Sarah Dobek of Inovautus Consulting explains why firms need to match up their pricing strategies and the client strategies, so they're charging the right amounts for the right work for the right people.
Transcription:
Dan Hood (00:03):
Boda on the air with county today. There are two critical areas that growing firms need to get a strong handle on our pricing and their ideal client profile, but they're also two of the slipperiest concepts to get a grip on and to understand the ways in which they interact and interplay Here to talk about all that is Sarah Dobek, the founder and president of Inovautus Consulting, leading growth consultants to accounting firms all across the profession. Sarah, thanks for joining us.
Sarah Dobek (00:28):
Thanks Dan for having me back.
Dan Hood (00:30):
Yeah, I should say thanks for joining us again, I like having Sarah on because she takes complicated ideas and makes them super clear and gives people very clear ideas on how to move forward with these areas that are not necessarily top of mind for a lot of firms, but should be because they're critical to their function, right? They're not about how you fill out a tax return or complete an audit, but they're pretty crucial to the function of particularly a growing firm that hopes to keep growing. Alright, so let's dive in. Before I keep lecturing on and on, let's dive into this. Hey, you can lay out just to level set for us, lay out some of the common issues the firms face with pricing and with setting up their ideal client profile. Those are two kind of separate ideas, but we're going to be talking about how they interact as
Sarah Dobek (01:12):
Well. Yeah, absolutely. I think one of the challenges that we're seeing today, and the reason pricing is becoming such a hot topic in my opinion, is all this transformation we're seeing with how firms are doing business today, meaning the technology that's coming into play, the outsourcing that we've seen take off over the last five or six years, that has driven a lot of change. And one of the things that we anticipated and are still seeing is that firms are losing margin if they're not paying very close attention to the work because they are streamlining things and the costs aren't necessarily going down for them. It's that the measurement of how they valued their time, which is usually tracking time, is well, it's been broken for a while. I'll just be honest. I'm not going to say that one nicely. It's been broken for a while, and yet we are still billing by the hour, and even when we think we're upgrading time, we aren't always accounting for a pricing strategy that includes the cost of all of those things.
(02:23):
So one of the things that I think this is coming up is we have to start thinking about that much more intentionally, but also in how we're engaging with clients. Clients have been trained for years to know what a price is of something before they buy it. My favorite example I bear with everybody is I don't go to the grocery store and buy a gallon of milk and ask the checkout clerk how much it's going to be and let them decide what the gallon of milk is going to be. You just don't do that. Somebody look like you're crazy. Why call the checkout clerk to find that value
Dan Hood (03:00):
And then the kid check out, Kirk has to cut. Yeah, check out Kirk. Kirk has to call the cow and then it just gets on from there. Sorry, go
Sarah Dobek (03:06):
Ahead. Right, and how much value do I feel in how I milked the cow that day? Did I do a great job? Was I not feeling great about myself? I talked tongue in cheek about this because pricing is very much akin to how we value ourselves. Part of what I think firms really need to be thinking about is pricing as a strategic opportunity and a way to align to ideal client profiles, but also it is a proactive strategy. It drives trust. If you walk into a client relationship and you're like, I am an expert at what I do, I know this area so well, and they're like, okay, cool. What's it going to cost to have you do X, Y, or Z? You're like, oh, I could give you range. It's about $5,000. We're not really sure what we're getting into. We'll just have to figure it out.
(03:56):
There's very few areas that truly should operate that way, and we've accepted that the market's accepted it for a long time, but I don't know that that necessarily makes it right. And it's created these buckets where people are trying to get the cheapest services. We're seeing it again, the big firms are coming back down into the middle market. They're buying market share by being the cheapest person in there and they're going to make it up on the backend, and it just creates this really icky, ugly situation when we talk about our services. And quite honestly, it's one undervalues that amazing work that TPAs do and TPA firms do for their clients.
Dan Hood (04:39):
Right? Well, you're routinely right. You hear that people push back and say, Doug, does it really cost that much? And the first response for most firms is to go, oh, no, no, no. We'll take some of those hours off.
Sarah Dobek (04:47):
Alright. You're like, yes, yes, it does.
Dan Hood (04:49):
Yeah.
(04:51):
Right. And as you say, it's fascinating. We say we're the experts in this area. We serve people in this whatever area it is. We've done a million of these kinds of audits or we've done a million of these kinds of tax returns. And then as you say, for the client to say, well, how much would you cost? And you say, well, I don't know. Says, well, how expert are you if you don't know? If you don't know how long this is going to take? I understand that there's intangible things that pop up and surprises, but if you don't even have a basic idea, I'm just going to go with whatever's cheapest as you say. It is fascinating because that feeds back into client perception and we have mentioned before in earlier podcasts you talked about the clients, how we identify an ideal client. And for a lot of firms, the ideal client is the one that will pay what we're asking or who can sign a check. But there is a different way to approach that when you're talking about who your ideal client is and what relate to pricing and to your pricing, what's the role there in terms of when you identify your ideal client? Like I said, a lot of people would say they sign a check and that's all that matters. It makes them ideal. What is the role of pricing in an ideal client profile?
Sarah Dobek (05:58):
I think part of the role of pricing is creating trust with the client and clarity. There's a lot of firms that go to market that say service is a differentiator for us, advisory is a differentiator for us, and when I get into these firms and I look at how they price, it's a total contradiction to how we're doing business and it doesn't support the brand pillars that we're putting out in the market when we bill by the hour. It's reactive. It is not proactive with the client and it doesn't align when you say we're going to be advisory, we're going to be clear, we're going to help guide you. If we can't articulate the pricing around our services, if we can't understand how to set limitations in our services that help educate the client around what actually happens in the tax return process when we're doing that or doing something else for them, then again, we're sending an inaccurate message.
(07:03):
It's a complete contradiction to what we're saying and what we're doing. And so for us, we see pricing as a strategic priority to support how we're attracting and retaining current clients. Because most of the time when clients are leaving and they say that price is an issue, it's because they haven't felt like they've received the value and we haven't taken the time to articulate the value and how we interact with them. And some of it does come down to pricing. They don't want to see their prices go up and not understand why or be able to have a conversation around what that is. If we've mishandled pricing on the front end, we see this a lot with CAS services where we just build them by the hour. Now we want to change 'em to fixed price agreements or something else, or we've been under billing them and we haven't had the appropriate conversation to articulate what those needs are. And sometimes we lose clients in the process because they don't understand that it should have been more. And we shoot ourselves in the foot quite honestly because we're unwilling, we're we're afraid to put our price out there and be okay with people not accepting that or we're afraid to have the conversation and afraid to put ourselves out there to say, here's what the price for this is going to be, here's what the limitations are, and then reinforce that when something changes in scope because it will, it's going to, it's not going to be perfect.
Dan Hood (08:25):
Well, and even if, I mean you mentioned cash. We've done some service. One of the things routinely when we ask him what's the biggest thing you had to change since starting your cash package? So your service offerings was your staffing strategies, and it's always pricing. We had to go back and rethink our pricing for it could be ended for any of a million reasons, but often either way, they just got it wrong to start. It's a difficult thing to figure out, particularly for a new service offering. But either way, pricing is one of those things that firms often get wrong.
(08:56):
It's fascinating because so much of it is tied up in your self worth. What am I worth and how do I communicate that? And how do people come to account? I think a lot of times, and they're comfortable with saying, this is an expert, they'll do me well, they'll do right by me. They have the expertise they need, but firms are uncomfortable saying, I almost taking advantage of that, taking advantage of their knowledge and their expertise and saying, so I will charge you premium for it because it's worth it. But if you communicate that well, firms, people are sort of I think predisposed to say, yeah, you're a good accountant, that's why I hired you, so I hope you're worth the money I'm paying.
Sarah Dobek (09:29):
Yeah, absolutely. And they want to understand that value. And when we go back to talking about ideal client profile, one of the things that's really hard to measure is that subjective nature of how the client wants to work with you. You can ask the best questions, although I would challenge to say I think we have lots of opportunity in this profession to be asking way better questions in the sales process. But one of the things that I've found is that clients will bucket themselves. We price and always give options and we don't bill by the hour. Everything is a flat fee price. So when we are putting those packages together based on where the client lands, tells us a lot about what they're looking for, and it doesn't always mean they won't get to the level that we want them to be, but it tells us where we're starting with them.
(10:17):
And that also gives us an opportunity. And over time, we've also seen clients put themselves in the buckets of what they really want. Again, they'll say one thing, but where the dollars flow and the packages they choose for how we interact with them often define what some of those things are. And I say that a little bit that sometimes our clients grow out of us, and that's not a bad thing. That's a good thing. At least at Inaba, we believe that we want to empower growth. So we tell our clients, we want you to outgrow us at some point. That is a great sign of success for us. Not always true for an accounting firm, but sometimes if you've been running something and enabled them to build an infrastructure internally, there's still usually a role that we have with those firms. But I think understanding that and where the pricing plays in gives us an idea.
(11:07):
And the other thing that I think is important when we start talking about pricing is, I just put an article out about this, but we often get so focused when we think of an ideal client, we think of our A clients only, and the reality is we can't have all a clients. And so when we talk about pricing, having different prices is good. We need clients at different levels. We can't serve all of the eight clients. There's only so much room. We have to bring on eight clients and we'll run out of capacity. It doesn't mean we're not going to continue to elevate, but pricing has a big role to play in helping support balancing what we have from a client-based standpoint.
Dan Hood (11:51):
It's fascinating, both these conversations around pricing and around ideal client profiles seem to come down to, in many cases, come down to structure. It's setting a fixed structure for the firm. It doesn't mean, it doesn't necessarily mean one price, it could mean three different types of pricing. You can get different levels and so on. But these are our levels. And similarly with ideal clients, it doesn't need to be all a clients. It could be A Bs, and Cs, but you need to know who's an A, who's a B, who's a C, how they fit, how we serve each one of those, what we offer them, and some clarity and certainty around those roles. It seems like for a lot of firms, they're just kind of do it. Every client is sort of treated differently and they're an ideal client. I like them not because they bring in enough money or they're a sweet spot for what we serve. So there is that element of a lot of the first step I think for a lot of firms is to create that certainty and clarity and structure that you can then say all across the firm, this is how we do it, this is how we price these things. This is the type we have. But I want to talk a little bit about when do you change that? The initial goal is to create the structure and the certainty so that everybody in the firm knows how we price and who our favorite clients are.
(13:01):
How do you approach changing them when if a market changes massively or you become so big that you need to change your structure, how do you go about that making that kind of change or deciding when to do it? And particularly, I guess the real question I'm asking is how do you avoid the sort of ad hoc decisions that have ped us already, right? So far we're just saying every partner charges whatever they want and that's a problem. So we've set these set prices, but at some point those prices may need to change. How do you make sure you're changing them for the right reasons?
Sarah Dobek (13:30):
Yeah, absolutely. So there's a lot of questions in there. So I'll a tackle,
Dan Hood (13:37):
I'm going to go away for an hour, you just talk about them for an hour and I'll go back. Perfect. And
Sarah Dobek (13:41):
You just prod me if I don't get to all of them, I forget one or two of them. But I think first, let's start with the last question you asked is how do we get change with partners? The first is somebody needs to define who's responsible for pricing inside of the firm. I am big on roles and responsibilities. You'll hear me talk about it everywhere, but it's really hard for somebody to be held accountable to something if they don't. And if we don't know how we're defining that, then we've got to start there inside of the organization to say, here is what our value is worth. And by the way, that person doesn't have to be the most senior person in the organization. I venture to say, and I'm sure some of my pricing counterparts who do consulting here would also probably tell you that it needs to be the person that sees the value in what it is that we're doing related to pricing.
(14:33):
So let's start there. For a lot of firms that have started on this journey, it's been setting minimum pricing, but unfortunately that's where they've stopped and being able to define that. The other thing that we do when we start talking about changing pricing is not only having that but figuring how you were going to price. And as much as I would love to say blanketly across the board, everyone's moving to value pricing. The reality is I don't see that. I see a lot of training and my great counterpart, Michelle Golden does a lot of training in this area, and I know she's worked with a lot of large firms in the marketplace, but I also still see that firms aren't necessarily bringing all of that to market, and we see it in different service lines. So CAAs is a great example, Dan, we talked about that.
(15:21):
I tell my CAAs practices, look, if you're not moving to packages and fluffy pricing or value pricing in that area, you're missing. Consulting often moves there. First audit has naturally been flat fee for years. I think there's a more improved opportunity, but again, audit's one of those areas that market is softening for them right now. So we look at that tax is the holdout tax is the hardest area that we think we can't define, but it's actually much more predictable than we let ourselves believe in some of that. And so when we start looking at, part of it is looking at the practice lines and where the leaders are at. If it were me, I'd say rip the bandaid off and do it all at one time. I think it's easier to make organizational change when we draw a line in the sand, but realistically, I know not every culture operates that way, but I think the firms that have most been most successful have drawn that line in the sand and said, we're committed to this.
(16:22):
We're all going to go through training. We're all going to change the way that we're doing pricing around some of that. As far as how we look at it and when we update it, it's totally driven by market demand. We saw in the last couple of years, firms raised their prices. I mean, we were double digit price increases in some cases, 10, 15%. It was our pick, right? Everybody had capacity constraints and clients were just happy if you could take me on. That's changed a little bit. We've solved some of the capacity issues with offshoring and technology. It's still not an issue that's gone away, but we've managed it. And so firms are back out there growing and scaling and with the PE investments that we're seeing, it's changing. And so the ability to have those conversations and to demand a little bit more from our pricing, we've seen that shift quite a bit in the marketplace in the last six months. And so we have to be thoughtful about that. And so the market needs to lead, but we also need to realize our value in understanding what we're bringing to the table. But my one piece of the advice is we should never go through a year where there is no price increase. And for the longest time, the profession would indicate that in surveys it's like, oh yeah, like 3%, 3% is not a price increase. That's fairly a salary raise.
Dan Hood (17:48):
The cost of lending adjustments, right?
Sarah Dobek (17:51):
Yeah.
Dan Hood (17:52):
Well, even if it was 3%, I think a lot of firms, they talk particularly, you mentioned tax, particularly in tax, you would see tax prep things with interest didn't change at all for years. Firms that are just, yeah, well, we upgraded every two to three to five years or whatever. So it needs to be built in. But this goes back to the there's, it's not a lack of confidence. I know most accountants are pretty confident in their work and what they do, but it's that lack of confidence in the pricing that they're bringing to clients. I want to talk a little bit more because this is fascinating. I think for firms have gotten used to the message of there's way more demand than there is supply. So we're in a good position. We can, as you say, firms have been feeling more comfortable about raising their prices for the last several years. And to hear that that might be changing a little to terrify some people, but it's worth diving into a little bit. But before we do, we're going to take a quick break.
(18:53):
Alright, and we're back and we're talking with Sarah Dobek of Inovautus Consulting about pricing and ideal client profiles and the interaction between the two. And we've been talking a lot about pricing important and it's fun, it involves money, which is always fun, but we're tying a little bit, you've mentioned it, and I had not heard as much of this or I hadn't heard it as clearly as you're saying it. This notion that as we've managed as firms have managed some of the capacity issues or eased some of those, that pricing is maybe less, less in their favorite than it has been in the past. Really talk a little bit about that. How do you manage issues of price sensitivity? But there's always been clients who would say, well, this is too much. And the traditional response has been like we said, okay, we'll charge you less, so we'll take off some hours or whatever the case may be. In theory, within the new model of pricing, we're hoping people are adopting, whether it's value pricing or even just a set bans of prices that this is what we charge for things. You would hope the firms wouldn't be too quick to change on that. But how do you see firms that have a handle on this handling price sensitivity among clients, particularly among their ideal clients?
Sarah Dobek (19:59):
Yeah, I think one is realizing that the question around pricing is a fair question from any prospect, and we're kind of trained in our minds somewhere along the way in this profession, we got it in our heads that clients shouldn't ask about price, and if they do, they don't value our services and that is the wrong message. I want to blow that message up in everybody's minds because you should ask about price. And if you're not asking about the prospect or client isn't asking about price to understand it, which is a due diligence effort in an ownership responsibility, then we should be talking about it. And quite honestly, we should be talking about it first, not in a transactional way that this is what it's going to cost to work with us, but in a way that supports whatever is important to the client. Because if we don't define that, if we don't get ahead of that message, then the client or prospect makes it up and that's the last place that we want it to be.
(21:01):
And not all of those people are trained well enough to go like, Hey, I don't know what I don't know about whatever this is. Oftentimes price sensitivity is a lack of communication around what we're doing for them, the value that's being driven and what they're getting from that. It's just a symptom of a different issue that we're not communicating very well and we're not developing intimacy with our clients, a relationship with them. We're not bringing value to them or articulating the value that we are bringing. We may just be entering numbers into a tax return. And so what ends up happening and that the client wants it the cheapest way possible, it's because they don't see the value. It's become very, very transactional. I've had relationships with both types of accountants before, ones that are very transactional that I get zero information from that don't have conversations, aren't curious at all about my business and want to do anything with that information. And I've had the complete opposite and those opposite interactions, I'm totally willing to pay a premium for those services and those others, I'm kind of seeking someone else out in whatever's happening. And so I think that when we think about price sensitivity, part of what we need to recognize is that that is an opportunity for us to do a better job communicating, especially if it's coming up a lot. We're probably missing the boat somewhere in how we're communicating what we're doing to clients or prospects.
Dan Hood (22:34):
Right? Well, and it's always worth saying that they have no idea. They have no idea what's going on with their taxes, with their audits, with their books, and they take their cues from the accountants. And if you're an accountant and you get looking a tax return, you go, this is a perfectly normal tax return. They go, oh, it's a perfectly normal tax return. It's not a big deal. They take the queue there from if you're the accountant, you think this is normal, they go, oh, that's normal. It can't be that expensive. There was a Jay Berg who used to speak a lot would talk about when most accountants, when their client comes in with a letter from the irs, they say, I got a letter from the IRS. Most accountants will go, oh, that's no problem. I'll take a look at it. I'll deal with it, don't worry about it.
(23:13):
And his point was, you should go, well, what color was the envelope? Well, that's really serious. Bring it in. They have no idea. The point isn't to sort of trick them, but the point is to realize that for you, this may be common and normal, but for them, this is a huge deal. They have no idea how important. They have no idea. And it's important to them that they keep their relationship with the IRS in good standing and so on, to not let your level of comfort and understanding of the service you're offering the client translate into them being blase about it.
Sarah Dobek (23:47):
Yeah, absolutely. It's our job to educate them. I just went through and hired a landscaper and for huge projects that we're doing at our house, and I don't know anything about, I mean, I am a gardener. I like to get my hands in the dirt, but I don't know anything about grading and the work that needed to be done. And I'd never really hired a landscaper for this size of a job. We'd done small projects before, and so I was really honest with the landscaping. We had reviewed five companies and I was really honest with them, and I'm like, look, we've not done a construction project on landscaping like this before. I'd been through plenty of other construction projects. I didn't know what, I didn't know about the costs. I felt like I was flying totally blind. I was actually afraid to get some of the quotes, the work we needed to get done because I really just didn't know.
(24:34):
And of course, I did a little chat GBT research, and they helped me kind of land on something, so I wasn't totally shocked. But the company that won out wasn't necessarily the cheapest. They were sort of middle of the road for us, but they were the best communicators and they were the most transparent with their pricing when it came through. And they spent the time to walk through and help us understand what was driving the cost, just like a good CPA should, right? If your tax return is twice as expensive because you're sending me a box of receipts still, or you refuse to go from QuickBooks Desktop to QuickBooks online, well, here's driving your cost and if you want to change that, here's some of the things that you can do, or here's some things that we can help you do, and here are ways that you can meet us part way.
(25:24):
And so that was an important element of feeling comfortable with the price and trusting it. There was one provider that was equally in there, slightly larger company, probably a little bit more qualified and experienced in the work that was being done. But to be honest, they excluded a really important piece because I think they wanted to look on par. They knew they were competing with slightly smaller companies, and they left it out. And that left a really bad taste in my mouth because we had a very distinctive conversation about an element that needed to be included, and I knew there was going to be a little bit of range. And so that played a really important role in my decision making process for it. Like, well, if this is what we're willing to do here, that felt a little bit like the firm that's going to come in at the lowest bid and then tax something on at the end.
(26:15):
And so we don't think about that, but that's a great example of the thought process that happens with clients' prospects, and a lot of it is subconscious. They can't articulate the way I just did, right? I'm trained in this. We do it every day, but many people go through that same thought process when we think about pricing, and it's very subconscious. And so we have to be able to tap into that, and we have to take responsibility to be much more proactive in a way that's going to support their decision making and build trust on the way.
Dan Hood (26:46):
Well, and also, I mean, that's the interesting, I think for people here, transparency and communication and clarity, and they think, well, I'm giving away everything and they'll know exactly how much it costs me to do it, and then I won't be able, how will I be able to charge them? And if my prices are more than somebody else's, how will I be able to handle that? And they have to realize that it is a balancing act between that clarity and that communication and that saying, this is what you want. This is why we charge for it. But also you have to be able to say, listen, we charge more for this because we do it this way, or because we've got these types of experts on staff, or because we've handled 3,500 of these and every single one has gone through without a hitch and we've passed all the audits you could want, whatever the case may be, you need to be at the same time as you're being clear and communicating, you also need to be with cheerleader. We don't use a different word, but there might be a better word, but you need to be a cheerleader for your own services, so you're comfortable saying, we may cost more and here's why. Here's what we're going to cost and here's why it may be more than you're expecting or why more than you may get charged from somebody else because we're covering everything you might need. Whatever your argument is, have the argument and be ready to make it.
Sarah Dobek (27:51):
Yeah, absolutely. I think it's how we talk about that in the process is part of how we build our brand reputation and our experience, and there's not much else on the front end of a sales interaction that people have to experience except for the sales process and how you deliver some of this messaging. And it can be really telling what you end up bringing in and how clients view you based on that.
Dan Hood (28:18):
Well, as with every subject when we have you on, we could go for another three, four, or five hours, but we can't go for another three or four, five hours. So just final thoughts, any final thoughts that firms should be bearing in mind as they think about particularly about this interaction between setting your ideal client profile and implementing it and thinking about your pricing and your pricing strategies?
Sarah Dobek (28:40):
Just know that this transition is a journey and you're going to make mistakes. You're not going to learn how to price upfront Michelle Golden's term there. I'll give her do a copyright credit for that, but you're not going to learn how to do that if you aren't making some mistakes along the way. And we kind of think that's a hangup that gets in our way when we start thinking about transitioning price. So I always say, look at this as a little bit of r and d. We're going to take the next five engagements that come through. We're going to flat fee price them or price them upfront. We're going to come up with how we're going to kind of scope for that at our minimum, and then we're going to figure it out, right? There's a lot more that goes into it. I'm underselling the training journey that happens with that, and there's lots of great resources and tools in the marketplace that will train you on this, but just expect that they're not all going to be individually profitable. And so we're going to make some mistakes along the way, and that's help us learn. So be prepared to do that and be okay with it and set that expectation on the front end.
Dan Hood (29:48):
Excellent. Alright, great advice. Sarah Johnson Dobek of Inovautus Consulting. Thank you much so much for joining us again.
Sarah Dobek (29:54):
Thanks, Dan,
Dan Hood (29:55):
And thank you all for listening. This episode of On the Air was produced by Accounting Today with audio production by a.com. Ready to review us on your favorite podcast platform, see the rest of our content on accounting today.com. Thanks again to our guest, and thank you for listening.