Value added v price: How you can justify fees

value v price
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Richard Hattersley
Community correspondent
AccountingWEB
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The idea of becoming a trusted adviser and offering added-value services is a well-trodden one. But while it can present opportunities, in one case it has thrown up more questions about how to justify the fees.

A recent discussion started by AccountingWEB member Claire Whiter pondered this very subject. Whiter recounted a recent quote she presented to a new client. Because they were in the midst of setting up a new company – with the added complexities of worldwide sales and contractor employees – she factored the initial hand-holding that would be involved into her quote.

Her quote included accounts, tax return, tax-efficient extraction advice, software support, adhoc phone support and four face-to-face meetings a year, director's tax return, secretarial support on board minutes and confirmation statements.

While this may sound good, the prospective client played their ace card: they had another local quote which was about a third of what the AccountingWEB member had estimated. The shrewd haggling from the client hinged on whether Whiter could justify her added value.

Value is in the eye of the beholder

And this then uncovers the problem, as Paul Scholes would later offer: “value is in the eye of the beholder on each side of the arrangement.”

Such discussions around added services go to demonstrate how nebulous the phrase can be, and the difficulty in pricing and communicating this to clients. As AccountingWEB regular Red Leader offered, “It's very difficult to demonstrate added value to a prospective client. The reality is you have to come across as the more credible, impressive accountant than your competition.”

If you can genuinely demonstrate that you can impact a client's business, then all of a sudden the price doesn't matter"

So how can practitioners justify added value services fees? “It's about impact,” says James Ashford, business consultant and AccountingWEB contributor. “If you can genuinely demonstrate that you can impact a client's business, then all of a sudden the price doesn't matter.”

And just because another firm offers substantially less, it doesn’t mean that they won’t offer the same services. As Scholes reveals, “I don't need new clients, have loads of spare time, only take on interesting work and have very few overheads so can easily charge far less than the firm up the road, the money is no longer that important to me.”

Understanding value

Of course, there are always clients who shop for the lowest price, but when software such as TaxGo can offer compliance for £20, the idea of low fees being the deciding factor goes out of the window. The difference maker, as author and coach Steven Briginshaw says, is through understanding value from your client’s point of view.

Briginshaw believes the member’s conundrum creates the opportunity not just to educate the client, but also for the accountant to understand the value that they provide. “Value is all about the results the client wants but sometimes they don't know what they want because they don't realise what is available,” he said.

“So the value discussion tends to be an education discussion with the client in terms of what the accountant can help them with and the return on investment they will get for the price paid. All value needs to represent a great return on investment that is relevant to the client, otherwise it simply isn't valuable.

The moment you start to address fundamental issues in their life they'll stop thinking about price - you've got to get them off the price.”

The question at the forefront of a practitioner’s mind should be: ‘what is the client’s urgent need?’ In order to communicate this, Ashford has boiled the idea of justifying value down into three questions:

  • What are the client’s goals?
  • What are the client’s personal goals?
  • And what are the obstacles preventing them from doing that?

For many clients, overcoming these obstacles overshadows price. “There are very few accountants out there who will be asking, ‘If we are able to do this for you and achieve these things what does that mean for your life; what difference will that make for you?’”, said Ashford.

“The moment you start to address fundamental issues in their life they'll stop thinking about price - you've got to get them off the price.” 

But even this approach may be too little too late. Ashford, ultimately, believes this situation is a symptom of another problem: marketing. “If they [the accountant] had their marketing correct where they had a flow of their dream customers, then by the time their ideal clients come to have that conversation with them, they would be coming to buy.”

 

How much is pricing a factor when you charge added value services? Or are you able to bring other factors into the client conversation?

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08th Jul 2017 15:12

Great article, Richard!

You can't tell a client what value you will deliver. You have to develop the skill to get them to tell you.

They'll not be used to thinking this way so you'll have to gently guide their thinking, but my goodness how strong the buy-in will be. People rarely disagree with their own opinions!

It all begins in the sales conversation - Understand their problems and what it will mean to no longer suffer them; make sure you would both enjoy working together; suggest what you can deliver for them and remind them how much difference they told you it would make; name your price - a fixed fee for a fixed-scope project - which gives both of you a huge return on your respective investments; and have them asking you how soon you can start!

David Winch
Sales & Marketing Consultant, Cambridge

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to David Winch
11th Jul 2017 09:44

For me the really challenging client is the one who leaves paid employment and starts a business. The classic being the middle manager who is made redundant and buys a pub from a landlord who has run it for twenty years.

They will have never employed an accountant before, have no idea about what is required for accounts, VAT, payroll, till management, HR issues etc etc. They basically don't know what they don't know!

Few realise the vertiginous learning curve they have just climbed onto, and have no idea about how much time they or their accountant must spend getting it up and running. Quoting for this work is so difficult and not one I would be prepared to give an up front fixed fee even with the usual "if your records are rubbish, then..." caveat.

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to Vaughan Blake1
12th Jul 2017 10:12

This is just the sort of scenario I am talking about, Vaughan.

The sales conversation will possibly be quite lengthy (two or three hours maybe), but every minute is essential. Effectively you need to guide them through the process of being able to work out for themselves what it will mean to them, their new business, their life savings, their life, their relationship with their partner maybe, if nobody helps them.

Whilst doing this, you will be deciding your own 'cost of delivery' to between an order of magnitude and one significant digit.

What you are seeking is a large enough ratio of perceived value to delivery cost so that when you name your price somewhere in the middle, both of you are set to receive a 'bite your arm off' percentage return on your investment.

Hence you can quote a fixed fee and be sure that, even if your estimate of costs and their perception of value are both adrift - and working against each other - by factors of two or even three, both of you will still make a handsome return.

If it emerges that their naivety is considerable, their pace of understanding is very slow, and/or their records are rubbish you can cut the conversation somewhat short and quote them a fixed fee for a 'project zero' - in other words a training session - where you can bring them up to speed with the business essentials they lack.

Once this is complete and their understanding has increased, you can have the sales conversation for the longer term work.

David

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to David Winch
13th Jul 2017 18:02

What?!

Agree a fee for an agreed level of service and get started.

Your sales speak reminds me of double glazing salesmen not leaving until the deal is done - 3 hours?!

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to Kent accountant
14th Jul 2017 18:33

It is sometimes possible to complete a sales conversation in under an hour, but it's not something that should be rushed. The prospect knows this before we start as setting their expectation of its length was part of the process of making the appointment.

The usual reason for it lasting longer is that no-one previously has sat the prospect down and said "Tell me about your troubles," with the result that it's their lengthy answers that extend the time.

And, yes, I do try to 'get the deal on the day' but that's totally different to 'refusing to leave without an order'!

There's a lot of ground to cover in a sales conversation and I'm constantly looking for signs that the relationship won't work, in which case I'd draw the conversation to a close to avoid either of us wasting any more of our time.

The deals that result from reaching the end of the sales conversation are then all win-win arrangements with 'clients from heaven' who've already agreed - amongst other things - that I won't start work until they've paid me.

That's how I keep my debtor days to less than one!

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10th Jul 2017 09:11

A cracking article - thank you, Richard.

For me, a key extra factor is our interpersonal skills as accountants. Clients want an accountant they can get on with, feel comfortable around, is clearly reliable and able to build a pleasant relationship with the client and their staff.

Its a lot easier to do this when its genuine and natural behaviour for the accountant meeting the client.

So it's probably worth being careful which person goes out to meet the client in the first instance - we have a wide range of skills as accountants but some are stronger in some areas than others..

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to Paul Cowie
15th Jul 2017 21:09

Quite correct Paul, in my opinion.

I would say that I know within the first 10 minutes whether I want to work with the potential new client or not, and I'm sure they be in exactly the same position. The client usually already knows that I can perform the work, a face to face meeting is really just for us to meet each other and discuss anything that they don't like discussing over the phone e.g. tax investigation, disputes etc.

All of my new clients are warm referrals from existing clients so perhaps it's not entirely comparable to a cold meeting, but even so 3 hours for a prospective client meeting? Anything longer than 30-60 minutes and we're into general chat/gossip, or we've moved on from pints to single malts, after all a 3 hour meeting has just cost me several hundred pounds in lost time.

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By 68fw
11th Jul 2017 12:45

Perhaps I'm just getting old and grumpy... but as an accountant in public practice for well over thirty five years... as soon as I'm called upon to 'justify' my firm's fees I smile, and courteously let the prospect/client go on their way - I'm not having it.

Best to let the client find other accountants who feel comfortable justifying their fees and existence - for they shurely deserve each other.

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15th Jul 2017 20:41

"Trusted advisor" is indeed a well-used phrase. But, speaking as someone that sees many, many firms across the country, most accountants are living in cloud-cuckoo land if they really think they offer all-round advice to clients.

How many help a client determine & execute a strategy for growth?

How many are aware of the client's cashflows & can anticipate working capital deficits and/or proactively find alternate/better finance before the client comes to them in last minute desperation

How many clients do most accountants work with to a) increase the value of a client's business & b) improve its saleability/find appropriate buyers

These are all the commercial aspects that entrepreneurs really need from accountants - they need mentors, not number crunchers. And this is why the fastest growing number of entrepreneurs (under 30s) aren't even using accountants at all. They see accountants as expensive, out of touch with their business world & incapable of advising them.

And until accountants realise all this, they'll never truly be most business' trusted advisors.

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to kirstymcgregor
15th Jul 2017 21:02

Can I just be the first to say......"well, you would say that wouldn't you".

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to Sheepy306
16th Jul 2017 10:23

Yes I would, because that's what I see every day. The truth hurts to hear.

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