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Pricing strategies for accountants: There’s so much more than the billable hour

Pricing strategies for accountants: There’s so much more than the billable hour

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Fee-based billing isn’t exactly a headliner topic; it’s a tried-and-true business model element that’s been around for decades. It is still getting ink, however, because many firms have yet to adopt it—despite its immense value.

Greg Kyte, CPA, founder of Comedy CPE and co-host of Drunk Ethics podcast, and his Drunk Ethics co-pilot, Adam Broud, are big fans of the fixed-fee model. Why? Broadly speaking, they cite two solid reasons: 1) the long list of benefits that come with fixed-fee billing and 2) the limits of hourly billing.

They also understand the barriers that keep accountants from moving to higher-priced fixed fees. Notions such as:

  • We don’t know how long the work will take. This induces fear around setting fees too low or too high.
  • Hourly billing is a more reliable model. This mindset quickly loses credibility when you consider that hourly billing has a definitive limit (there are only so many hours in the day).
  • Clients won’t pay a fixed fee. In reality, many clients actually prefer a fixed fee approach because it eliminates billing surprises and supports accurate monthly budgeting.

Read on to learn more about the value of fixed pricing, complete with advice from Kyte and Broud on how to get there.

How to offer fixed pricing (and remove the fear)

Fixed pricing requires two key elements: knowing your services (what’s involved and how long it will take to complete work) and confidence.

Here are a few core insights to help make the transition to a higher-priced, fixed-fee model:

  • Quote like a contractor: Quotes should be based on your experience and expertise in providing the service. From there, much like a contractor, you can add on a contingency fee to cover any additional work that falls out of scope. A 10-15% contingency fee is standard.

  • Offer multiple levels of service: Kyte advises that firms offer three levels. This gives clients a choice and offers insight into what the client gets at each level. For example: Tier I includes tax return preparation, planning and audit protection; Tier II includes tax return prep and planning; and Tier III includes tax return prep only.

    “A lot of people hate negotiating. It feels like selling,” said Broud. “When you offer levels, you can avoid having to negotiate price.”

  • Make sure you don’t hate any service level: This pushes accounting professionals to think through product bundles and pricing tiers thoroughly. In other words, don’t offer a service option you don’t want to support. Each tier should include work you are good at performing and want to offer.

  • Provide a clear scope of work: Offer clients an engagement letter that codifies the scope of work and what happens if work falls out of scope (e.g., added fees).

  • Offer change orders: For work that falls out of scope, provide new documentation (or like a contractor: change orders) with the added services and fees clearly defined.

“It’s important to spell out work that falls out of scope to help clients see what they are getting and the value of the added services.” - Greg Kyte, CPA

Master the art of anchoring

Kyte explained that value is subjective, which is why accountants tend to undervalue their work. It’s also why so many are fearful of setting fixed prices.

The key to overcoming this challenge is to master the art of anchoring. This involves anchoring your firm to the highest level of service. In other words, always lead with Tier I services (the highest price).

Recalling the example of multi-tiered services above, notice that Tiers are listed from highest cost (service bundle) to lowest cost (stand-alone service). The logic behind this is to anchor the conversation with the highest fee services package. As you explain lower-tier services, price becomes less of an issue because you’ve removed the “sticker shock” that comes with unveiling progressively higher fees.

“Anchoring is very much a psychology-based approach that allows you to negotiate without feeling like you’re selling.” - Greg Kyte, CPA

Benefits of quoting higher fees and how to get there

It’s time to start thinking about higher prices in a different way. This involves equating fees with service value. Bottom line: There is a cost that directly aligns to the value of the work—and sometimes that value comes at a higher price.

Kyte and Broud offer a short list of reasons why quoting higher prices is a benefit to firms:

  • A higher price signals higher value: There’s truth in the old adage: “You get what you pay for.” And many clients are triggered (in a good way) by price. Trusted and dedicated accounting services are integral to financial success, so many clients will be drawn to higher-priced firms based on perceived value.

  • Higher fees weed out price-sensitive clients: For many firms, clients who are solely focused on price are often not an ideal fit. By pricing your services higher, you can attract a better class of long-term and exceptionally loyal clientele.

    According to Kyte, “Low prices can also enable client apathy.”

  • Higher prices push you to offer exceptional services: When you charge premium prices, it pushes you to offer premium services. It also demands that you consistently review services to ensure you’re always enhancing offerings.

Kyte and Broud also discussed additional ways to price higher without feeling like a jerk (their words). Consider each:

  • Become a niche practice: When you specialize in a certain vertical or verticals, you set your firm up as the expert. And with expertise comes higher prices.

    “You can charge more because you know all the INs and OUTs of that niche. You’ll also get a better pool of referrals,” said Kyte.

  • Mystery shop competitors: Take the time to shop around your competitor base. This offers insight into pricing and service levels at comparable firms. You might just find that you’re undercharging for the same services, even though your firm has more expertise on staff.

  • Become a concierge service: Elevate your services by offering concierge-like support. Clients love being guided through the process and will expect that this added level of support comes at a higher cost.

The wrap

You don’t need a masterclass in pricing to know what your value is. Take the time to identify service tiers and what is included at each level. Then consider your level of expertise as you build out your fixed-fee model. For example, are you an expert in a vertical? Do you offer concierge-level support? This all comes with a higher price tag.

The main goal is to understand your value, set value-based fees, and stand firm. A fixed-fee model can attract ideal, qualified clients; weed out price-sensitive prospects; and push your firm to a new level of excellence.

The days of hourly billing are numbered. Know your value and then make the move to a modern fixed-fee approach.

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