What is Value-Based Pricing?
Value-based pricing, a strategy that is gaining momentum in the accounting industry, defined as the pricing of a product or service based on what the business perceives the customer is willing to pay. In determining the price of the service, the CPA considers what value is received by the client. Value-based pricing eliminates the surprise by offering the customer a price upfront with defined outcomes.
According to Justin Hatch, CEO of Reach Reporting, “Accounting is going back to its roots providing value at fixed prices rather than providing services at costly hourly rates.”
Move away from hourly pricing and make the transition toward value-based pricing. As an accountant, you will increase revenue and improve your client experience as the firm is incentivized to specialize and gain more practical skills.
The Power behind Value-Based Pricing
The Story of “John,” the Mechanic
Consider the example of John, an auto mechanic, who goes from pricing his services at an hourly rate to value-based pricing. John will now be able to quote a price regardless of time being a factor. This change incentivizes him to optimize all business processes, which would reduce the time it takes to perform work on a vehicle. John would also be more inclined to purchase the latest software or other tools to enhance his business and decrease operations time.
In brake repair, John has become so specialized; he can complete the job in 30 minutes. Instead of charging for only a 30-minute repair, value-based pricing makes it possible to charge the same previous price or more and then service three other customers’ vehicles in the time he would have only billed one client, thus significantly increasing revenue. Meanwhile, customers value the service’s skill and efficiency because they are back on the road faster. Value for the customer increases, and John can charge a premium price.
Now consider, if the mechanic were charging by the hour, what would be the incentive to complete the job promptly? What would be the incentive to purchase specialized equipment which may increase efficiency and quality?
The power of value-based pricing comes into play with the increased value of the skill you provide and your ability to earn more in less time.
The Benefits of Value-Based Pricing
There are many reasons to consider the benefits of transitioning over to value-based pricing. In the report, Where Opportunity Meets Value: Business Model Trends for Accounting Advisory Services, we learn that offering expert insights into finances gives firms the upper hand. By implementing value pricing, it enables them to provide a better customer experience.
The 655 accountants and business professionals that responded to the survey ranked the top benefits of value pricing as transparency (64%), demonstrating the value of expertise (60%), and eliminating billing surprises (59%).” These survey results reflect that value-based pricing does more than just increase revenue; it provides value for the client.
Transparency/Eliminate Billing Surprises
As the survey suggests, value-based pricing allows for greater transparency right upfront. Customers are more comfortable knowing from the start their charges for a service. Value-based pricing eliminates the guessing, uncertainty, or billing surprises that are involved in expensive hourly-based pricing. The customers are no longer watching the clock and wondering how long it will take. Clients are more likely to interact more with their CPA as they are not concerned about the hourly charge. This added communication allows the CPA to gain greater insight into what they can do to help meet the clients’ needs. This change results in increased value for both the CPA and the client.
Demonstrate the Value of Expertise
Value-based pricing has become more widely implemented in the accounting industry since technology, updated business processes, and advisory play a more vital role. Value-based pricing encourages efficiency and expertise, motivating the CPA and other employees to improve their skills, just like how it functions for the mechanic in the story above. The CPA will then want to search for the best software to improve speed and quality of service. Everyone in the firm benefits from improving their skills. While providing excellent value for the client, the CPA now has more free time to grow their business.
Transitioning Away from Hourly Pricing
Communicating with your Clients
Value-based billing is changing the way accountants engage with their clients. The challenge, however, is for each accounting firm to decide how they want to navigate what they will provide for their client and how they will price it. The first step is to develop superb communication with your clients.
Get to Know your Clients Needs to Know What Services to Offer
What clients expect from their accountant is changing, says Raoul Monk, Founder/Director of Flume Training. The relationship is changing where communication skills are becoming increasingly important. How you interact with your client makes a strong impression. A big part of why someone may use your services is the communication you have with them.
Conversations with your Client
- As an accounting professional, approach your clients as one who is there to solve their problems.
- You can gain valuable insight when you learn what they need and why they need it.
- Be interested in what they do.
- Discover what results they want to achieve.
- Explain solutions you can provide along with the results they will see.
Through conversations with your client, you will learn of their specific needs and then work toward providing solutions. It will be the solutions you offer that will provide real value. The insight you gain from your client will help you confirm what services to offer, how to package your services and price them to move toward using a value-based pricing system. According to OnPay’s 2019 Small Business Finance and HR Report, “Fifty-three percent strongly agreed that their accountant is a trusted advisor, and another 33% agreed with the description.” Advisory work fits perfectly into the value-based pricing strategy.
Offer Expert Insight
When adding advisory services as part of your package, let Reach Reporting showcase your efforts. Visibly enhance your reports when you use Reach Reporting and provide your clients with outstanding, easy-to-read data.
Experience the future of automated report creation in three easy steps.