More and more firms are choosing value pricing for their engagements, and it’s easy to see why.
While clients have peace of mind knowing exactly what they're paying without any surprises, firms charge for the value associated with the services they deliver. In today’s practice, firms use technology, the cloud and automation to deliver better results more quickly and efficiently, while cultivating client relationships and growing their firms.
Yet many accounting professionals still haven’t implemented value pricing, putting them further behind the curve and jeopardizing their potential. The biggest reason seems to be fear of change. Firms have used the hourly billing model for so long that they’re afraid to do anything else, worried they’ll leave money on the table by restructuring how they engage with clients. In fact, the results are quite the opposite.
In the cloud, processes are automated and easily attainable on any device, any time, providing clients information and data before they ask for it or know they need it. Bringing high-valued services like this together, the client and the firm benefits. Specifically, providing sales tax consulting services, along with process automation around compliance and reporting, is an ideal engagement to discover the potential of value pricing.
IMPLEMENTING VALUE PRICING
Peisner Johnson & Co. is a full-service sales tax consulting firm that once operated almost exclusively using manual processes. This not only took a tremendous amount of time, but also left many employees hating their jobs. Clients often complained they were billed too much, when in reality the firm actually hadn't billed them for all the hours it spent on an engagement. It was a lose-lose situation. Even worse, completing tasks by hand increased the chances for errors, which can be very detrimental to client relations, and undermine potential referrals, not to mention a firm’s brand.
All of this changed when the firm took the dive into value pricing for its sales tax services. The motivation was simple:
- Keeping timesheets tended to be inaccurate; this process was a painful chore for everyone at the firm.
- The time spent on a project had little or nothing to do with the value derived by the client. The firm realized that when it comes to the things purchased in life, such as a new car or a house, no one bases the price they’re willing to pay on how many hours the provider spent. Rather, there’s a judgment of value that has nothing to do with how much time the seller spent on an item. That realization was important to the firm.
- The firm wanted a win-win for clients and itself. It didn’t want clients to experience any surprises when it came to their bill. The uncertainty of not knowing what they would be charged was not only stressful for the clients; it also left them feeling as if they didn’t get the value they expected. Value pricing enables the firm to manage expectations, and greatly improve the client relationship and results.
- Adding value meant higher client retention. As the firm began to automate its practices and become more efficient, it found ways to add more value and do so more quickly. The old pricing model based on time spent didn’t reward the firm for delivering solutions better and faster.
The firm’s new pricing structure varies for every engagement and is based on how many extra services clients want and the number of returns filed, along with how many jurisdictions they are filing in, and in what timeframes clients can get the data to the firm each month. The firm offers three different pricing levels with three different levels of services:
- Basic level: Includes returns and notice management, as well as a discount on specific services, such as consultations, research projects, nexus studies and registrations, and audit defense. Clients get a discount because of their monthly agreement.
- Mid level: The firm typically adds in a set of e-mail consultations and face-to-face consultations, as well as a certain number of research projects.
- Top level: The firm maxes out the full array of potential services it offers. The ideal client has many needs beyond preparation and filing of sales tax returns. For example, there are weekly and monthly questions about taxability of their products bought and sold, certificates accepted or provided, nexus, and sales tax audits. Clients also have issues come up with their customers where they want Peisner Johnson to intervene and explain.
These options empower clients to think through the engagement at the outset, and choose to have the firm do more or less, depending on what results they’re looking for and what price they think is appropriate. Clients like having the certainty of knowing the agreed-upon price is what they will pay – period. Then, of course, it’s incumbent on the firm to deliver everything the client expects and more, in the promised timeframe.
For the firm, value pricing created flexibility, freedom and opportunity. Staff now get to decide how best to spend their time, instead of how they can get billable or chargeable hours on their timesheets. It allows them more freedom in terms of when and how they do the work. The challenge is not necessarily to be there from 8 to 5, but, rather, to find better ways at whatever time of the day makes sense to get the job done by exceeding expectations of the firm’s clients.
In terms of profitability, the mindset of value pricing has been a big benefit. The firm constantly strives to find better ways of accomplishing its work. Sometimes, staff end up spending more time on an engagement than expected, but often find ways to accomplish more in less time on others. The process is all about working together to achieve the same, or the desired, result, instead of worrying about racking up too many hours.
GET STARTED TODAY
Sales tax compliance is well-suited to the value pricing model. Firms that aren’t offering value pricing want to know what kind of service to start with – again, the decision comes from providing higher-value services. As a result, sales tax compliance is ideal.
For example, with technology improvements in sales tax automation solutions, firms can much more efficiently handle sales tax engagements. They don't have to reinvent the wheel, and if they’re already working in the cloud, they can expect a minimized learning curve.
It’s time to seriously consider implementing value pricing engagements at your firm. Test this with an hourly client to get your feet wet and see how it goes. In addition, if your firm does not have expertise in niche services like sales tax consulting, consider partnering with other firms and providers for increased profitability and new referral business.