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What’s your pricing strategy?

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August 20, 2012

I recently had the pleasure of facilitating a wonderful panel of experts (Michelle Golden, Deb Knupp, Dixie Larson) on the topic of pricing for CPA firms for the Association for Accounting Marketing. Pricing is becoming an increasingly popular topic as firms continue to struggle in a competitive marketplace.

As a buyer of professional services, I can’t stand not knowing what I am going to pay. Hourly billing has actually deterred me from talking to one of my professional advisors on certain occasions.

That is probably not the best strategy for a business owner. I believe that I am not alone in this. I talk to buyers of my services every day and find that they want the same things. So why is it that the same buyers that want to buy on fixed-fees or results-based work don’t want to sell their services that way?

I believe that fixed pricing and value pricing are going to become more prevalent. While the two pricing strategies are very different, I do believe this will begin to become more commonplace—mostly because the buyers of professional services will start demanding it. However, more importantly, I believe that these pricing strategies will also help firms connect with the buyers of their services more effectively, generate higher profit and help build better relationships over time with their clients that are built on transparency around their services.

Fixed pricing and value pricing are different:

Fixed price is any price given to a buyer that is adhered to for a certain scope of work. A fixed price may or may not be based on time (inputs). A value price is never based on inputs. A fixed price can be arrived at unilaterally (by the seller). A value price cannot.” Michelle Golden

Changes in pricing don’t happen overnight and aren’t something we do on a whim. If this is something you are thinking about, here a few pieces of advice our esteemed panel of experts shared on the topic:

    1.    Start small. While the firm should have an overall commitment to this approach, going cold turkey can be very difficult. Consider moving from an hourly billing to fixed pricing can be a good interim step. You can also begin with a practice area or service area. As the firm becomes more comfortable and educated, this is something that can then be rolled out across the whole firm.
    2.    Training is key. Moving to a value pricing or fixed-fee pricing strategy requires training across the whole organization on scoping and project management skills. As you begin to explore this idea, there are key requirements to developing the right prices and managing your profitability.
    3.    Measure your results. Just like with any change, you need to measure your progress. Develop some key KPIs to measure the impact of these pricing strategies.

      Looking for more information on this topic? Check out Ron Baker’s book Implementing Value Pricing.

      Sarah Johnson is the chief growth strategist with Inovautus Consulting, a firm that works with CPA, law and professional service firms to help them grow more effectively, and author of “Practical Ideas for Growth,” a blog dedicated to growing professional firms. Her counsel and strategies have helped move firms to the next level in their marketing and sales efforts. Connect with Sarah at 773-208-7170, sjohnson@inovautus.com, or www.linkedin.com/in/sjjohnson

       

      4 Comments

      We went to Ron Baker's method about 8 years ago after we all read "The Firm of the Future". You need to have a process that the whole firm buys in to, and we had many meetings refining the process, including how we would notify our clients. The hardest part, of course, was the conversion, but I would never go back. Our clients love it and it is a great selling point when working with prospects.

      Posted by: jfoxcfp | August 27, 2012 8:43 AM

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      Good Q, Laura! Like Sarah explains, the key is in a thorough, thoughtful scope. Most of the time we have scope creep now, it's because scope is extremely vague. There is almost nothing important documented for the client, and for the firm's employees. Partners blame the team for "doing extra work" but the team doesn't have a scope document to follow in the first place. If we don't have clarity internally, I guarantee the client is unclear about what our price does and doesn't include.

      If a scope change is necessary, the only appropriate time to discuss a higher price with a client is BEFORE you do the work. IMHO, price integrity is critical. It's unethical and inappropriate to do what I call "bill and duck"--to go back to the client and charge them more after the fact--and we feel "icky" doing this for good reason: it's not the right thing to do.

      Believe me, when you mess up with scope and don't permit yourselves to go to the client with hat in hand, you do learn very quickly what things trigger overages and you'll get much better at defining parameters. For example, I learned the hard way to always include duration in my scope: "The project will be performed and completed between [date] and [date]. If delays occur as a result of incomplete information or indecision, an additional price of $x per [day/week/month] will apply." By failing to define a duration once, I spent three long months closing a project. And I ate every minute of it because it was the right thing to do. The error was on my end.

      Duration one is a biggie, but there are other routine causes of scope creep in any service you provide that your service teams, if you sit down together, can anticipate at the outset. These are the things you need to create parameters around. The things you miss will rear their ugly heads quickly.

      Try not to get too hung up on the fact that you'll make some pricing mistakes. Firms make pricing mistakes all the time even without trying these approaches out. The only true mistake is the one we never learn from.

      Good luck!

      Posted by: michellegolden | August 21, 2012 5:49 PM

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      Laura- you need to begin with a good scoping process- this will help eliminate alot of problems up fromt. To help with discrepancies, you can also add some clarity around certain things that may end causing scope creep. For example, if the client isn't delivering materials in the format agreed too and you have to step in an do some work there or if they reschedule field work or aren't ready for the field work.

      If you are going to begin using fixed fees that are still based on a time and output model, very clearly define your scope. If the client adhears to their end/requirements, strongly resist the urge to bill them more. If you do this, all your telling them is that its really not a fixed rate, but still just an estimate and ultimately you are still billing by the hour.

      Consider starting with a client or opportunity that is less sophisticated. One that you know very well. Also, read Ron Baker's book. He provides some great insight on this stuff.

      Posted by: Sarah j | August 21, 2012 3:16 PM

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      How would you suggest firms deal with large discrepancies in the original quote and how long a project may have actually taken (without angering the client)? I can especially see this being a problem when firms first start experimenting with this billing model.

      Laura

      Posted by: laura.berthiaume | August 21, 2012 10:19 AM

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