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Pricing strategies: Pivot to value pricing

Accounting profit improvement expert Mark Wickersham talks value pricing in practice.

22nd Feb 2021
Community Assistant AccountingWEB
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Value pricing
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Over recent years, an increasing number of accountants have been saying goodbye to hourly pricing strategies and pivoting to value pricing.

With the current economic climate and the growing number of financially struggling businesses, there has never been a better time to address your fees within your practice.

Value pricing

While the topic of value pricing has been discussed within the profession for 20 or so years, it has only begun to pick up momentum within the last five or six years.

“People are either struggling with the whole concept, or they moved to fixed pricing thinking that is value pricing,” explained profit improvement expert Mark Wickersham

A chartered accountant and AVN veteran, Wickersham struck out on his own to help accountancy practices implement value pricing strategies after his research found that less than 10% of accountants made the transition successfully.

Although the concept might be difficult to grasp at first, Wickersham explained that there are ultimately two ways to price.

There’s cost plus pricing, where the accountant totals up the costs and adds on a profit margin, and charges the total price to the client. This is the type of pricing involved in hourly rates.

Value pricing, however, starts with the customer – what’s the value to the client? How much does the client value doing a tax return or bookkeeping or whatever it might be?

In short, value pricing can be defined as setting a price based on the value the customer gets. 

The challenge here is that value can be incredibly subjective.

“You can’t touch and feel value – everybody values things differently,” Wickersham told AccountingWEB. “We’re a profession that’s used to adding numbers up and having precision.”

Only the customer can determine the value in this situation, so the accountant has to use various techniques and processes to understand what that value is.

Grow your profits

“The bottom line is, if you want to make more money in your accounting firm, you need to be switching more towards value pricing,” said Wickersham.

There is plenty of evidence for this pricing strategy increasing practice profits; in some cases, value pricing has even been shown to double profits, according to Wickersham.

However, there are misconceptions and challenges that come with the process, the most significant being the issue of confidence.

Particularly within the events of the past year, there has been a lack of confidence within the accounting profession surrounding the subject of fees; many have been struggling to start the conversation with their clients about payments.

There appears to be a “moral dilemma” due to the financial struggles thousands are enduring as a result of the pandemic.

“We hate rejection – we hate it when a client says that’s too expensive,” explained Wickersham. “And so when we price we tend to give a number that we hope the client will say yes to.”

With the issue of the subjectivity of value, the tendency to start too low with pricing is common. But the reality is that accountants wind up working all hours and not making ends meet as a result.

‘Value sensitive’

The response many accountants have had in cutting their costs with clients might seem kind, but ultimately does more harm than good.

“If they see a client struggling, their thinking is ‘I need to reduce my prices’,” Wickersham said, “and that’s a crazy thing to do.”

By reducing your fees, you make less profit. Less profit means your practice will struggle. If you’re struggling, you won’t have the resources to deliver the value that these clients really need.

By doing the opposite and focusing on the value of your practice first, your clients will not only thrive off your support but they will be able to pay you according to that value.

“We tend to think, erroneously, that our clients are price sensitive,” explained Wickersham. “And because we think that, we focus on price, and that’s completely wrong.”

Instead of being price sensitive, clients are actually what’s called value sensitive. The reason a client might condemn your fees as being ‘too expensive’ is because they likely do not understand the value, to begin with.

For example, if you were to propose £5000 a year for bookkeeping services, the client might say that’s far too high simply because they don’t understand the value of bookkeeping.

“When people understand the value, and understand what they’re getting, then they’re willing to pay higher prices,” said Wickersham.

The way to get people to understand this is to simply focus on developing your communication skills. Discuss with your client exactly what the process is, what they’ll be receiving, what you’ll be giving – the value of your services.

Service industry

A significant benefit of moving away from hourly pricing is that alternative strategies don’t involve relying or waiting on the customer to pay for services.

Workers within the service industry are normally paid either on delivery or in advance. Although accountancy is indeed included in the service industry, it doesn’t follow this expectation.

“Why in our profession do we act as a bank? Why do we give credit? Why do we send the bill and then keep our fingers crossed and hope we get paid?” asked Wickersham.

As a professional services provider, no firm should be having debtors on their balance sheet. Switching to value pricing makes the process of being paid in advance much simpler, and at a higher price.

Replies (8)

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Mark Wickersham
By Mark Wickersham
23rd Feb 2021 08:40

If you want any help with implementing value pricing in your firm feel free to connect with me on LinkedIn and I'll send you some resources.

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By David Winch
23rd Feb 2021 12:44

Mark has done a brilliant job of explaining Value (-Based) Pricing in easy-to-follow terms, but I feel Tallula has shown she has missed an important point when she adds "... value can be incredibly subjective."

As Mark has carefully explained, Value is ENTIRELY subjective! The value of your work only exists in the mind of the Client, at least until the results are delivered and the tangible return on their investment accrues.

But you will be setting, and the Client accepting, your value-based price before work has started. Hence your value-based price ALWAYS relies on the 'perceived value' the Client shares with you during the Sales Conversation.

David Winch
Sales, Marketing & Pricing Consultant, Cambridge

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By meadowsaw227
23rd Feb 2021 13:10

Doesn't this just turn us into "snake oil sales (wo)men".

Using psychology to try and make our clients think they are getting something more than before.

I used to go to the motorcycle museum for the annual Accountants Club conference and an overriding memory is one of these value pricing experts asking the audience who has managed to charge the most for converting a sole proprietor to a limited company and some "accountants" were falling over each other boasting about how many thousands of pounds they had charged.
Never went again.

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Replying to meadowsaw227:
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By David Winch
02nd Mar 2021 14:53

I would be appalled to think that anyone, Accountant or any other profession, would claim that trying to charge more than a competitor was "value-based pricing". The "expert" should have nipped this 'mine is bigger than yours' playground shouting match in the bud. It is those folks who should never have bothered going to the conference again.

Value-based pricing gives the client a very good return on their investment. If they had been charged x thousand for work that ended up making them x million, they would have been delighted.

At the other end of the scale, if your work saved them a total of just one hundred, it would be unfair to charge more than ten or twenty for it.

The 'winner' of that expert's challenge should have been the Accountant who solved the biggest problem!

David Winch,
Sales & Marketing Consultant, Cambridge

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By indomitable
23rd Feb 2021 16:39

Value pricing has been around for years nothing new as is cost plus, anyone who bothers to read ANY basic book about pricing methods will tell you that.

What these 'commentators' don't tell you because they are not in the front line anymore is that it just doesn't work on all clients only some of them.

But that's the beauty of being a 'consultant'

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By North East Accountant
23rd Feb 2021 17:02

It would be interesting to see an R&D claim guy whose just pocketed a £20K fee actually tell his client it only took him say 10 hours to do the claim etc

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Replying to North East Accountant:
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By David Winch
02nd Mar 2021 14:56

If the fee of £20k was for securing a Tax Rebate of £200k, the client wouldn't have minded if it had only taken them 10 minutes! They'd still be delighted!

If you think otherwise, I don't believe you really understand what value is.

David Winch
Sales & Marketing Consultant, Cambridge

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By Guillermo
07th Mar 2021 17:27

How you make money determines everything about your marketing and sales GTM strategy. Christof and Wholley outlined the following business goal considerations for startup founders to use as a determinant for the basis of pricing.

https://www.jcpenneykiosk.us/

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