How to put a price on advisory services
The challenge facing accountants in this rapidly changing profession is how to replace the revenue lost from compliance work that is no longer valued highly as it once was. Future forward practices are turning to advisory services, offering higher value services. Putting a price on these advisory services will necessitate a change in fee structures from hourly billing to fixed fee arrangements.
It’s true that traditional compliance work is becoming less valued. Greater competition, along with better technology, means that accountancy firms need to expand their services to generate future growth. For accountancy firms the move into advisory services delivers greater value to their clients and higher revenue and profits for their business.
Change of approach
When they move towards providing advisory services a question many firms ask themselves is how to price their services. Providing expertise is less about time worked and more about the value delivered by your advice.
For example: if you save a client money, by proposing a new tax strategy, then it doesn’t matter how many hours you worked but the value your advice delivers.
This change of approach means a greater focus on the client and the value that they will receive from your services and the advice that you can provide.
It means less focus on hours worked and more focus on customer experience and higher level, strategic work, with your clients. This change of approach also means a change in how clients are billed for the work that you do.
The move into advisory services is a process will take time and will have some challenges along the way. It will require that you, and the business, be open to changing your approach but keep focusing on what your end goal is.
Changing fee structures
The biggest change initially for many will be the change of fee structures, from hourly billing to fixed fees.
Billing by the hour is no longer an option when clients can clearly see that automated processes are replacing time consuming tasks.
For some, moving away from hourly billing can be daunting.
For others it can be liberating to move to a fixed fee structure that is agreed with the client upfront. There is less chance of scope creep and a clear understanding of the objectives and targets of each client at the outset.
Four steps to move to fixed fee pricing
Here are four steps to successfully transition towards an advisory service pricing model:
Step 1: Determine the value of your expertise
The first step is to internally decide what value to place on the services and expertise in the business. Step outside of hourly billing, that you’re used to, and think about the value of your services and expertise to the client. What is the true value that you’re delivering to the client? This could be in terms of financial savings, industry-specific expertise, people and time savings.
Step 2: Review existing client’s pricing agreements
Once you have decided on the value you are delivering and a pricing model, the next step is to review existing client’s pricing agreements and how they can be adjusted.
For some clients, changes to fee structures are not easy conversations to have, others will welcome the clarity and certainty of a pre-arranged fixed fee.
Fixed fees make customer experience and showing good value even more important than ever. Think about any changes that your firm may need to make to ensure that your clients understand the value they are receiving and get a great experience.
Step 3: Schedule client conversations
You will need to have a frank conversation with your client to take them over the new pricing structures and the new services that your firm can offer them.
Lead with information and expertise when having these pricing conversations. If data is relevant, compliant and up to date, account managers are empowered to have frank conversations with clients that add real value, such as forecasting business growth.
Conversations around business growth and new pricing agreements are empty without valuable information.
Step 4: Be clear from the start
As you move into a new arrangement with your client, be clear on the prices, expectations and services from the start.
One way to ensure neither the practice nor the client deviates from the original agreement is to find out what services the client would be interested in and what they are willing to spend.
Following that, you can prioritise services they will need based on your pricing package and their budget. Make sure the clearly defined service options are available to clients, particularly when there is opportunity for growth further down the line.
For clients to accept a pricing model based on knowledge and expertise, it will be important to get the right and desirable talent on board.
For more insight on how your practice can make the transition to advisory services, download our whitepaper: Reinventing the tax and accounting profession