Choosing the right pricing model can have a significant impact on the success of your accountancy firm. While hourly billing was long considered the norm, as the market has changed and client expectations have evolved, this is no longer the only or best option for all firms.
Indeed, the pricing model you choose should reflect the products and services you offer as well as the value you bring to your clients, whether that's the peace of mind that comes from knowing that their financial statements are accurate or the certainty of knowing that their tax and regulatory requirements are being fully met. So, what are your options when it comes to pricing methods?
Let's start with the traditional method of hourly billing. As its name suggests, this involves calculating the number of hours you've spent on a particular client and multiplying that by your agreed hourly rate. While this is undoubtedly a simple billing method, settling on an hourly rate can be difficult and will be influenced by several factors. Your experience and qualifications will play their part, but so will other elements such as location and how your firm is perceived. It will also likely be the case that your hourly rate for essential services such as working on a tax return will be significantly lower than your rate for more complex tasks such as tax planning.
Hourly billing also isn't always popular with clients. It doesn't offer the certainty and transparency of other methods and can lead to questions about why so many hours were spent on a specific task.
If it's certainty you want to offer your clients, the fixed fee approach can be a good option. With this option, it's a case of sitting down with each client so that you're clear on what they want from you and then agreeing on the cost in advance. Payment terms, the scope of work and any other deliverables will all be noted and agreed to before work begins so both parties are happy with the outcome and clear on what will happen going forward.
This option is often popular with clients as they have clarity about how much they will need to pay each month. It can also be better for the accountant as you simply have to get on with the task at hand rather than record every minute of work you do.
However, this method can have disadvantages, the biggest being the opportunity for 'scope creep'. While you may have been clear about the work you would complete for the fixed fee in the initial consultation, it may be that over time, more gets added to your workload, often without the client realising that they're taking up more of your time. If this happens, it's essential to communicate with the client, explain the situation and suggest a renegotiation to reflect the additional work.
In fact, it can be a good idea to have a simple pricing menu to hand, so if a client does ask for something beyond their initial contract, you can reference that straightaway and draw their attention to the additional fee. If you have a significant number of sales enquiries, this can also help you to respond quickly, making your business more scalable.
The final common option when pricing your accountancy offering is value pricing. This goes beyond simply offering a list of services and totting up how much they cost. With value pricing, the key is to determine the value a client or potential client places on what you're offering. This being the case, each client will likely be paying a different fee determined by their situation rather than your pricing structure. So, suppose a client is particularly overwhelmed by managing their own books, or they have concerns over meeting their regulatory requirements - in cases like this they may value your services more and be more open to a higher fee.
As with fixed fee, you'll need to spend time speaking to your client to be clear on their level of need and to be sure that you can meet it, meaning it can be a more time-consuming process. But, by offering this more personalised service, you can tailor both your services and your pricing to each client, potentially resulting in higher margins.
However, it does make your pricing less transparent, which can be off-putting for some.
While these are three clear options for pricing your services, it doesn't have to be an either/or situation. In fact, a hybrid approach whereby specific services such as tax returns are priced at a fixed fee, whereas advisory services and consultations are value-priced can be a sensible approach.
Whichever method you choose, there are several steps that will help you to understand your client and deliver a pricing strategy that meets both their needs and yours.
The first step, of course, is to speak to your prospective client. Don't just ask them what services they would like, but find out about their pain points and highlight how you can solve these. This way, you're already showing the value you would bring to their business.
Ensuring both parties are clear on what you'll be delivering is key, and it's essential to do this before you start discussing fees. Being as clear and detailed as possible is key here, especially if you want to avoid the scope creep associated with fixed-fee billing. This will also help you calculate the costs you'll incur to deliver this service, which you'll need to know before moving on to step 3.
Once you know the scope of the project and associated costs, you can start to think about pricing. If you opt for a fixed fee, this could be as simple as referring to your menu of services. If you don't have this yet, you can create it by working out how much time it will take to deliver a service and your desired margin.
With value pricing, use your conversation with the client to determine what they'll be willing to pay for your services and compare it to your costs to see if it's worthwhile.