Examples of Transparent Fees structure

Examples of Transparent Fees structure

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My earlier thread on this subject has gone off course hence the reason for a new thread. Please, please, please stick to the subject here.

After a fair bit of Googling I found two websites that have transparent fee structure. I hope the owners of these businesses won't mind.

I would be grateful for any comments/opinions on above. http://www.conciseaccountancy.com/fixed-fees-accounts-packages.html is very much my way of thinking - make it very clear from the start to avoid problems and time wasters.

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By Bob Harper
07th Jan 2011 14:38

Questions

@David - I am not skirting or ignoring the point. I am making the point that time recording and value pricing do not work together. They are different methodologies which are mutually exclusive.

I think you agree accountants do not sell time. I think you also agree time is not the only way to do cost accounting. And, if you agree accountants are knowledge workers you will accept that recording their time to ensure they are efficient is a waste of time. It is like measuring how hot the bath is with a ruler. So, there is no real value in recording time only costs - it costs time and gets accountants focussed on the wrong things.

Have a look at your language “knowing cost beforehand does not mean a pricing method is necessarily set”. Yes it does and Peter is on the right track.

How can you know your costs beforehand? Before what exactly? I think you mean before the service has been designed. 

To price you must understand the full details of the service? You must start with the customer and find out what they want and how they want it done. From there you can assess value and from there a price. If you know the cost before this conversation you have made assumptions about what they want, how they want it done.

You price the person, not the work. When you know the details of the services you can consider the cost of delivery to see if it is going to be profitable.

@Peter - setting a price is not the same as agreeing to it so there is no danger ignoring costs in the pricing phase.

OK, first class, business class or economy doe not work for you. The point I was making is that compliance services can be value priced through service levels. There are different ways on answering depending on the firm’s strategy. Here is one:

Client:

How much for a set of accounts?

Accountant

We don’t have one fixed price, we agree the price with each client one-to-one depending on the nature of the work. But, typically, for a Limited Company like yours the element of the fee for the year-end work is about £1,500 of the overall fee but we do not just do accounts only work. We have a minimum fee of £5,000 and we only work with businesses who have plans to grow at 10% a year and we have some involvement in the year. Usually around financial systems, management accounts and profit improvement. 

There are some really good local accountants we know who will do year-end only work and I think they will charge less than £1,500. Would you like me to set up an appointment for you or would you like to have a chat to see if you can benefits from some of the other services?

Having said that the value marketing and filtering systems would probably mean the wrong clients don't get into the position. Not only is it a waste of time but it uncomfortable for them.

Another script/system would be:

 

Client:

How much for a set of accounts?

Accountant

We don’t have one fixed price, we agree the price with each client one-to-one depending on the nature of the work. For some clients we do mind-year tax forecast for others we get involved in their personal financial planning but some just want us to do the year-end accounts.

We also have different levels of service things like personal meetings, turnaround times and we take into account the quality of the bookkeeping. Are you just looking for the cheapest option or is there something specific you would like?

 

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By Bob Harper
07th Jan 2011 15:39

Guaranteed

@CD - accountants will be able to judge how long a project will take after they know the scope. Like I said, earlier in this thread - in theory recording how long it takes to do something the first time makes sense. But, accountants who price have experience so they should know.

Monitoring and managing knowledge workers with time does not make sense because they are not selling time. There should be less focus on efficiency and more on effectiveness; the drive for efficiency will kill the profession.
£500 maybe the value to the sub contractor but that doesn’t mean you need to take them on and if you do you can have conditions/processes/systems to and ensure they are profitable with project management rather than checking the time records.

Theories help explain things and lead to predictions. There is more known today about everything, including business, than ever before and the theories that I recommend firms use are the ones that have been tested and proved to work. There has been trial and error and costs along the way but there is no need for firms to experience anything other than gain because others have gone before them.

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By David2e
07th Jan 2011 15:53

Again skirting around it

Bob

I keep feeling you are leading me into agreeing with things that I've said already that I dont, and again not providing reasons for your "facts".

"I am making the point that time recording and value pricing work together. They are different methodologies which are mutually exclusive."

Why are they mutually exclusive?  These are completely different things and you've still given no reason as to why you think they aren't.

"if you agree accountants are knowledge workers you will accept that recording their time to ensure they are efficient is a waste of time"

'Knowledge workers' is really a buzzword that someone's come up with.  Simply recording time does not ensure someone is efficient, but if as you say 'time is a cost of delivery of knowledge'... why would recording that time be a waste?

If time is a cost how can recording this cost be like 'measuring how hot the bath is with a ruler.'? How would you measure the cost of time?

"there is no real value in recording time only costs - it costs time and gets accountants focussed on the wrong things".

Again... why does it get accountants focused on the wrong things?

"Have a look at your language “knowing cost beforehand does not mean a pricing method is necessarily set”. Yes it does and Peter is on the right track."

Why does it?  How about some reasoning behind your thoughts on this?

And what has Peter said that makes you refer to him here?

"How can you know your costs beforehand? Before what exactly? I think you mean before the service has been designed. 

To price you must understand the full details of the service? You must start with the customer and find out what they want and how they want it done. From there you can assess value and from there a price. If you know the cost before this conversation you have made assumptions about what they want, how they want it done."

Costs beforehand are an estimate only, and as myself and others have said - recording time on comparable past tasks can be an aid to this estimation. 

I think CD has said he doesn't record time, or only in rough ways and where he feels it is needed. He obviously has a lot of experience over many years and a firm grasp on most tasks client require and may not need to record time for the purpose of estimating most costs, possibly rough times to help with reviewing staff performance.

Quite sure none of us have said to estimate costs before an initial meeting and finding out what a client wants and how they want it done.  Even value could be estimated before looking at costs but what it looks like no one else here has or would agree on is to discuss pricing without giving any consideration to the costs involved, of which time is usually significant.

Why do you insist on price being discussed at the initial meeting? Why not budgets only, where suitable, or the potential value of the work but to hold off on any discussions on price until it can all be given proper consideration? 

Of course there might be times where the task is common, the work involved is clear and pricing can be discussed but a professional accountant would simply be nuts to launch into this discussion without being aware of possible costs involved.

David Toohey
The Accountants Circle

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By Bob Harper
07th Jan 2011 17:54

Different ends of the spectrum

@David - sorry, that was a typo which I have corrected it. It should have said, value pricing and time recording do not work together.

The reason is that value pricing methodology focuses on value and looks for effectiveness; recording time focuses on costs and efficiency. They are completely different approaches to practice management.

A value pricing firm would not only see time recording as worthless but negative because it moves the focus to internal costs rather than external value.

Your desire to know “costs beforehand” reveals you are approaching pricing from a cost base. I am not suggesting price be discussed at the first meeting, it is often best not to price early because value needs to be built. What I am suggesting is that 100% of the focus (initial discussions) be on value so that a price/budget can be discussed/agreed. Then and only then consider costs to see if it is worth doing.

If the profit is too low you do not go back to the client and try to get a higher fee because costs are too high! You say no, we can not do that. This is why firms need to be careful and select who they spend time with which is why minimum fees, value marketing and filtering is useful.

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By petersaxton
07th Jan 2011 17:58

We are all individuals - except Bob who is rules by phrases from

“@David - I am not skirting or ignoring the point. I am making the point that time recording and value pricing work together. They are different methodologies which are mutually exclusive.”

So how do they work together?

“I think you agree accountants do not sell time.”

I don’t think any accountant sells time. It’s a silly statement.

“I think you also agree time is not the only way to do cost accounting.”

Of course using time is not the only way to do cost accounting but in some situations it is the most sensible way.

“And, if you agree accountants are knowledge workers you will accept that recording their time to ensure they are efficient is a waste of time.”

Recording time won’t ENSURE they are efficient but it will help to judge whether they ARE efficient.

“It is like measuring how hot the bath is with a ruler.”

I wouldn’t put it past you doing something like that with all your mumbo jumbo about finding out the “value” of work.

“So, there is no real value in recording time only costs - it costs time and gets accountants focussed on the wrong things.”

There is value in recording time. Recording time takes very little time. Accountants shouldn’t focus – you may even call it being “blinkered”. They should take account of many different aspects of their business and their client’s situation and use them appropriately. You make out that accountants are simpletons that can’t think about more than one thing at a time.

 “Have a look at your language “knowing cost beforehand does not mean a pricing method is necessarily set”. Yes it does and Peter is on the right track.”

I know I am!

“How can you know your costs beforehand? Before what exactly? I think you mean before the service has been designed. “

Before you quote a price.

“To price you must understand the full details of the service? You must start with the customer and find out what they want and how they want it done. From there you can assess value and from there a price. If you know the cost before this conversation you have made assumptions about what they want, how they want it done.”

1 “You must start with the customer and find out what they want”

2 “and how they want it done.”

3 “From there you can assess value”

4. Then you can determine a cost.

5. “and from there a price.”

“You price the person, not the work.”

I price the work. I may not have the same price for identical work because of historical factors or other reasons but I don’t automatically think “client A will pay twice what client B will pay so I will charge him double.” I know this isn’t “value pricing” but I don’t care. The limits set by costs, local competition and my ethics are such that I don’t try to squeeze every last penny out of more gullible or vulnerable clients.

“When you know the details of the services you can consider the cost of delivery to see if it is going to be profitable.”

Yes

@Peter - setting a price is not the same as agreeing to it so there is no danger ignoring costs in the pricing phase.

Between 3 and 4 above you can mentally decide on a price before 5 which is agreeing it with the client.

“OK, first class, business class or economy doe not work for you. The point I was making is that compliance services can be value priced through service levels. There are different ways on answering depending on the firm’s strategy. Here is one:

Client:

How much for a set of accounts?

Accountant

We don’t have one fixed price, we agree the price with each client one-to-one depending on the nature of the work. But, typically, for a Limited Company like yours the element of the fee for the year-end work is about £1,500 of the overall fee but we do not just do accounts only work. We have a minimum fee of £5,000 and we only work with businesses who have plans to grow at 10% a year and we have some involvement in the year. Usually around financial systems, management accounts and profit improvement.

There are some really good local accountants we know who will do year-end only work and I think they will charge less than £1,500. Would you like me to set up an appointment for you or would you like to have a chat to see if you can benefits from some of the other services?”

Most clients will be put off by the £5k minimum fee. I know that was only meant to give an idea of what to say. I have one client who presently keeps their records using Excel. I do VAT returns, monthly payroll, year end accounts, personal tax for two directors including property income. The company accounts involve factoring of some of their invoices. I charged £2,115 in the last year. I have some clients who I charge more because they need more handholding – even the clients who have accountants on staff. I may charge many of my company clients £1,000 to £1,500 going down to £200 to £600 for self employed and maybe £100 to £300 for non-business personal tax.

I decide what to charge based on the work needed so I definitely don’t use “value pricing” and I usually give them an idea of what I would charge for the various services but warn it could be extra if the information needs a great deal of working on. I discuss ways we can work together to ensure their record keeping is the best it can be given the time and effort they wish to expend. I may visit a few clients to correct their bookkeeping or show them how to use software in a better way. Other clients will send me their data electronically so I can explain problems. Some clients will visit me so we can review data. I have some clients who are using cloud based accounting software. I take all sorts of clients.

One thing I do not do is set a minimum fee. First Tab told me he had a minimum fee but he reconsidered when I explained that some clients get charged £100 or £200 for 30 minutes or an hours work.

“Having said that the value marketing and filtering systems would probably mean the wrong clients don't get into the position. Not only is it a waste of time but it uncomfortable for them.

Another script/system would be:

Client:

How much for a set of accounts?

Accountant

We don’t have one fixed price, we agree the price with each client one-to-one depending on the nature of the work. For some clients we do mind-year tax forecast for others we get involved in their personal financial planning but some just want us to do the year-end accounts.

We also have different levels of service things like personal meetings, turnaround times and we take into account the quality of the bookkeeping. Are you just looking for the cheapest option or is there something specific you would like?”

This seems more realistic. I don’t agree fixed prices usually. If I do I usually feel I set them too low. I prefer it depending on the work involved. Believe me, you can’t root out all the problems at initial meeting without wasting more time than you would by sorting out the problems.

I’m not comfortable asking if they want the cheapest option as most potential clients will say “yes” whether or not that is their true position.

I think that both my clients and myself get more out of our relationship by trying to be flexible and willing to change. We are not going to get it right every time and clients are not going to always behave the way we would wish or expect. I am looking to improve both myself and my clients but I don’t plan to get too rigid.

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By petersaxton
07th Jan 2011 18:03

Opposite

"the theories that I recommend firms use are the ones that have been tested and proved to work. There has been trial and error and costs along the way but there is no need for firms to experience anything other than gain because others have gone before them."

Just because you say it doesn't make it true.

In fact, the the theories you recommend firms use have been tested and proved to fail. I would expect that anybody who was successful was successful in spite of your theories.

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By petersaxton
07th Jan 2011 18:10

Hallelujah!!!

“And what has Peter said that makes you refer to him here?”

Maybe Bob has seen the light and has realised that profit is the difference between price and cost?

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By cymraeg_draig
07th Jan 2011 18:23

Rubbish.

The reason is that value pricing methodology focuses on value and looks for effectiveness; recording time focuses on costs and efficiency. They are completely different approaches to practice management.

Posted by Bob Harper on Fri, 07/01/2011 - 17:54

 

Rubbish.

If I pay my staff £100/hour and preparing basic accounts & returns will take, say 5 hours, then I have a basic absolute need  to charge £500. Otherwise I might just as well open my wallet and give the client its contents.

Similarly any additional work required, whether that is management accounts, simple bookkeeping, incorporation or anything else, also has a minimum cost to it depending on the time it will take and the cost of the staff to do it.

"Added value" quite simply is - how much can I add on top of my minimum fee and how much will the client pay? 

That is what all businesses do. You could go out now and buy a Skoda car - or you could buy the same car with a VW badge on it and pay several thousands more.  You're getting virtually identical cars (same engine, chassis etc) and similar bodyshell and trim.  The "added value" is actually the snob value of one badge over the other.  But I guarantee you one thing, VW / Skoda do not sell cars for less than they cost to make.

Exactly the same thing applies to accountants - I could have posh offices in Mayfair and charge four times what I charge now.  But, the client would be getting exactly the same "value". 

No we dont keep accurate time records - but I can meet a client, and in 5 minutes I know more or less how long any tak he requires will take. From that I can set a fee which I know will make a profit, that I know is acceptable to the client (and therefore is more likely to actually be paid), and which I know is likely to ensure that the client stays with us thus ensurinfg many years of repeat business.

 

 

 

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By petersaxton
07th Jan 2011 18:24

There's obviously accountants and accountants

“The reason is that value pricing methodology focuses on value and looks for effectiveness; recording time focuses on costs and efficiency. They are completely different approaches to practice management.”

The accountants I know are capable of considering effectiveness AND recording time. Maybe they are cleverer than the accountants you meet?

“A value pricing firm would not only see time recording as worthless but negative because it moves the focus to internal costs rather than external value.”

More fool them.

<<<Your desire to know “costs beforehand” reveals you are approaching pricing from a cost base.>>>

No, he’s approaching costing from a cost base.

“I am not suggesting price be discussed at the first meeting, it is often best not to price early because value needs to be built. What I am suggesting is that 100% of the focus (initial discussions) be on value so that a price/budget can be discussed/agreed. Then and only then consider costs to see if it is worth doing.”

Unless the work involved is very complex, any potential client would think it is a clear sign of incompetence if the accountant can’t come up with a price at the first meeting.

“If the profit is too low you do not go back to the client and try to get a higher fee because costs are too high! You say no, we can not do that.”

You are saying you may agree a price and then go back to the client and cancel the agreement?

“This is why firms need to be careful and select who they spend time with which is why minimum fees, value marketing and filtering is useful.”

Unless the firm already has a good client base that would be disastrous advice – especially for a start up. 

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By Bob Harper
07th Jan 2011 18:53

Agreement

@Peter - so we agree; you do not value price. And, you do not believe it works because you have not done it, even though there are firms doing it.

If you ask people upfront if they want the cheapest option and they say yes (and they are serious) then just tell them that is not you and end the meeting, unless being the cheapest is your strategy. Cheap is a value pricing and the good thing about cheap is you do not need to worry as much about standards of service.

Shame you have resorted to personal sniping again. Looking at your prices you offer great value to your clients but I think you are selling yourself short. 

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By petersaxton
07th Jan 2011 18:53

Well, Bob?

Bob, I know you’ve been busy re-copying your templates after your recent conversion but I haven’t had an answer to my response to you saying that I undermine you and not what you say. I know you have an habit of making ridiculous statements and then ignoring the challenges but it would be good to know why you think you can say I don’t undermine what you say.

I said: “I don’t undermine what you say? Have I not criticised the idea of ignoring costs until a price is agreed? Have I not criticised the idea of ignoring other local accountant’s prices for the same service?”

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By petersaxton
07th Jan 2011 19:18

Dangerbob

“@Peter - so we agree; you do not value price. And, you do not believe it works because you have not done it, even though there are firms doing it.”

I do not believe it works because the idea is ridiculous compared to considering costs and local competition. Some accountants may be looking for clients who are mugs but I am not one of them. I don’t do things if I think they are ridiculous because I’m not going to waste opportunities just so I can say I’ve done it and I suffered because of it. That doesn’t mean that anybody who refuses to do something they think is ridiculous has discredited views.

“If you ask people upfront if they want the cheapest option and they say yes (and they are serious) then just tell them that is not you and end the meeting,”

That is more dangerous advice.

“Cheap is a value pricing and the good thing about cheap is you do not need to worry as much about standards of service.”

Why not?

“Shame you have resorted to personal sniping again.”

What personal sniping? You, on the other hand, seem to insult practically every accountant.

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By cymraeg_draig
07th Jan 2011 19:32

Standards

Cheap is a value pricing and the good thing about cheap is you do not need to worry as much about standards of service.

 

Posted by Bob Harper on Fri, 07/01/2011 - 18:53

 

Are you suggesting then that if I take on a pro bono job, I automatically lower my standards ?

I couldnt care less if someone is paying me £10,000 or £100 - they get a thorough, professional job done to the very best of my ability. Anything less would be unprofessional.

I really do weonder what kind of "accountants" you have mixed with. 

 

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By Bob Harper
07th Jan 2011 20:18

Average

@Peter - I said “you seem to prefer attack personally and try to undermine me rather than what I say” when you get frustrated and have nothing left to add on the topic. You said “I don’t undermine what you say?”We agree!

Yes, I am saying that after exploratory meetings and discussions with the client the accountant may not accept the engagement or enter into more detailed discussions. Some clients just do not value the solution high enough, why argue? Find some who does.

Start-ups may need to lower to start with but as soon as they are break even they can start improving the client base and being more selective. A start-up needs to start somewhere and the earlier they start being selective the better because birds of a feather flock together.

You can let the costs and your competitors dominate your pricing, I’ll recommend firms think value. One is a price taker; the other is a price maker. But are you really serious that the concept on pricing on value is ridiculous? I know it is different and challenging and accept you may not want to take the risk, but the logic of charging for value rather than pricing cost is irrefutable.

@CD - Had you said “I can meet a client and in 5 minutes I know more or less how much value they perceive and from there I agree a price which is profitable because I know how long it will take” then you would be value pricing.

But, you are not; you are cost plus “desired profit” pricing and just value guessing.

@CD and Peter - The point about standards is that when you sell £50 tax returns you don’t need to reply to emails the same day, when you sell £1,000 tax returns you may need to. Most accountants do neither and sit in the middle with average results.

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By petersaxton
07th Jan 2011 20:46

Reality pricing versus silly pricing but no clients

“@Peter - I said “you seem to prefer attack personally and try to undermine me rather than what I say” when you get frustrated and have nothing left to add on the topic. You said “I don’t undermine what you say?”We agree!”

I’ll take that as you knowing you were wrong even if you won’t admit it.

“Yes, I am saying that after exploratory meetings and discussions with the client the accountant may not accept the engagement or enter into more detailed discussions. Some clients just do not value the solution high enough, why argue? Find some who does.”

Your very behaviour will result in many good clients who will pay well being dismissed because they give an answer to a question that doesn’t represent their true feelings.

“Start-ups may need to lower to start with but as soon as they are break even they can start improving the client base and being more selective. A start-up needs to start somewhere and the earlier they start being selective the better because birds of a feather flock together.”

Once they have broken even the last thing they want to do is go back into loss because they are ignoring costs.

“You can let the costs and your competitors dominate your pricing,”

It’s just accepting reality. I don’t step into a busy road saying I’m not going to let cars and lorries dominate my walk.

“I’ll recommend firms think value. One is a price taker; the other is a price maker. But are you really serious that the concept on pricing on value is ridiculous? I know it is different and challenging and accept you may not want to take the risk, but the logic of charging for value rather than pricing cost is irrefutable.”

I’m really serious. Do I ever joke?

It’s a bigger risk ignoring costs and embracing insolvency. Some of us try to avoid that.

“@CD - Had you said “I can meet a client and in 5 minutes I know more or less how much value they perceive and from there I agree a price which is profitable because I know how long it will take” then you would be value pricing.

But, you are not; you are cost plus “desired profit” pricing and just value guessing.”

You’re not guessing? Give me an example of how you calculate a price.

“@CD and Peter - The point about standards is that when you sell £50 tax returns you don’t need to reply to emails the same day, when you sell £1,000 tax returns you may need to. Most accountants do neither and sit in the middle with average results.”

I deal with emails very quickly if the client has a valid request. I don’t provide a worse service because somebody is paying me less. There’s usually a reason why somebody is paying me less and it’s not related to speed of email response.

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By cymraeg_draig
07th Jan 2011 22:25

Too much "theory" and no common sense.

"The point about standards is that when you sell £50 tax returns you don’t need to reply to emails the same day, when you sell £1,000 tax returns you may need to. Most accountants do neither and sit in the middle with average results."

 

Posted by Bob Harper on Fri, 07/01/2011 - 20:18

 

Let's open up 2 garages. 

You sell petrol at £20 a gallon - after all the perceived value is high isnt it, without it motorists will be stranded, and you dont belive in taking account of what the opposition charges do you.

I'll sell it for £5 a gallon based on what it costs me plus a bit of profit, and, taking into account what other garages sell it for.

I'll still be in business at the end of the year - you wont.

 

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By Bob Harper
07th Jan 2011 23:01

Anything else?

@CD - the question is how I can add value and differentiate my garage.

Evian does well selling something that you can get for free from your tap. Maybe I would add value with the shop and while you are making profit from the petrol I am maximising the profit from the relationship, a bit like accounts and tax returns and added value services for accountants.

Petrol is doomed as much as time billing is.

@Peter - yes, value pricing is about saying no and being a price taker is your reality. You do not calculate a price; you ask the client questions and give them options. My guess is that the reason someone pay you less is because you spend less time on them. 

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By cymraeg_draig
07th Jan 2011 23:11

Oh dear

Every answer you give Bob simply demonstrates that you have only a tenuous grasp of the realities of running a business.

"Petrol is doomed"?  -  Not in your lifetime.

You would "add value with the shop" ?  - Good idea, but at £20 a gallon you wouldn't have any motorists stopping to use your shop.

And the same thing applies to accounts - you are not going to "sell" any "added value services" until you first have the client, and that means supplying the basic statutory accounts/returns at a reasonable price competative with other practices in the area, and, on which you make a profit.

You remember what "profit" is dont you.  Its the bit thats left after you've paid all your costs - and the biggest cost for 99% of practices is .............. time.

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By petersaxton
08th Jan 2011 04:49

Getting new clients or rejecting them

“Evian does well selling something that you can get for free from your tap.”

It’s a totally different market. Products and services shouldn’t be compared by anybody seriously looking to make a valid point.

“My guess is that the reason someone pay you less is because you spend less time on them.”

I spend the optimum time on them. I don’t waste time trying to teach clients bookkeeping when they don’t have the aptitude, skill or interest in it. I get a good rate per hour providing what is best for the client. You can spend time setting up meetings with potential clients and then reject them because they give the obvious answer to silly questions. You can spend time trying to convince clients you are a better accountant than me and that you care about their children’s education and you can make them good bookkeepers but all it will leave you with is no clients and insolvency.

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By petersaxton
08th Jan 2011 04:52

Who needs reality?

"You remember what "profit" is dont you.  Its the bit thats left after you've paid all your costs - and the biggest cost for 99% of practices is .............. time."

Bob ignores that. Just like he ignores reality.

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By Bob Harper
08th Jan 2011 09:46

Under exclusive

@CD - every question you ask shows you have a complete lack of creativity.

No business is ever over priced, they are just under exclusive. Take a car wash - you would be charging £10 I could be looking for £5,000. Go and look in YouTube for a £5,000 cash wash and you will see the answer.

Nothing is a commodity unless you let it be.

@Peter - see the car wash example above. Like I said, I know your model is leverage "time" for "needs" and I suggest firms ignore that for practice development and focus on "wants" and "value".

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By petersaxton
08th Jan 2011 10:16

I'll get out of bed for £200

"@Peter - see the car wash example above. Like I said, I know your model is leverage "time" for "needs" and I suggest firms ignore that for practice development and focus on "wants" and "value"."

I'd rather spend my time helping lots of people with accounts and tax than looking for a few people who want to spend a lot of money.

So what's the amount you don't get out of bed for and how many clients are you working for right now?

I've just seen a guy who visited with his information for his tax return and I was paid £200 for an hours work. I don't get paid that rate by my bigger clients but I give all of them a good service.

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By cymraeg_draig
08th Jan 2011 11:13

Creativity? Is THAT what it is ?

@CD - every question you ask shows you have a complete lack of creativity.

No business is ever over priced, they are just under exclusive. Take a car wash - you would be charging £10 I could be looking for £5,000. Go and look in YouTube for a £5,000 cash wash and you will see the answer.

Posted by Bob Harper on Sat, 08/01/2011 - 09:46

 

The You-Tube clip simply proves there are some gullible fools out there, and some of them have more money than sense.  These are the same kind of idiots who buy a Ferrari thinking they have the ultmate sports car, when actually they have bought a fancy Fiat. Of course they fall for Ferrari's slick sales pitch, whereas the truth is that there are a dozen cars out there (including one from the 1960's) which can easily blow any ferrari off the road. 

The same applies to accountancy (or anything else).  Paying more does not mean you are getting a better service - it simply means you're paying more.  Also, of course, using your ideas, you are immediatelt slashing your prospective market - never a good idea.

Turning to your allegation that I "lack creativity".  Perhaps first you need to consider the difference between "creativity" and "commercial suicide".  Cutting your potential market by 99%, pricing yourself out of the market at a time of recession, quoting for work without a clue about your costs, - if that is "creativity" thank God I dont have it.

You seem to think that the world is full of gullible millionairres just waiting to throw their money away. The fact is that 99% of businesses are one-man-bands running shops, pubs, farms etc and are only interested in keeping the tax man off their backs.  

 

 

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By Bob Harper
08th Jan 2011 11:32

Innovation

@CD - what about before 1960? What about before the car was invented? Your mentality creates better buggy whips, not the car.

This thread is about pricing and we have dealt with pricing on costs or value. Value is best but cost plus works. Next, you introduce your old favorite of specializing.

Within the 99% there are 99 1% to target. The only question is will a firm be generalist or a specialist. Specialists get paid more in every industry. They maybe inch wide but they are a mile deep with knowledge - the model is less clients, more value, higher prices, higher margins, more sophisticated clients, wider reach and higher barriers. That sounds pretty good to me.

In the demographics I have looked at, around every practice owner there are around 17,000 businesses. 1% market share is 170 that could be more than enough. OBK have a minimum fee of £6,000 and increasing.

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By andypartridge
08th Jan 2011 12:04

A very good line

'They may be inch wide but they are a mile deep with knowledge'

I like it!

Most practices, though, can not wake up one morning and have that mile depth. It seems to me that only the very experienced (and so already established) could do this with any credibility.

Wouldn't a young new practice be winging it?

-- Kind regards Andy

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By petersaxton
08th Jan 2011 12:19

Thinking for yourself improves your mind

Andy

Bob is just repeating something well known.

It was first mentioned about the Platte River in the USA but become more widely known when discussing the US science and maths curriculum in 1997.

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By andypartridge
08th Jan 2011 12:34

Interesting

I'd never heard it before. But then I'e never seen a Star Wars film, either!

-- Kind regards Andy

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By petersaxton
08th Jan 2011 12:48

I've not seen a Star Wars film either

I hadn't either but I know Bob's style. He repeats quotes from books. 

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By Bob Harper
08th Jan 2011 13:00

CPD

@Andy - with the amount of knowledge available/accessible today there is no excuse for not knowing, but I accept that over time knowledge can be developed which will enhances a firm’s value.

The topic of "business" is well researched and documented. The question is does the accountant limit themselves to the accounts/tax or continue to develop knowledge and widen the discussion? There is no reason why an accountant cannot use finance as a basis to start discussing clients pricing, business strategy/management. Accountants can offer business coaching where the knowledge required is how to coach.

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By petersaxton
08th Jan 2011 13:03

It's so easy

"Accountants can offer business coaching where the knowledge required is how to coach."

Just read a few books and repeat a few phrases and job done. Bit like accounting, really.

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By andypartridge
08th Jan 2011 13:10

Does that add up?

If, as you suggest, access to knowledge and therefore expertise is easy, then there are few barriers to entry into the market. Simple economics will dictate that increased supply will result in prices falling.

I can't help thinking your logic is flawed.

 -- Kind regards Andy

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By Bob Harper
08th Jan 2011 13:13

The value gap

@Peter - there is no right a wrong with what product and market segment. The point I am making is that value pricing is the best way to make the most profit (for the provider and clients).

If you can generate profit of £200 from deploying an hour of time from your knowledge base and you if you have 1,500 hours of capacity then your optimal turnover is £300,000. The difference between that and what you are generating is the cost of your cost plus pricing methodology. Value pricing is the best way to close the gap.

The opportunity cost is massive, using industry standard numbers I estimate at least £1m for each practice owner over their working lifetime.

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By petersaxton
08th Jan 2011 13:58

What do they say about statistics?

“If you can generate profit of £200 from deploying an hour of time from your knowledge base and you if you have 1,500 hours of capacity then your optimal turnover is £300,000.”

What “knowledge base”?

I’ve already said I can’t get that for every hour. I’m not going to go round looking for similar clients to get that all the time.

“The difference between that and what you are generating is the cost of your cost plus pricing methodology.”

I don’t have a “cost plus pricing methodology”. If I did I wouldn’t have charged him as much.

“Value pricing is the best way to close the gap.”

There’s no gap. You’ve come up with a number without any understanding of reality.

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By David2e
08th Jan 2011 14:01

Pointless

This thread really has become pointless.

Arguments are being put forward with absolutely no basis and when asked for reasoning behind it the questions are avoided by using buzz words/phrases or simply being ignored.

My last post with questions went completely unanswered though I believe the questions I asked were perfectly reasonable.

David Toohey
The Accountants Circle

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By cymraeg_draig
08th Jan 2011 15:46

Specialising

Next, you introduce your old favorite of specializing.

Within the 99% there are 99 1% to target. The only question is will a firm be generalist or a specialist. Specialists get paid more in every industry. They maybe inch wide but they are a mile deep with knowledge - the model is less clients, more value, higher prices, higher margins, more sophisticated clients, wider reach and higher barriers. That sounds pretty good to me.

In the demographics I have looked at, around every practice owner there are around 17,000 businesses. 1% market share is 170 that could be more than enough. OBK have a minimum fee of £6,000 and increasing.

Posted by Bob Harper on Sat, 08/01/2011 - 11:32

 

Hold on a minute - YOU  introduced "specialising", not me.  In fact that is the whole point of your arguement, that we should all specialise.

I could specialise in Inheritance Tax - and spend all day ringing local undertakers to see who had died, or I could specialise in pubs, and find myself driving miles to get enough clients.  Or of course, I could specialise in giving a top rate service for a reasonable fee, employ specialists if there is suffiecient work to warrant it, and not be exposed to recessionary pressures. 

Public Houses are an area that many stock taking firms specialised in, but these firms are dropping like flies with the current demise of the licenced trade.  

Incidently your assertion that "specialists" are paid more is also plain wrong. They may get more per hour when they are working, but they have less work.  And according to you "time" doesnt matter, so their hourly rate is irrelevent isnt it? 

I would hardly hold OBK up as a shining example either, and a minimum fee of £6,000 is not something to boast about - it merely indicates that they deliberately ensure that small entrepeneurs cannot afford them.  Incidently we have fees far larger than that, and fees much lower, but then of course we charge an honest fee and provide services that are actually of use to the client, instead of talking them into wasting time & money on things they dont need, but which look good and make a nice profit for the accountant.  

 

 

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By petersaxton
08th Jan 2011 15:59

Bob's phone call

"If the profit is too low you do not go back to the client and try to get a higher fee because costs are too high! You say no, we can not do that."

Bob: You know that price we agreed?

Potential client: Yes

Bob: We can't do it.

I'm sure that will get you a reputation in the area.

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By Bob Harper
08th Jan 2011 16:20

The value of marketing

@Peter - books, courses and mentoring, a bit like being trained as an accountant really.

The £300,000 is from your world - your knowledge base has been proved to be worth at least that. Like I said, you can believe you are value pricing, my take is you are value guessing and really cost plus at your core otherwise you would not be recording time and have an hourly rate.

You prefer not to go searching (marketing) for the optimal way to leverage your knowledge. Fair enough, that is your choice but the fact is you are costing yourself a small fortune.

@Andy - correct. It is not that difficult to get the knowledge but the value is how to leverage it and that is value pricing.

@David - I have answered all of your points/questions, you just do not like the answers.

The point is that if someone can be bothered to follow the debate we are now getting to the point where Peter’s time/cost approach to pricing/practice management (which you advocate) is costing him at least £200k a year. Your software may count exactly how long someone works but it will not calculate what value they left of the table and it gets them looking in the wrong place.

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By Bob Harper
08th Jan 2011 16:48

Grow up

@Peter - the conversation is slightly different, a little less immature:

Accountant: unfortunately we have looked at the project and we cannot do it for what you want to pay. We have come up with something using a different approach, would you like to have a look at?

Yes, that would create a reputation in the area. That is what branding is about.

@CD - actually, you introduce the specialisation when you said 99% of clients are sole-traders and just want the taxman off their back. But, segmentation, niches and specialisation is at the heart of marketing and strategy.

When you are a specialist clients come to you and why you think specialist have less work is beyond me. They may choose to work less hours.

With your comments comparing yourself to OBK you are now basically insinuating that OBK are dishonest and provide services are not useful because they have a £6,000 minimum fee.

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By petersaxton
08th Jan 2011 16:49

How does a question not answered result in a disliked answer?

“Like I said, you can believe you are value pricing, my take is you are value guessing and really cost plus at your core otherwise you would not be recording time and have an hourly rate.”

Did I say I was value pricing”? If value pricing means agreeing a fee with a client and then phoning them up and saying I can’t do it then I definitely am not doing that. I have an hourly rate? I may charge some clients at an hourly rate when they mess their information up but that’s all. Are you saying it is not logical to charge an hourly rate for how many hours it takes to sort out a mess that wasn’t agreed?

“@David - I have answered all of your points/questions, you just do not like the answers.”

What were the specific answers to each of the following questions?:

1 Why are they mutually exclusive?  These are completely different things and you've still given no reason as to why you think they aren't.

2 Simply recording time does not ensure someone is efficient, but if as you say 'time is a cost of delivery of knowledge'... why would recording that time be a waste?

3 If time is a cost how can recording this cost be like 'measuring how hot the bath is with a ruler.'? How would you measure the cost of time?

4 "there is no real value in recording time only costs - it costs time and gets accountants focussed on the wrong things".

Again... why does it get accountants focused on the wrong things?

5 "Have a look at your language “knowing cost beforehand does not mean a pricing method is necessarily set”. Yes it does and Peter is on the right track."

Why does it?  How about some reasoning behind your thoughts on this?

And what has Peter said that makes you refer to him here?

6 Why do you insist on price being discussed at the initial meeting? Why not budgets only, where suitable, or the potential value of the work but to hold off on any discussions on price until it can all be given proper consideration?

“The point is that if someone can be bothered to follow the debate we are now getting to the point where Peter’s time/cost approach to pricing/practice management (which you advocate) is costing him at least £200k a year. “

£200k? Where did you get that figure from?

“Your software may count exactly how long someone works but it will not calculate what value they left of the table”

Your idea of “value“ seems to be pure guesswork.

“and it gets them looking in the wrong place.”

A record of how long somebody spends on a job does not make anybody look anywhere.

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By petersaxton
08th Jan 2011 16:56

Response

"Accountant: unfortunately we have looked at the project and we cannot do it for what you want to pay. We have come up with something using a different approach, would you like to have a look at?"

Potential client: "what I want to pay"? You mean the price we agreed? I'm not wasting another second with you and your [***] about face approach. Goodbye.

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By Bob Harper
08th Jan 2011 17:41

Outstanding points

Most/all these have been covered:

1. Why is value pricing and time recording mutually exclusive?

Because when a firm value prices they see danger in recording time and use other management systems.

2. Why is time recording is a waste?

Because when a firm value prices they see danger in recording time and use other management systems.

3. How would I measure the cost of time? By recording time.

The temperature of a bath with a ruler is about pricing with a time/cost mentality.

4. Why does it (time recording) get accountants focused on the wrong things?

Because costs are the wrong things to focus on in the pricing phase.

5. This is in two parts:

a) Knowing cost beforehand means assumptions have been made. How can you know the costs of a project when it is not defined? Define it first and then look at the costs.

b) Peter said that knowing the costs beforehand can taint the value judgement.

6. Pricing at the initial meeting.

I do not recommend pricing in the initial meeting, I recommend pricing after the value has fully been explored.

7. £200k left on the table

£300k less my estimate of your turnover = £200k which is what not having the right clients is costing you every year. Even if you spent £50,000 marketing you would add £150,000 to the bottom line!

8. Value is what the client perceives.

You need to ask clients to have any idea. If you are not asking clients how much they value the solution you are not value pricing.

9. A record of how long someone spends on a job.

This gets them thinking effort and costs which has nothing to do with value.

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By Bob Harper
08th Jan 2011 17:50

Response

@Peter - client recruitment is key, there needs to be a match. With filtering systems I doubt that would happen because the client would have agreed to the philosophy and be happy with it. But, the clients that act like that may walk out with their money but they don't bring their [***] attitude into the firm. That is a far bigger cost than a little wasted time.

 

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By petersaxton
08th Jan 2011 18:02

Finally

"b) Peter said that knowing the costs beforehand can taint the value judgement."

I didn't. I was incredulously asking if you meant that?

It appears that you are talking about accountants who are incapable of looking at all aspects of decision making. If you think that a client who agrees a price and then finds the accountant reneges on an agreement has a [***] attitude you would be amazed what the business world thinks about your heroes who renege on agreements.

"but they don't bring their [***] attitude into the firm"

You sound like one of those happy clappy born again loonies who don't like people saying they don't believe in god.

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By Bob Harper
08th Jan 2011 18:21

Exploratory discussions

@Peter - if it is a simple job like a set of accounts then that could probably do that there and then by asking some questions. Or, agreeing to a price with conditions.

But, if it is a more complex project I think it is reasonable people would be OK if the accountant went back to the office and consider it. Not too dissimilar to a builder looking at a house build and going back to the office and thinking about the costs before he agrees.

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By petersaxton
08th Jan 2011 18:36

Muddle

Now I'm confused.

Is the price agreed before costs are considered?

If yes, then is the accountant still going to renege on the agreement if the costs are too great?

If the price is not going to be agreed before costs are considered then, by your muddled thinking, the pricing will be tainted by knowing the costs beforehand.

 

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By cymraeg_draig
08th Jan 2011 20:15

Dreams

Bob - you're a dreamer.

You read others comments and read what you want to read, not whats actually there.

You splatter sales jargon all over the place, but leave common sense at the door.

And worse of all, you ignore highly experienced people who have achieved success and told them they are fools (and worse)  just because they don't subscribe to your frankly silly theories. What you propose is unprofessional, poor business, extremely dangerous (as you have no way of knowing if a job is profitable or not), and would quickly alienate whole sections of the local business community. 

And dont think for one second that busines owners dont speak to lowly sub contractors - they do - and often recomendations flow both ways, as do adverse comments.

Perhaps you would do better selling double glazing, because looking at this thread you sure as hell havent sold anything here.

 

 

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By Bob Harper
08th Jan 2011 20:49

Reasonable

@Peter - after the value has been explored and the price/budget discussed then if it is a complex project the accountant may need to go back and consider the viability with the team. If it is fairly simple the accountant could agree straight away but in reality they would put some options together below, on or even above the price/budget.

@CD - I have listened to many very experienced accountants and I read case studies form others I have not spoken to. I even listen to you!. I take on board all the information and opinions and I acknowledge that what you do works. 

I use a couple of deliberately provocative terms like unconsciously unethical to stimulate discussion and I accept that value pricing I does have more risk that time billing. But, I believe it is more ethical and profitable for clients and accountants.

Value pricing is not about a high price so it caters for all segments of the market.

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By petersaxton
08th Jan 2011 21:09

One, two, three

"@CD - I have listened to many very experienced accountants and I read case studies form others I have not spoken to. I even listen to you!. I take on board all the information and opinions and I acknowledge that what you do works."

Bob, listening and reading is one thing, or rather - two things, but actually doing it for many years is totally different and gets a deeper understanding of how people think in these situations.

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By cymraeg_draig
09th Jan 2011 00:49

Do you sleep ?

@CD - I have listened to many very experienced accountants and I read case studies form others I have not spoken to. I even listen to you!. I take on board all the information and opinions and I acknowledge that what you do works. 

I use a couple of deliberately provocative terms like unconsciously unethical to stimulate discussion and I accept that value pricing I does have more risk that time billing. But, I believe it is more ethical and profitable for clients and accountants.

Value pricing is not about a high price so it caters for all segments of the market."

 

Having a "minimum price of £6k is hardly catering for all segments of the market, not even a few segments, just the top few percent.

How you conclude that your pricing system is somehow "more ethical" stretches the imagination.  A professional does his best for a client regardless of how much he is being paid, and "taking a cut" of any savings made, which is what value pricing often boils down too, actually reduces professionalism to simple opportunism.

Tell me Bob - you see a client - his previous accountant has made an obvious simple mistake (say not claimed capital allowances last year), so 1 hour of your time gets him a £10k refund - would you really charge him £5k nased on "value" ?   Can you sleep at nights ?

 

 

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By Bob Harper
09th Jan 2011 10:12

Rule of thumb

@CD - the £6,000 price is not the issue, it is the methodology on how you get there. Value pricing works for all segments so a £100 tax return can be value priced.

My view is that a local firms should think about a higher fees and work with few clients and let low cost national like SJD and Crunch take the small compliance work. Or, maybe have two brands; one for low cost compliance and one for local added value.

Low cost compliance is a great model because the business can be sold and it is easier for the practice owner to get away from the operational side of the business and be a business owner rather than an accountant.

But, that is only one aspect, Take Peter’s situation. To leverage his knowledge resource effectively he would need 1,500 clients like the £200 one. There may not be enough of them locally and it would probably incredibly boring. Having said that, he may not need 1,500 clients; perhaps 500 would do, depending on his personal goals. He may also decide to employ people and not do any work.

What this means is that price comes after the strategy and a strategy can be built around any segment.

I think you last comment shows why you have a problem with value pricing. You have a fundamental problem with accountants generating lots of profit from little time and effort. 

In your example I would price the client with no reference to the time. The Capital Allowances claim would probably be one element of a bundle. The £10,000 refund would draw up the value of the whole bundle, like profit extraction advice on annual compliance for a small Ltd Co - the set of accounts takes the time, the value is in the tax saving.

As a rule of thumb I work to 25% of tax savings. Complicated or simple tax advice is a matter of opinion. When you have done something complicated a few times it becomes simple. I would not be thinking about the hour it takes to save the £10,000 but the hours it took to get into the position and the awareness to spot it.

Why is value pricing more ethical than cost plus billing? Because you start with the client first, what is more ethical than that?

@Peter - once again you have resorted to personal comments on the basis that you seem to have run out of anything constructive to add on the debate. 

We have had a personal exchange and you know I have experience of implementing value pricing. What I will say is that that your personal experience creates your perception of reality, it is not reality. The reality is that you have no experience of value pricing because you record time and have a charge out rate. 

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