Value-Based Pricing for Accounting Firms: Moving Beyond Hourly Billing
Pricing services in the world of accounting has traditionally revolved around billable hours, timesheets and hourly rates. But does this truly reflect the value you bring to your clients?
As the firms are shifting towards advisory-focused services, many accountants are finding themself trapped and limited with time-based pricing. It rewards inefficiency, limits the earning potential and creates tension in client relationship.
That is where value-based pricing comes in – a smart model that determines the worth of your services and ensures adequate compensation for the value you provide.
In this article, we will explore value-based pricing, how it compares to other pricing models, and a step-by-step approach to implementing it in your firm.
Sounds good! Let us dive in.
What is Value-Based Pricing?
Value-based pricing is a model for pricing goods and services based on their perceived value rather than historical price or cost-plus model. In other words, value-based pricing is about pricing the ultimate outcomes rather than the product or hours.
What the customer Buys and considers value is never a product. It is always utility, that is, what a product or service does for them.
-Peter Drucker (Management Consultant & Author)
Many well-known companies, such as Apple, Tesla, Salesforce, etc., use a value-based pricing model to increase their revenue and profit margin without significantly impacting sales volume. These companies focus on perceived value rather than what is on the invoice.
This can be a valid pricing model for accountants and accounting firms to explore too.
Key Notes:
- Value-based pricing model values goods and services based on perceived value.
- This model is most effective for services. Also, it is used for products with high perceived value.
- The price of goods valued under this model is typically higher than other models as it incorporates and enhances the perceived value of service.
When is Value-Based Pricing Used?
Value-based pricing is most effective when the perceived value of your service is high, emotionally driven, or scarce. These services include tax advisory, bookkeeping, audit and assurance, business valuation, and compliance tasks, where the firm’s expertise, insights, and strategic support define the success of clients.
Here are some scenarios where accounting firms can confidently apply value-based pricing.
- Advisory Services
Clients are often willing to pay premium when your guidance helps them make better financial decision. It includes business structuring, M&A advisory, succession planning, and deeds. - Audit & Assurance Services
Audit and Assurance is not just the compliance task. It is more about building credibility and trust. So, pricing audit and assurance services based on the significance of audit rather than hours logged aligns better with client’s expectation. - Tax Planning & Optimisation
Tax clients want to pay less legally and avoid costly mistakes. The value firm and tax adviser provide is more than just filing tax returns. So, for services like R&D tax credits, international structuring, or inheritance planning, Accountants can use value-based pricing. - Time-Sensitive Needs
Time sensitive needs such as year-end filings, dispute with HMRC or other last-minute tax issues carry higher value. Clients looking for this service value based on the certainty, peace of mind and speed, rather than legal compliance or hours logged.
Cost-Plus Pricing vs Value-Based Pricing
When it comes to pricing accounting services, accountants will encounter a critical question: which pricing model should I use, cost-plus pricing or value-based pricing?
Well, the answer depends on nature of services and the expectations of the client. While cost-plus pricing focuses on internal costs and desired profit margin, value-based pricing centres around customer priority and perceived value of the service.
Here is a quick comparison that can help accountants decide.
Now that you have weighed the pros and cons of the cost-plus and value-based pricing models and made a choice for your accountancy firm, let us go through the step-by-step approach to implementing value-based pricing.
How to Implement Value-Based Pricing
Step 1: Assess Client's Needs & Goals
The first step to value-based pricing is understanding what the client truly values. For this, you can use custom questionnaires and surveys and gather insights about client goals, challenges and expectations.
Step 2: Identify Key Value Drivers
Accountants must understand their clients’ key value drivers. Find the answer to “What makes the client satisfied?” It could be reducing tax liabilities, getting better service packages, or ensuring regulatory compliance. Understanding these key value drivers would ensure tailored services.
Step 3: Create Tailored Service Packages
Once you understand clients’ needs and key value drivers, you can craft a personalised yet professional service package. Ensure the package directly addresses the client’s needs and highlights the benefits they will receive.
You can use proposal software for accountants like FigsFlow to automate this process. It allows you to create customised proposals and engagement letters in just a few minutes. Plus, it allows you to track the entire client journey and workflow without breaking the bank.
Step 4: Align Pricing with Client Value
With a clear understanding of the client’s needs and key value drivers, accountants can devise a pricing quotation that is value-driven rather than hours worked.
You can use FigsFlow for this. This pricing software for accountants automatically calculates the prices based on provided guidelines and allows you to easily adjust discounts and prices.
Step 5: Clearly Communicate the Value Proposition
Justify the price by effectively communicating the benefits and outcomes to the client. You can use case studies, data or examples.
Tailored engagement letters, proposals and service packages also form part of this communication as they personalise everything.
Step 6: Monitor Results & Gather Feedback
After implementing value-based pricing, accountants should closely track the response of their clients and/or gather feedback. If the client perceives more value in your services, you can reflect that with your pricing.
Pro Tip: Use FigsFlow for Value-Based Pricing
This model requires extensive manual input and a personal touch. However, FigsFlow can automate this tedious task.
It allows accountants like you to craft customised proposals, engagement letters and pricing guides – all through one account. You can also create customised service packages, apply dynamic pricing and discounts and track the entire workflow from proposal development to client signing.
The best part is that you do not have to make an instant commitment. You can sign up for a 30-day free trial and experience the benefits yourself.
Challenges & Solutions to Value-Based Pricing
Value-based pricing is a model that requires accountants to have a deep understanding of their clients’ needs and aspirations and a personalised service experience. That is what makes it powerful but also challenging for many accounting firms to implement.
Below are some common challenges many accountants and accounting practices face in implementing this model along with practical solutions.
Debunking Myths Regarding Value-Based Pricing
A value-based pricing model is a modern approach to pricing services and goods. With its wide adoption in the market, there are many misconceptions about this practice.
Let us debunk those myths.
- Value-Based Pricing Guarantees Success
Accountants and accounting firms should not expect exponential growth in revenue just because they adopt value-based pricing. Though the pricing is reasonable and logical with this method, it is not the absolute key to success.
- Value-Based Pricing Requires Detailed Consideration of Services
A common misconception about this model is that it requires accountants to take into account every feature and service the client wants. That is not the case. The key to value-based pricing is gauging the value a particular client would get from the given service and customising the package and pricing based on that.
- Without Brand Value, There is No Value-Based Pricing
There is no doubt that brand value determines the perceived value of the service. But here is the catch. In accounting, you can use your past experiences, successes and client testimonials to enhance the perceived value of your service even if you lack the brand authority.
Conclusion
Value-based pricing is a radically different way of setting prices for your services. While adopting this model comes with a bunch of challenges, including redefining value, training your team, maintaining consistency with pricing and communicating effectively with clients, the use of the right software can ease the transition.
FigsFlow, the ultimate proposal, engagement letter and pricing software, can help you navigate the transition. With easy-to-use templates and built-in pricing automation options, FigsFlow enables you to set the best prices for your services that ensure maximum profitability for you and maximum affordability for your clients. So, why not start a free 30-day trial today?
Value-based pricing strengthens relationships with clients, enables differentiation with service packages and pricing, and allows you to increase revenue without affecting sales volume. Plus, unlike cost-plus pricing, it rewards efficiency and expertise and offers unlimited upside potential.
Value-based pricing focuses on the client. The entire model centres around the client’s needs, gauging and enhancing the perceived value of products and services from the client’s perspective.
The easiest and most practical way to calculate value-based pricing is to use percentage fees of the benefits received by the client. It could be tax saved, risk reduced, or costs avoided.
Sandeep Subedi
Sandeep is a rising finance professional with a sharp eye for numbers and a passion for turning complex tax rules into simple and smart solutions. Currently pursuing an ACCA qualification, he specialises in helping businesses stay regulatorily compliant.
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