[IMGCAP(1)]Gone are the days of billing a fee for a tax return or financial statement. Now, it’s a collaborative partnership where a trusted advisor leads a small-business chief executive through accounting, tax and consulting services. Prospects no longer only come via referral from your town or city; they come to you through social channels as well — which means you may be working with new customers from around the world. This is a different way of doing business. That’s why it deserves a new way of being sold, value-positioned and priced.
Why are pricing and value creation so important in today’s new world? Why is billing by the hour no longer good enough? Here’s my straight-from-the-hip answer: because the world has changed and customer expectations have changed as well. Tools are constantly evolving and there is a demand for more frequent customer communication. This requires an adjustment to your pricing model — or you might find yourself billing your client for a tweet.
Using the cloud and social media fundamentally changes the relationship and communication expectations with your client and within your firm. This is one of the key factors of disruption for many accounting firms. It’s not the software itself that is disruptive.
WHAT ARE WE SELLING?
Before we can even talk about pricing, we have to figure out what it is we sell.
If you still believe we sell time, erase that thought immediately.
Selling of time is no longer a competitive advantage in today’s technology-driven, social-mobile world. Our customers are not buying our time. What they’re really buying are solutions to their problems.
From this perspective, how do we make our services into products or solutions? That’s essentially what you are doing with pricing a bundle or a package upfront. You are productizing a service.
The questions remain: How do we make our services into products? How do we make sure that the experience is a good one? The customer doesn’t know if our calculations are correct or not. What they know is what they feel. Did we solve their problem? Have we added value to their business? Do they have peace of mind?
Forget about the tax return. What does the customer actually need from us today to make their business better? They may need a compliance document required by the government, but we all know it offers them no real value. What they want to pay for is something that’s going to help them in the long term. That’s why it’s a lot easier to sell and provide tax planning over tax compliance — because a customer can see the value.
But if I don’t measure and bill time, how will I know that I’m profitable? Here’s the simple answer: All revenue goes into a “services” income account. Watch your gross profit margins. Fixed employee costs and software go into cost of sales accounts. At my firm, my concern is whether I am profitable and have a good gross profit margin. Then my overhead and everything falls in behind.
What are my job costs?
Time is not a correct measurement, anyway. We need to measure how many times we’re speaking with our customers so that we can track what the questions are and how we can serve them better. For me, that’s a better measure than my time spent on a specific customer.
The hardest part of changing to a value-pricing firm is transforming the way you think about time, delivering service and value. You must also be able to understand and articulate your “true value” to your customer, and it’s not in a bank reconciliation. Time has no bearing on the engagement with your new social and cloud-based client. Whether it takes two minutes or two hours is not relevant to the value you are offering. Insight can’t be measured in a time increment and therefore can’t be sold as one.
Think about this: Your client might say, “I can do that in five minutes myself.” Sure they can. But can they offer the additional experience and insight that you do? I’m guessing not. What should your response be in that situation? Tell them this: “I don’t sell my time. I sell my value to you as a small-business owner.”
The value-pricing model is going to encourage communication with your clients. They won’t be afraid to call because the “clock” will start; instead, they will have agreed to a fixed price upfront.
That said, the bulk of the profession isn’t there yet. Value pricing a business disrupts how we manage our employees and our sense of control. That creates vulnerability, which is terrifying to those who believe in “old school” time and billing.
LOOK BEFORE YOU LEAP
Keep in mind that you should not just insert new value-based pricing within your business without rethinking and retooling all of your customer communications and processes. If you do, you are wasting the core benefit of transforming your business model and what it will bring to your firm.
Transitioning to value pricing in your business will no doubt restructure your culture and accountability. Be prepared, because the first few months will be bumpy as you transition. But remember, the bottom line is your customers. The bonus is that your team will love it and you will be very profitable.
Jody L. Padar, CPA, MST, is CEO and principal at New Vision CPA Group and author of The Radical CPA.
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