
17th Apr 2014 10:43

menu pricing

For pricing I usually work on the following:

Payroll = fixed fee per pay run (say £15) + Price per payslip.

Accounts - estimate of how many hours per year it will take me to do timed by notional hourly rate then flexed for quality of paperwork.

I also do a bit consultancy/part time FD work which is either charged at a day rate or retainer based on a fixed fee for a certain number of days/hours per month.

 

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Teignmouth
By Paul Scholes
17th Apr 2014 14:29

@ Sparkey999

Hi - just to follow up on your earlier point about pricing large, new or complex work.  I always break this down giving them quotes for the urgent start up stuff and maybe a range of fees for the other stuff.  If there's a lot of unknowns I also say that I'll do the first 3 or 6 months for £X then we can have a review.

Setup charges are one element that have never caused problems, clients accept them and know they will be one-offs so I quote them as high as I can to give me a buffer should the other stuff prove to be more onerous than anticipated.  A good example of this is in the Cloud Accounting stuff so I might charge £300 to £400 to set it up then quote £200 a quarter for the first 6 months to cover hand holding, then down to maybe £100 per quarter thereafter.

This loads the price up front and helps me whilst giving the client peace of mind that prices will go down. 

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Replying to drdes:
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By zarathustra
17th Apr 2014 14:50

do you bill software on top?

Paul Scholes wrote:

 A good example of this is in the Cloud Accounting stuff so I might charge £300 to £400 to set it up then quote £200 a quarter for the first 6 months to cover hand holding, then down to maybe £100 per quarter thereafter.

This loads the price up front and helps me whilst giving the client peace of mind that prices will go down. 

I presume that those prices are on top of the subscription to the software.
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Teignmouth
By Paul Scholes
17th Apr 2014 15:59

Clients who can afford more..

@KA - you make a point that is quiet often raised as a negative aspect of pricing per client ie:

"You know - charging one client £900 for a set of accounts and another £1,500 for essentially the same work. You might say the difference is because one client can afford to pay more - but isn't that value pricing?"

If a firm approaches it on this basis then they are not acting "in the spirit" of the topic and certainly not in the best interest of their clients.  For me the reason for differentiating a price between client A & B is the same as millions of other businesses, it depends on the urgency, importance and intrinsic value of the goods or service which, in the majority of cases, comes down to why you or I go out and buy something, ie we can't make the goods or do the job ourselves.

So at £200, some of my clients are £10 away from saying "No I'll do my own tax return" whereas others haven't got a clue, and wouldn't want to know, how to do one, so are over the moon with £300.  My choice is whether I want client A and, looking at the bigger picture, if you cut down the cheap compliance stuff as much as possible, and actually get the client to do as much of it for themselves, then you end up with a client base where you are doing the sort of work you should be doing, at a price to match.

Returning to ripping clients off, in reality how many of us would get away with charging on the basis of what the client could afford, whichever method we use?  In the reality of my client base for example the ones who can afford to pay me 10 times what I charge them, have usually got to where they are by not employing people who rip them off, my wealthiest clients tend to be the ones who are more likely to query even a £20 increase, in fact it's the least well off clients who tend to just agree and pay up.

 

 

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Teignmouth
By Paul Scholes
17th Apr 2014 16:06

Software on top?

@Zara, I only charge one of my Cloud accounting clients, on top of software cost and that's for Xero with multi-currency, it's too expensive for me to absorb, plus the client is one of those who could afford to pay me three times more but is very fee conscious.  However he did pay me £800 to set it up and a lot more to support his staff in the first 6 months, plus, the icing on the cake, it was a Sage conversion.  

For all my other clients the Cloud access is my cost.  I spend thousands a year on Iris, I don't apportion that out per client and so don't see why other software is any different, it's all part of the service.

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Replying to tom123:
Red Leader
By Red Leader
17th Apr 2014 16:50

@OP

Value pricing is only appropriate in limited circumstances. Glennzy has given a couple of great examples where it can be appropriate. Value pricing is a subset of pricing, it doesn't provide a solution for all circumstances.

For the compliance stuff, it's roughly based on what your "standard" price per hour is, converted to a fixed fee. As you learn how long a particular job actually takes for a specific client, you adjust the fixed fee as you go along each year with that client.

On the other hand .... you could "value price" advice work way up to the skies and price the compliance work for free. Actually that last bit was a wind up - a bit of nostalgia for us old AW hands.

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Replying to NH:
Red Leader
By Red Leader
28th Apr 2014 16:31

nostalgia

Red Leader wrote:

On the other hand .... you could "value price" advice work way up to the skies and price the compliance work for free. Actually that last bit was a wind up - a bit of nostalgia for us old AW hands.

Despite my much earlier posting above, I don't think I'm responsible for what's happened now on this thread. I honestly didn't realise that nostalgia would come back to bite us.

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Replying to tom123:
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By zarathustra
18th Apr 2014 16:10

100 Gbp per quarter
Then that's not even £15 per month after you strip out the software cost

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By chatman
17th Apr 2014 18:41

Ripping off?

Maybe KA is giving his poorer clients a discount, not ripping off the richer ones.

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Teignmouth
By Paul Scholes
19th Apr 2014 09:36

@zarathustra

If I'm charging £400 pa to keep an eye on a client keeping their books and the software costs me £100 then I'm charging £300 not £180, besides which I wasn't charging them anything whilst they kept their books on spreadsheet, all I'm doing, longer term is switching the fees from year end stuff to regular stuff, their total fees (and the majority are quoted in total pa) don't vary dramatically.

If the client needs me to do more than login every 2-3 months then I increase the fee.  In one case, even though the client is an accountant, I keep the books and enter the dozen entries once a quarter and he's happy with £2K+ pa all in.

In each case, as I say, it depends on how much the client is capable of doing for themselves and how much they appreciate using Cloud accounting.  In every case there has been a significant improvement in "the experience" of bookkeeping and year end stuff and so even keeping the overall fees the same is good for them and me and for the larger clients enables us to concentrate on other aspects of their business.

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Replying to Moo:
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By zarathustra
19th Apr 2014 10:06

That makes sense
That makes perfect sense Paul but where do you get a cloud package for £100 pa. does it have bank feeds etc?

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By User deleted
19th Apr 2014 10:46

Clearbooks and Quickbooks online ...

... starts at £9pm = £108pa!

QBO has a 20% first year discount taking it to £7.20pm = £86.40.

SageOne starts at £5 pm = £60pa!!

Not sure about bank feeds, SAGE one certainly lets you import bank statements and Quickbooks essentials certainly has bank feeds for most banks and import facilities for the rest.

Obviously all prices exclude VAT so if you are not registered they will cost more.

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Man of Kent
By Kent accountant
19th Apr 2014 12:10

Rip off?

"...charging one client £900 for a set of accounts and another £1,500 for essentially the same work. You might say the difference is because one client can afford to pay more - but isn't that value pricing?..."

Is it a rip off, a two tiered pricing system, value pricing or perhaps a mish-mash of everything?

How about the situation where you have a prospect and think I'm not sure I really want this work so I'll quote higher than the norm.

The prospect then says yes without pausing.

Is that a rip off or has the prospect seen the value in your proposal?

Or the prospect who is struggling so you quote £900, thinking when things improve you can bump the price up or maybe you're just too damn soft?

 

So what am I getting at?

Prices based on an estimate of how long the work will take and then flexed to take account of:

 - what the prospect is like (I don like to enjoy working with clients)

 - quality of records

 - how busy I am

 - what mood I'm in/what day of the week it is/what the weather's like

So on one day £900, the next £1,500...

A rip off?

Don't think so...a pricing method borne out of experience - what works and what doesn't.

...I know I'm more expensive than some and cheaper than others. I'm fairly happy with my pricing, of course there's always the odd one where I get it wrong.

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Teignmouth
By Paul Scholes
19th Apr 2014 14:40

KA you forget honesty

If a prospect came to me and I didn't want to act for them, I'd tell them and wouldn't act, it wouldn't occur to me to quote them OTT and not say anything.  

I turned away a client last month on precisely this basis.  I'd acted for them for 6 months and they were a pain, I could easily have quoted and got £3K pa, maybe £1K over what I would have charged a "good" client but I didn't want to and told them to look elsewhere.  Had I wanted to give them a (5th) chance then yes, I would have quoted £3K but would have explained that this was because of the grief I was expecting but would be OK to review in say 6 months if things had got better.  It's then up to them isn't it?

Similarly if a prospect arrives and can't afford my normal quote BUT is one in which I can see potential and I want to act for them then I tell them what I would want to charge but agree a reduced price for year one (and even two), with the proviso that if their business can wear it I'd like to increase it to my preferred rate next year.

Both situations have arisen many times in my business and if you are honest and the client knows the full picture, where's the problem?  In your examples and in many others regularly brought up you are imagining dishonest, deceptive or plain greedy accountants and they will operate and rip people off whether they use time sheets or quote for work up front.

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By David Winch
22nd Apr 2014 12:50

A Couple Of Possible Misconceptions

I won't weigh in and merely repeat the arguments in favour of value-based pricing, except to say it's the best pricing strategy I know for achieving win-win and making both parties extremely happy.

I would though, just like to nip a couple of possible misconceptions in the bud.

Value-based pricing is not about charging the maximum the client is prepared to pay.  It's about charging a fraction of what the client sees it is worth to them and their business of having the issues dealt with.  And about checking that the price allows you to do what you do at an acceptable profit.Neither is value-based pricing about charging what clients can afford to pay.  If you save a £1 million company £200,000 and you save a £10 million company £20,000 it is reasonable and fair that the smaller company should pay in the region of ten times more for having derived ten times more value.

If anyone is having difficulty getting their heads around this stuff, can I suggest you go to my website, download my free material and join my mailing list to receive free regular pricing, selling and marketing advice.

David Winch www.davidwinch.co.uk

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Replying to gainsborough:
Man of Kent
By Kent accountant
22nd Apr 2014 12:57

What about no tax savings?

David Winch wrote:

I won't weigh in and merely repeat the arguments in favour of value-based pricing, except to say it's the best pricing strategy I know for achieving win-win and making both parties extremely happy.

I would though, just like to nip a couple of possible misconceptions in the bud.

Value-based pricing is not about charging the maximum the client is prepared to pay.  It's about charging a fraction of what the client sees it is worth to them and their business of having the issues dealt with.  And about checking that the price allows you to do what you do at an acceptable profit.Neither is value-based pricing about charging what clients can afford to pay.  If you save a £1 million company £200,000 and you save a £10 million company £20,000 it is reasonable and fair that the smaller company should pay in the region of ten times more for having derived ten times more value.

If anyone is having difficulty getting their heads around this stuff, can I suggest you go to my website, download my free material and join my mailing list to receive free regular pricing, selling and marketing advice.

Does that mean you get paid nothing using value pricing?

...and how exactly do identify that you have saved £'000 in tax?

Is that down to you only or something any accountant with half a brain could have done?

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Replying to elliottchandler:
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By User deleted
22nd Apr 2014 13:34

Exactly ...

Kent accountant wrote:

David Winch wrote:

I won't weigh in and merely repeat the arguments in favour of value-based pricing, except to say it's the best pricing strategy I know for achieving win-win and making both parties extremely happy.

I would though, just like to nip a couple of possible misconceptions in the bud.

Value-based pricing is not about charging the maximum the client is prepared to pay.  It's about charging a fraction of what the client sees it is worth to them and their business of having the issues dealt with.  And about checking that the price allows you to do what you do at an acceptable profit.Neither is value-based pricing about charging what clients can afford to pay.  If you save a £1 million company £200,000 and you save a £10 million company £20,000 it is reasonable and fair that the smaller company should pay in the region of ten times more for having derived ten times more value.

If anyone is having difficulty getting their heads around this stuff, can I suggest you go to my website, download my free material and join my mailing list to receive free regular pricing, selling and marketing advice.

Does that mean you get paid nothing using value pricing?

...and how exactly do identify that you have saved £'000 in tax?

Is that down to you only or something any accountant with half a brain could have done?

... it always seems to me like the emperors new clothes - I guarantee I can save my clients £1000 per year, so should I charge them £250 for filing their tax return before 31st January rather than after 31st July?

 

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Teignmouth
By Paul Scholes
22nd Apr 2014 13:39

2. is a poor example

Whilst there may the possibility of carrying out a piece of research or employing specialist knowledge to reduce tax and to agree a fee based around the level of saving (eg Capital Allowances on integral features) these are rare and I'd never value my services based on what tax I could save a client, after all if, by being honest, I upped their tax bill I'd not like the idea of having to give them money :-)

David's 1st example is the main way to approach it however, unlike practically every other method used to price a piece of work or a service, it relies on applying intuition, judgment and discussion with the client in front of you and so anyone expecting spreadsheets, lists or formulae will remain confused and/or disappointed.

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Man of Kent
By Kent accountant
22nd Apr 2014 13:51

Ok, I can't resist.

No one is going to use value pricing if it means charging the client less - what's the value (to the accountant) in that?

...so, dare I say, it's a means to 'ripping the client off'...

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By User deleted
22nd Apr 2014 14:09

#2 is OK ...

... until director A and director B meet at your golf day and start talking!

Here's a thought, lets use value pricing for wage settlements, starting with the likes of teachers, police and doctors. etc.

I think £150k pa for a doctor is a price worth paying but I would expect at least one week of night and weekend working per month for that!

May be we should calculate MP's pay on a value pricing model, that will bring the government spending down, and better still, use it for our EU budget contribution.

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Replying to lionofludesch:
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By David Winch
22nd Apr 2014 14:47

I Don't Run Golf Days

Old Greying Accountant wrote:

... until director A and director B meet at your golf day and start talking!

But what if the two Directors sat next to each other on an EasyJet flight?

Why would either have a problem with charging/paying different prices for different value?

Kent accountant wrote:

Does that mean you get paid nothing using value pricing?

...and how exactly do identify that you have saved £'000 in tax?

Is that down to you only or something any accountant with half a brain could have done?

You'd only get paid nothing if you created no value for the client.  And that's precisely what you'd deserve.

You don't identify that you have saved £'000 in tax. During the selling process, you'd help the client to identify that if their tax affairs were run better, it would mean a reduction of £'000. Then they can tell you how much tax you can help them save.

You can then quote a fixed price based on their estimate, they like it, and then you go and do what you know you're good at doing.

 

 

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Replying to lionofludesch:
Man of Kent
By Kent accountant
22nd Apr 2014 14:57

OK

David Winch wrote:

You'd only get paid nothing if you created no value for the client.  And that's precisely what you'd deserve.

You don't identify that you have saved £'000 in tax. During the selling process, you'd help the client to identify that if their tax affairs were run better, it would mean a reduction of £'000. Then they can tell you how much tax you can help them save.

You can then quote a fixed price based on their estimate, they like it, and then you go and do what you know you're good at doing.

So if their tax affairs are already very well managed and I can't identify any tax savings do I offer to do it for free?

Is that all I'd deserve for preparing accurate accounts and tax returns whilst keeping tax liabilities to a (legal) minimum. 

All the while doing the work with a smile on my face and exuding a cheery disposition, and possibly whistling a happy tune? 

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Teignmouth
By Paul Scholes
23rd Apr 2014 14:24

PS

On the question of clients A & B meeting up and discussing respective fees, it's happened and was no problem, again (and again and again) if you are up front and discuss what and why you are doing things with the client and the price and they agree it, it makes not a blind bit of difference to me whether they meet another similar client or an identical business in Scotland, with a local accountant charging significantly more/less than me.

I don't just pick numbers out the air, client A may end up with the same accounts and tax return to client B but the journey to each may be completely different.  Similarly client A may need me to go through each item in fine detail whereas client B always just signs without question.

Unlike others it seems I don't work for robots.

KA joked that VP would never bring down a fee, of course it can, another case of imagination & reality check needed I think.  

Again (and again and again) my clients are not robots the level of service and advice I give a client in year one is likely to be different to year two etc.  Obviously if you are the sort of accountant who perpetrates the mystery & dark arts of bookkeeping or tax, permanently keeping the client in the dark, then they will never learn and you can carry on deceiving them and ripping them off.  

These days there is little mystery to it all and my clients learn stuff and therefore don't need my help on it in future, so if all else stays the same, my fees will fall.....duh.

 

 

 

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By David Winch
24th Apr 2014 18:04

Value To The Accountant

Dandelion wrote:

... one point seems to constantly be ignored by the proponents of it. They base their price on the value to the client, but, what about the value of the client to the accountant? 

... Surely the first question we should always ask when discussing fee is what is the value of this client to me.

The value of the client to you is always considered.

In each individual case you need to estimate your cost of delivery to check your fee will be profitable for you before you make your proposal.  If it appears not to be, you have three choices:

Probe for more perceived value to allow you to increase your feeThink creatively about how you might deliver a great result more frugallyWalk away (politely)

Hint:- 1. and 2. can be done in parallel.

At a general level, knowing the average lifetime value of a client is the only way you can know how much is worth investing in getting another one.

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By Dan Izzard
24th Apr 2014 15:53

Thread moderated (heavily)

I have taken the time to remove all comments that do not relate the the original question. 

Please keep the site rules in mind and use the reporting process where appropriate. Any further references to moderated comments on the thread or posts that do not relate to the topic in the OP's question may cause the closure of the comments function, or the thread itself. 

Thanking you.

 

Thanks (3)
Teignmouth
By Paul Scholes
25th Apr 2014 11:40

@Dandelion

That's a new one on me, my prime considerations in working with any client is whether I am willing and able to work for them AND whether it's of financial benefit to me.  These days also (and I wished I'd always felt like this) it's a case of whether I want a relationship with the persons involved.  I've had a Google but can't see any references to "Value pricing - but ignore what you want"

Where you may be getting confused is that, traditionally, pricing client work always revolved  around what the accountant did, in particular (in the bad old days), looking at how long the work would take the accountant and grabbing a £ per hour out the air to (perhaps?) match with the complexity of the work or the expertise needed.

This took no account of what the client thought or wanted (or more importantly whether they could do the work), however, even in those days, the final figure presented by the time ledger was regularly ignored when the partner thought "the client will never agree to that" or "the client will pay a lot more than that".  This was the clumsy infancy of value pricing.

These "accountant centric" considerations are still there in the billing rules of the regulatory bodies but 10ish years ago I'd guess they added the importance, urgency and value to the client (my words) to give an holistic approach

These days an accountant based view is still the basis of many menu driven approaches.  I visited a company a few weeks back that prepare 98,000 personal tax returns (yes 98,000) in their case it would be a nightmare to use VP per relationship but, fortunately, I'm not in that market.

My approach and that of David above are not the same.  I think far more about whether I want to act for the client, on their approach to their finances and business and whether I will get AND give some satisfaction in working for them.

Also, unless I have to pay a sub-contractor to do the work, I wouldn't know how to judge what a client "costs" me.  I prepare annual quotes up front for every client for all the anticipated work and contact they will need, which gives me my minimum annual fees and I then compare that to my costs to see what I'm likely to end up with.  In my experience new work or clients will then add maybe 15% to 25% to that figure. If I'm happy with all that the quotes leave the building.

 

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Teignmouth
By Paul Scholes
25th Apr 2014 11:43

@Dan

Many thanks

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By User deleted
25th Apr 2014 11:50

Value pricing

Surely the whole process could be described as value pricing regardless? I decide how much I want to receive from a certain client to do their work = the value to me. And the client decides if they're prepared to the fee that I quote for the work they want doing = the value to them. If they don't think it's worth the fee then they can go elsewhere. And if I don't think that I can charge them enough to recompense me for dealing with them (when they're a pain in the proverbial) then I decline. 

I think sometimes we over-complicate matters by thinking too hard. Sometimes simple is more efficient.

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By David Winch
25th Apr 2014 15:53

@Paul Scholes

Our approaches may be closer than you indicate, Paul.

"Unprofitable" is only one of the reasons to walk away from a piece of work.  In the selling process that I use and advocate, discovering whether you can work together is a vital early step.  Finding out that you wouldn't want to work with someone before you spend time finding something to work on, saves both of you a lot of time.

Estimating what it would cost me to deliver a result doesn't usually include any element of charging for my time.  I only include the tangible costs, and even then I never "charge for" anything.  It's part of the package price.  I do though check that the gross profit will be sufficient to cover all my business overheads, including what I need to draw to pay my own bills and live as I wish to live.

And I agree that 98,000 value conversations would be impossible.  At that level, I'd say they're in a commodity market, and commodity rules will apply.

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By Bob Harper
26th Apr 2014 14:11

Easy and hard

@David Winch - your answers are excellent.

@Andy.Partridge – you predicted 50+ comments and you are not there yet I thought I’d help.

@MrMe89 – people are thanking you for inviting me so I thought I'd say a word or two.

@Seconhand_22 – your post has nothing to do with Value Pricing (VP) but ethics and VP is the most ethical pricing model.

@Sparkey – you need to understand a few fundamentals:

VP is not easy (if you are looking for higher prices)VP introduces a new business modelVP requires a new perspectiveVP is not about pricing the “job” – your question about how to VP start from the wrong positionVP is not about high prices but the right price, you can VP low value serviceVP is not just about offering a fixed price and trying to make a profit from how long the work will takeVP means getting rid of timesheets and using other management systemsVP is not about tricking people into paying more for the same service

VP is easy and if your practice is largely compliance based, in a geographical area which is mega price sensitive, and lots of clients don't see ANY value in compliance work (rather see it as a necessary and costly evil).

Having said that, accountants are 100% responsible for letting the market perceive them as a commodity. This is lazy marketing and it will cost them dearly.

The truth is you probably need to reduce your prices or lose clients to the likes of Crunch.co.uk as business owners move professional services online.

To maintain/raise prices/profits you need to add value.

You VP by having a discussion with the client but that is after you have decided on your strategy and done your marketing. This includes positioning, branding and selecting a project range. 

As a rule of thumb, in terms of a product range...if you can solve big problems and are perceived as doing so in a unique way you will command high prices. If you just take care of compliance, like everyone else, you probably won’t.

Big problems (by definition) are usually owned by larger businesses which is why many firms look to engage larger businesses.

Being unique and developing solutions is all part of marketing which most accountants are not committed to. This leads me to think that many will suffer a slow and painful death. It is not survival of the fittest but the most adaptable.

I hope you found that useful.

Bob Harper

Crunchers Network of Accountants

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Replying to mgbacchus:
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By andy.partridge
26th Apr 2014 14:55

Last week

Bob Harper wrote:

@Andy.Partridge – you predicted 50+ comments and you are not there yet I thought I’d help.

 

Bob, where were you? Last week there were more than 100 posts and the moderators took it down for a day, rationalised and then put it back up. Not your fault on this occasion.
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Replying to mgbacchus:
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By User deleted
27th Apr 2014 20:41

Actually ...

... no, I mustn't!

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By Sherman Holter
26th Apr 2014 14:59

Indeed

Yes, indeed many of us can vouch for Andy's "dead-on" prophecy.

I lost interest when Andy went out for popcorn (post #70 ish).

 

 

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Teignmouth
By Paul Scholes
27th Apr 2014 18:02

@Flash

Spot on, just like practically every other service you look to get, the supplier offers a price that s/he thinks is OK and this is either in the comfort zone of the customer or it isn't.

If it isn't then there may well be room to negotiate (ie not just walking away), the most common example of this was when I first started offering an annual quote to include any contact during the year.  This generated a modest increase for some of my mainly-compliance clients, ie the ones that hardly spoke to me during the year and so, for the 3-4 who asked I deducted a few £s meaning that if they wanted any advice over and above the work surrounding their accounts or tax return, I'd raise a separate quote.

After a couple of years all but 1 where happy to move to an all inclusive fee but it was still lower than I'd originally quoted as, they still hardly need any other contact and I "valued" them as clients.

All these what-ifs and worrying about whether you are over or under doing yourself or the client tend to dissolve as the years go by (and you grow out of the time sheet mentality).  So as long as I am happy with my annual profit AND I am getting some satisfaction in dealing with clients then the whole annual valuing process takes maybe 2 days a year mainly because the work and level of service I provide for the majority of clients is unlikely to change much from one year to the next.

 

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By Bob Harper
28th Apr 2014 09:27

Fault

@Andy - it was NEVER my fault!

Like I said before, the people arguing against VP don't understand it. I wouldn't mind but it's a pointless argument because they don't want to understand.

The thing is, when accountants want to learn accountancy/tax they read books. Why do they not read Baker's work before entering into a discussion about price?

I will not discuss VP with anyone unless they have read Baker's work.

Bob Harper

Crunchers Value Pricing Network

 

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Replying to GANDONAS:
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By andy.partridge
28th Apr 2014 09:58

Promise

Bob Harper wrote:

I will not discuss VP with anyone unless they have read Baker's work.

Bob Harper

Crunchers Value Pricing Network

 

Is that a promise?
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Replying to GANDONAS:
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By User deleted
28th Apr 2014 23:05

@Locutus ...

Bob Harper wrote:

I will not discuss VP with anyone unless they have read Baker's work.

Bob Harper

Crunchers Value Pricing Network

... can you confirm this is so?

If yes, fine, if no, @ Bob Harper - please delete your comment.

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Replying to Matrix:
Locutus of Borg
By Locutus
29th Apr 2014 00:31

@ Old Greying Accountant

Old Greying Accountant wrote:

Bob Harper wrote:

I will not discuss VP with anyone unless they have read Baker's work.

Bob Harper

Crunchers Value Pricing Network

... can you confirm this is so?

If yes, fine, if no, @ Bob Harper - please delete your comment.

I vaguely remember reading some of Ron Baker's teachings 10 + years ago, but nothing more than that.

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