The Pricing vs Billing Showdown
Value-based pricing is a hot topic in accounting right now—there are endless strategies to price for the greatest effect.
In order to ensure we understand these strategies, here are some basic comparisons of pricing vs billing that will help differentiate between the two:
Pricing is a function that will need to be assigned to the employee that determines the value of what your firm sells. This person needs to have the ability to sell, negotiate, and convince a client of your firm’s value. It may not actually be a partner or a technical manager, but a savvy individual ready to support the strategies outlined above.
Overall, pricing is very client-focused, while billing is very service-focused. Pricing focuses on the person you are speaking with while billing focuses on a stack of paperwork that needs to get done. Since pricing is a human function, it takes a strategic, communicative individual that can work well with your clients. When a firm value prices, the price is no longer tied to the work they do for the client but the value being delivered to that client. Which means you can be paid at regular intervals even if you are not completing work at those intervals.
An overlooked function of value pricing is the platform of software that comes into play as you bring clients into your firm. Pricing can be done with a presentation or contract—written or even delivered orally. But once you need to collect those funds, you need a tool that will collect that money for you. For example, in our firm, we use Bill.com to collect funds every single month over a 12-month contract, even though our work is sporadic throughout tax season.
Below is our firm’s process:
First, I meet, sell and price every new client. Usually, it takes about a month to bring a client into our firm. We call this our Onboarding Process.
Second, my partner reviews the pricing I create, delivered in the form of a High, Middle, and Low option structure.
Third, my partner directs our support team to build a contract and deliver it to the client to review.
Fifth, our Project Manager ensures that the contracts/work are being completed within the appropriate time-frame.
Since we don’t bill or track any time in our firm, we now just ‘set it and forget it’ in Bill.com. We don’t send any invoices, and Bill.com simply deposits all of our money each month into our bank account. In fact, there are times when we have negative Accounts Receivable, as we may be drafting fees from clients for work we haven’t done yet.
This process is very efficient for us. But consider if we were doing this without any software that automatically drafts our prices each month? We would have to remember to mail an invoice each month, go to the PO box to collect checks, go to the bank to deposit those checks, and finally follow up on clients who are not paying. And we’ve taken it a step further to make the drafting of prices a requirement for clients to work with our firm. But we couldn’t do it unless we used a tool like Bill.com to run this process for us.
If you are ready to leverage some efficiency in your firm's revenue generation, consider utilizing pricing over billing.