The key to value pricing: Redefining value for clients
More accounting firms than ever are branching out, expanding beyond traditional tax and compliance services into things like advisory services to meet the expanding expectations of their clients and to position themselves as trusted advisors. Providing more services means clients are getting a better experience.
Recognizing this increased value and client experience, many firms are questioning whether they need to redefine their pricing in conjunction with their expanded service offerings.
To help accounting firms understand why now is the time to embrace a redefinition of their firms, services and pricing, CPA.com, Bill.com and the Hinge Research Institute released an accounting industry research study in June 2020 that amassed the trends and opinions of over 650 accounting firms and business professionals across the nation with respect to service pricing, bundling, technology inclusion and more. All data points referenced below come from the survey report and offer valuable guidance for firms wanting to make the switch to value pricing.
The tension between value and pricing
Historically there has been a significant perception gap between the actual services being offered by the accountant and their perceived value by the client. This is more and more prevalent as firms introduce more offerings outside of traditional business models that charge hourly rates for tax and compliance services. The perception gap causes challenges for firms adding services to their offerings and trying to change the established pricing structures clients are used to seeing.
Fortunately, as client expectations change and business models evolve, clients are increasingly open to alternate non-hourly billing arrangements, especially when introduced within the first five years of the relationship, allowing firms to align value and pricing. Value pricing incorporates the estimated worth of your services into the prices you offer your clients.
Value pricing often means shifting away from hourly billing structures, and clients are open to these changes. Of the buyers surveyed, 63 percent already pay for accounting services through fixed monthly fees or on a per-project basis. And once these non-hourly pricing structures are established, 80 percent have not switched billing models, which suggests a high likelihood of them staying in place for the entire life cycle of their engagement with the firm.
Pricing and packaging
Anytime you change business models or pricing strategies, there’s some risk of client attrition. That’s why benchmarking data is incredibly valuable in determining how you bundle your services and what you charge for them.
A key factor in switching to value pricing is how you present your prices and services to your clients. Nearly 60 percent of firms offer advisory or consulting services in addition to traditional services, and clients are both embracing these bundled packages and willing to pay more for them under value-pricing structures.
Packaging and pricing tend to vary based on the size of the accounting firm. A bookkeeping and financial reporting service package, though, was a top-three package at all firms surveyed, regardless of size, suggesting that it’s one of the highest-value bundles a firm can offer. You should determine which bundles appeal most to your particular clients and focus on promoting those first.
While it might seem intuitive that you can charge more as your firm gets bigger, many midsize firms are charging more than both large and small firms. This highlights a major benefit in having the right number of employees to be able to fully understand how to execute value pricing, while still being agile enough to move quickly with the right resources to implement it to meet specific client needs.
The role of automation
Automated firms face fewer challenges in adopting value pricing. Both value pricing and automation speak to being in tune with the realities of today’s accounting marketplace, allowing firms to truly focus on delivering value rather than simply putting in time.
Effectively communicating the benefits of automation to your clients is directly linked to successfully increasing prices. Most clients understand that automation saves time, but explaining how that time saved translates into direct client benefits, even with increased prices, makes firms nearly 3.5 times as likely to succeed in implementing new pricing.
Clients must understand that automation is their friend, and that requires tying automation back to value. Automation may mean firms are spending less time on individual client tasks, but your clients will also need to see they are having to do less back-end work. As a result of automation, organizations will have newly freed up time allowing them to focus on their customers’ needs, their businesses and how to improve their revenues.
Opportunities for firm growth
For many firms, the move to value pricing starts with new and more recent clients. These clients are less attached to past billing models and easier to transition. As you find success with value pricing with those clients, you’ll have more concrete benefits to present to your long-term clients who are reluctant to make the switch.
Another strategy for firm growth is knowing what your clients need most and communicating those services to them. Buyers are willing to pay more to address their most significant accountant challenges, which include planning for growth and expansion, managing cash flow and minimizing overhead cost. These challenges directly connect to the true value of offering strategic advisory services, which can increase monthly firm revenues by up to 50 percent on average.
While firms in the past offered the same general services, many firms are now more specialized or offer niche services, which also aligns with client desires — 27 percent of surveyed buyers said they want their accounting firms to be more familiar with their industries. Clients don’t want to pay firms to learn their business and are willing to budget more for advisors who already understand it. And while buyers reported using tax preparation, bookkeeping, financial reporting, and financial closures and statements the most, the survey results identified additional areas of increasing interest to buyers, which represent growth opportunities for firms. The services ranked as highly valued by buyers include accounts payable/bill pay, forensic accounting, data analytics and technology services. So having these services in addition to knowing your client’s industry gives your firm opportunity for growth.
It’s important to remember that perceived value of services is not fixed. It adjusts according to the situation and a client’s needs at any specific time. Value is subjective, while pricing is objective, and bringing those perceptions in line is key to redefining your billing structures.
The accounting profession has opportunities to seize. Clients are willing to pay more to address their most significant accounting challenges, whether that means value pricing, bundled services or both. Referencing these challenges with prospective buyers allows accountants to draw a line from challenge to the correlating services that address them. Strategic advisory services offer the biggest revenue opportunity for accounting firms, as they are a way for firms to demonstrate their value by offering the solutions that clients value most. Consider focusing on one or more of the areas most often identified as valuable to buyers.
Where do you start?
1. Create a services roadmap. It may not make sense for your firm to launch all potential expanded services at once, but creating a timeline for making it happen will allow your firm to work toward a common goal.
2. Reassess new technology capabilities as modern advances — including AI and automation — make it much easier for accountants to increase efficiency and improve the customer experience.
3. Experiment with value pricing. Value pricing isn’t solely about profi. It’s also a solid component of your client strategy. Fixed pricing allows buyers to focus on the big picture and results while using benchmarks as a reference point. If you can establish a concrete connection between client problems and firm service offerings, you’ll be well positioned to make the switch to value pricing.