Value Pricing: Is Your Firm Ready?
People often ask me: What makes a radical "New Firm?" There are four fundamental tenets. Although adopted differently within each firm, these four tenets constitute a new set of values that most of the "movement" firms embrace.
Ready? Here they are:
For the sake of this article, we'll take a brief look at a new "radical" way to price your services.
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. They may be buying our expertise, but what they're really buying is a solution to their problem.
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 question remains: 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?
If you are selling a tax return, 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 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.
Remember, nobody ever wants to pay for compliance.
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 New Vision, 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.
What this change has done for the culture of my firm can't be measured. It's an intangible. I started running my firm differently because I figured out that there had to be a better way to sell my services. I didn't want to sell myself by the hour and I found out that it worked without reading all the economic theories. So I continued.
My firm doesn't keep time. We don't measure our employees on time. We don't measure them on chargeable versus non-chargeable hours. We work together as a firm to produce a product to deliver service and value to our customers.
I believe the accounting profession's pricing model is going to change. The technology is only getting faster and better. Eight years ago, my payroll only took two minutes using PayCycle. I had to ask myself: How can I make money on this service? Ron Baker was the early adopter in the philosophy of value pricing and started this 20 years ago. I believe the technology has now caught up.
If firms don't change their pricing model, accountants will either have 25,000 customers or they won't make any money. The choice is yours.
That said, the bulk of the profession isn't there yet. Value pricing a business is disruptive to most CPA firms' core management and cultural philosophies. It 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. It completely changes how we interact with our teams and our customers. It requires a new level of trust and authenticity -- which is terrifying to a traditional CPA firm because firm management loses a sense of control.
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.
Employees who are not connected to timesheets at the hip have the ability to learn and grow as professionals so much faster in real time, but only if the firm's management understands the ability for learning and growth. And of course there may be some employees who take advantage of the freedom, but that is a hiring issue, not a timesheet issue.
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.