Mastering the art of pricing: how to find the best strategy for your practice
In this post, we explore ways that you can choose an effective pricing strategy for your practice to help ensure long-term profitability and reflect the value that you offer.
Are you thinking of a pricing strategy overhaul?
As we approach the end of the calendar year, the annual fee review – usually aligned with the new year, tax year, or clients’ accounting cycles – is often an opportunity to rethink fees and reassess the value that you provide to clients.
All too often in busy periods, practices fall into the trap of seeing themselves and their services as commodities. This can have a serious impact on your bottom line and long-term profitability. Moving beyond the traditional approach of being cheaper than nearby firms, it’s essential to adopt a pricing model that ensures you are not inadvertently spending some of your time working for free, while maintaining transparency for your clients.
Stepping out of the commodity mindset
It is all too easy to ‘just do this’ or help with that’, leading to unpaid work. To combat this, it helps to set clear boundaries and expectations from the outset.
A well-structured pricing plan that includes set deliverables helps you and your clients understand the scope of work, avoiding situations where you find yourself providing additional services without compensation, scope creep, or mismanaged expectations.
Below is a breakdown of four of the most popular pricing strategies:
- Cost-plus pricing
- Time-based pricing
- Value-based pricing
- Subscription-based pricing
Below is an overview of each pricing strategy, its benefits, challenges, and how you can counter these.
Pricing strategies at a glance
How to Counter
Pricing is set by adding a fixed percentage markup to the cost of providing the service.
Simple to calculate and explain to clients. Ensures all costs are covered with a profit margin.
Might not reflect the market value or client’s perceived value of the service. Risk of overpricing or underpricing.
Regular market research to stay competitive. Adjust markups based on client feedback and perceived value.
Fees are charged based on the amount of time spent on a client’s project.
Easy to track and quantify. Transparent method for clients to understand.
Can lead to inefficiency and doesn’t account for the actual value delivered. May discourage efficiency in work.
Implement efficiency measures. Set maximum time limits for tasks to prevent overcharging. Communicate the value added in each time unit to the client.
Pricing is based on the perceived value or estimated value of the service to the client.
Aligns price with the value delivered, potentially leading to higher profits. Clients pay for outcomes, not hours.
Challenging to quantify value and requires a deep understanding of client needs. Risk of disagreement over value.
Establish clear communication and understanding of client expectations. Use testimonials and case studies to justify value. Adjust pricing based on feedback and changing client requirements.
Clients pay a recurring fee for a set package of services.
Predictable revenue stream. Easier for clients to budget. Simplifies billing process.
May not account for variability in work volume. Risk of service scope creep. Clients may underutilise these services.
Offer different tiers of service packages. Include clauses for additional work or transactional charges. Review and adjust packages regularly based on client usage and needs.
Identifying your Unique Selling Proposition (USP)
When implementing any of the above strategies, it’s vital to identify and communicate your Unique Selling Proposition (USP).
What sets your practice apart from others? Is it your expertise in a niche market, your innovative use of technology, or your high-end client service?
Understanding your USP helps in justifying your pricing structure. It’s about selling the experience and outcomes, not just the process. Highlighting your USP in your marketing and client interactions reinforces the perception of value, making clients more willing to pay a premium for your services.
Positioning for long-term profitability
Long-term profitability in your practice is not just about setting the right price; it’s about identifying what success looks like to you – whether that be lasting relationships or work-life balance – and strategising around those.
As a broad rule of thumb, pricing decisions should be led by the following:
- Regular market analysis: Staying informed about the market trends and pricing strategies of your competitors. Adjust your pricing to remain competitive while ensuring it reflects your USP.
- Client feedback: Regularly seek feedback from your clients and use this to guide your pricing decisions.
- Flexible pricing models: You could consider offering different pricing models to cater to diverse client needs. This could include fixed-fee arrangements for standard services and custom value-based pricing for specialised services. If you choose this approach, consider evaluating the internal complexity of handling different pricing models.
- Transparency and communication: Be transparent with your clients about your pricing. Clear communication about what they are paying for and the value it brings can build trust and long-term loyalty.
- Continuous improvement: Regularly review and adjust your pricing strategy based on client feedback, market changes, and the evolving needs of your practice.
A quick summary
Finding the best pricing strategy for your practice involves more than just deciding whether to increase fees annually, and, if so, by how much. It requires a shift from seeing your services as a commodity to recognising the value that your practice brings, and what type of business you want to build.
As the industry continuously evolves and client expectations change, staying ahead in your pricing strategy is crucial to your long-term success as a practice.
Our Bright guide to getting your pricing right, produced in association with AccountingWEB is packed with more practical tips that will make you irresistibly appealing to clients while keeping profitability intact.
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