Art of Accounting: How to overcome the value disparity
This is a follow-up to my Nov. 21, 2016 column about the disparity in perception of value of my services between me and my client. This will provide some guidance on switching from a rigid time-based fee mindset to a value-based pricing model.
There are a couple of issues that need to be resolved to be able to effectively price services in advance:
1. We have to lose the mindset of time-based billing. This is not easy since it has been ingrained in us from the very beginning of becoming accountants. If we drop the culture of selling time, the clients will follow our lead. When we become convinced of the validity and appropriateness of value pricing and communicate this to our clients, the old model will vanish.
2. I have always been reluctant to interrupt the flow of work, the pressure of the moment, the call to participate, or the immediacy of what needed to be done to discuss the price of my services and payment terms. Instead I did the work and relied on the understanding of and recognition by the client of the importance and value of what I did and for the client’s acceptance of the amount billed. Thinking back, I can recall many instances where there were conflicts with the client and where I received less than what I billed. I ended up having the discussion I should have had initially, but then I was at a disadvantage since I had already performed the work. In every instance I would have had an easier and better discussion and with either no or much less dismay. Of course there are positive situations where it worked out, but too many that did not and which could have been eliminated with the prior discussion. It is me, not the client. Good business practice would have had me speak to the client before the work was started, regardless of the circumstances and pressures of the moment.
As Dave Cottle has always said, “The value of our services to the client is always greater before we start than after we complete the assignment.” Price your work before your start, not after you’ve finished.
- Always discuss what you will do and the pricing before you commence the work. In determining the price, consider the value to the client, the timing and urgency, the importance of your involvement and what you add with your experience, and the use by the client of what you will be doing.
- Define the scope of what you will be doing clearly and get the assent of the client to the scope and price.
- Set a time frame and an outer limit of when the project will end if not be completed as agreed.
- As soon as it appears the initial scope will be exceeded, make a new, amended or updated pricing arrangement with the client.
- Read Implementing Value Pricing by Ronald J. Baker and spend the time to understand and consider what he suggests.
- Change your mindset.
Edward Mendlowitz, CPA, is partner at WithumSmith+Brown, PC, CPAs. He is on the Accounting Today Top 100 Influential People List. He is the author of 24 books, including “How to Review Tax Returns,” co-written with Andrew D. Mendlowitz, published by www.CPATrendlines.com and “Managing Your Tax Season, Third Edition,” published by the AICPA. Ed also writes a twice-a-week blog addressing issues that clients have at www.partners-network.com. Art of Accounting is a continuing series where Ed shares autobiographical experiences with tips that he hopes can be adopted by his colleagues. Ed welcomes practice management questions and can be reached at (732) 964-9329 or firstname.lastname@example.org.