Accountants are the superstars of the financial world. Show your worth by switching to value pricing. Find out how to make the change in six simple steps.

Hourly-based fees are par for the course in the accounting world.

This pricing structure is an industry mainstay. But just because it’s common doesn’t mean that it’s right.

Your services are unique and your pricing should reflect that.

Using hourly-based fees devalues the services you provide to your clients. You’re meant to be partners and collaborators. 

Oftentimes, when businesses find the right accountant it’s a partnership for life (of the company anyway).

Hourly rates also prevent firms from scaling.

Think about how quickly an experienced accountant can finish a task. If the client pays by the hour, they pay the same amount no matter how complex the task.

And just because an accountant finishes a task quickly doesn’t make it any less complex.

So, if you adhere to the hourly pricing model, that means the firm receives the same amount regardless of the complexity of the issue.

Can you imagine how much money I’d lose I used that model?

I can!

There are way better pricing models to consider. And most of them take into account the actual value of the service, not the time it takes to complete it.

Find out how to move to a pricing model that better reflects your firm’s quality.

What Is Value Pricing?

First, let’s get some definitions out of the way.

You may hear value and think “economical.” But that’s not what I’m talking about here.

When I say “value pricing,” I mean that you give a price (based on the value you provide) to clients prior to the work. This way, your client knows how much the task costs. And you get a healthy profit margin for the work the firm puts in.

There are quite a few reasons why value pricing makes sense. Here are a few of them to consider:

Benefit #1 – Shows the real value of work performed

Imagine two projects presented by different clients. One requires basic accounting and the other requires advanced expertise and research. 

Unfortunately, if you bill by an hourly rate, both of those projects would cost the same. 

Even worse?

If the accountant on the basic task chooses to take their time, it may cost more than the complex project. And this gives clients the impression that all projects are equal.

You and I both know that’s not the case. But that pricing scheme says otherwise.

Benefit #2 – Allows you to charge a lot more for a project 

Next, value pricing allows for flexible pricing. This could mean better ROI for the client and more money for the firm.

Clients want to save money.

Why else would they try to get out of meetings or off a phone call as soon as possible?

They don’t want to see extra charges.

However, changing the pricing scheme changes the way that they think about services.

All of a sudden, it’s not “I wonder how much talking about my weekend is costing me” to “let me tell you about my vacation home.”

Why the sudden difference?

They understand that the price you gave them includes the phone call already. So, they’re not as anxious to get off the phone with you.

Also, this structure allows you to ask for what you’re really worth. And you can estimate beforehand the profit margin associated with the task.

That spells no more guesswork to me!

Benefit #3 – Helps distinguish services from the competition

There are many firms out there. How does one stand out from the rest?

The answer to that is your pricing structure.

Seriously, it’s as simple as that.

Remember when I said that the accounting world loves hourly fees?

That’s how everyone else operates – including your competitors.

Dare to be different and have the courage to ask for the real value of your services. Not too many other firms do the same. So you’ll stand out like a beacon in a sea of sameness.

Benefit #4 – Better positions accountants to help client businesses grow

Accountants are not merely paper-pushers. You have knowledge and expertise to help grow a client’s business. 

But clients don’t know that when they work with hourly fees. The only thing they see is the bill. And that means they don’t realize the full scope of your services.

When clients understand your value, you’re in a better position to help them.

All of a sudden, you’re the experts that can help them navigate their finances. Now, you’re irreplaceable because you have value.

How to Make the Move

How to Make the Move?

Now that you know what it is, it’s time to plan the big move.

Take a look at how to move from an antiquated pricing model to value pricing:

#1 –Charge Rate Increase

Many firms start out pricing in arrears. They use timesheets. And they know their average hourly rate (AHR). 

Now it’s time to increase your margin. 

To do so, all you have to do is increase your charge rates.

It really is as simple as that. At least, in this first step.

Increase charge rates by 15% but don’t adjust salaries at the same time. As long as you do this, no one will notice.

#2 – AHR Targets and (some) New Services

Now it’s time for another micro-step in the right direction.

I call it a “micro-step” because this one won’t get you out of margin poverty. But it is another small step in the transition to value pricing.

Ready for it?

Here’s the scenario:

You’re still pricing in arrears. It’s slightly different now because you have an increased charge rate. But now it’s time to add another component to the mix – an AHR target.

Suppose you have a $172.50 AHR. The higher rate gave you a little increase but still not where you want to be.

You set an AHR target of $200. 

Now, how do you get there?

The answer is to offer more valuable services to clients. 

Think along the line of business advisory or management accounting services.

Remember when I said that accountants are more than paper-pushers? Now is the time to prove it.

Just keep in mind that it’s easy to get caught up in the AHR target. But that’s a mistake.

I use that as a starting off point. When you start pricing services, though, you want to focus on the value of the project and not your target.

#3 – More Upfront Pricing and (some) Write-Ups

Now that I’ve gotten your feet wet, it’s time for the next step.

I imagine that your clients are happy so this is the perfect time to get some write-ups.

You’re well on your way to making profit margins. But you aren’t there yet.

#4 – Complete Upfront Pricing

At this stage, you need to commit. I mean it.

This doesn’t work if you only half do it. Especially since this next stage requires you to price every project upfront.

Your training wheels are officially off and it’s time to put value pricing to work. 

I suggest that you look at your efficiency rates at this stage. You should drive down your time by being more efficient. 

Efficiency is the name of the game here. 

You aren’t charging by the hour anymore so it doesn’t pay to drag out projects anymore. 

Also, you may still have charge rates at this stage. I don’t blame you for not cutting them away completely. 

At least, not yet.

#5 – Value Pricing In Full

It’s time to step into the realm of value pricing. That means tossing those charge rates and AHR targets out the window.

Keep in mind that you can still use a $1 per hour per person metric. It can help you to keep track of time. 

Especially since you haven’t eliminated your timesheet recording system.

But that is really all it should be.

In addition, think of projects in terms of hours and not dollars for the internal team budget. The last thing you want is for the team to associate a project with a price tag.

Efficiency is still important at this stage so keep driving down those numbers. 

Also, your team still records all the time so this helps with getting an accurate AHR.

If your firm reaches this stage, you should not have charge rates. That’s right.

Charge rates are redundant. Get rid of them if you haven’t already. But keep the time sheets. 

#6 – Monthly Recurring Revenue

Ultimately you want to move all of your clients to a monthly fixed fee for the known work. The annual package should include:

  1. The known work and the known entities
  2. Tax planning & minimization
  3. Annual General meeting
  4. Unlimited phone calls, emails, meetings for the year 

You’re still keeping the time sheets ($1 per hour as per point 5) so you can monitor AHR and team performance. It’s good for your cash flow and your clients. 

For all other projects charge on a per project fee – based on value of course. 

Step Out of Your Comfort Zone and Value Price Today

Value pricing has so many benefits it’s a surprise that it’s not embraced by more firms.

What’s not to love?

Firms receive payment for the actual value of projects. It allows for business growth and differentiates from the competition.

Of course, when I mention changing the accepted structure of the accounting payment system, I get a few raised eyebrows.

But this change is progress.

The key is to transition correctly.

Take each of the six steps at your own pace. Only you know when your firm is ready for the next one. 

And if you’re a transition superstar? 

Don’t be afraid to jump steps if you know you’re ready. Ultimately, you want to get to the sixth step sooner rather than later. 

If you want to know more about how other accounting firms price their services, you can download a complimentary copy of the Menu of Services: A Complete Price Guide for 429 Accounting Services & Packages here