Don’t Confuse Fixed Fee and Value Pricing
Pricing combines art with logic. No standard pricing formula exists. As you decide between pricing strategies for your accounting firm, it’s easy to confuse fixed fee and value pricing.
After all, both refer to a set price for your services – that’s the primary similarity. Let’s dig a little deeper into these terms to clarify their differences.
Here’s what the fixed pricing formula looks like:
Service ->Cost ->Price ->Value ->Client
Since these fees reflect time, tasks and processes, fixed fees commoditize your services. This price equation prioritizes your costs and time. So, your rates reflect what’s most important to you as a firm owner.
On the other hand, value pricing places the client at the beginning of the equation. This formula is inverse from the fixed price model. Your rates reflect a client’s values, not the firm owners.
This is the value pricing equation:
Client ->Value ->Price ->Cost ->Service
Who determines value?
You see, value is subjective. What you value differs from what your clients highly value. And, it’s your clients who decide whether to engage with you or to move on.
Therefore, consider what’s most important to your clients.
Start out by asking yourself three important questions.
- What challenge do you solve for your clients?
- Why clients choose to work with your firm?
- What’s possible for your clients once you solve their challenge?
Flip Your Priorities
Peter Drucker claims, The customer rarely buys what the business thinks it sells him. One reason for this is, of course, that nobody pays for a ‘product.’ What is paid for is satisfaction.
Clients aren’t concerned about your time and costs. Whereas, they are concerned about their time and costs.
So, flip your priorities. Focus on how clients benefit from your accounting firm’s services. With this approach, you position your services as an investment rather than a cost.
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Make a lasting impression during introductory consultations with new potential clients. Grab their attention by asking questions about them and their business. That’s because value pricing emphasizes results rather than functions.
- What are they currently tolerating?
- What do they want to achieve over the next year?
- What’s the impact of achieving those things?
Then, connect your prices to the things your clients’ value most. Yes, this requires slightly more effort. However, you enroll results-driven clients who aren’t price-sensitive.
Don’t Over-emphasize the Tasks
Jamie carved out a specialty, focusing on law firms. Not all attorneys are a great fit for her services. To avoid clients who don’t respond to requests and cancel meeting at the last minute, she pre-qualifies them.
Her best clients are profit driven. They hire her because she’s business savvy. These growth-minded attorneys value her insights regarding invoicing, cash flow, trust accounts and profit margins.
Why Charge Two Different Prices for the Same Work?
Jamie studied the various different price strategies. And, decided to shift from fixed fee to value pricing. Pricing the client, rather than her services, appealed to her.
Since it flips priorities, she challenged her limits. In fact, she even has different clients pay different fees for the same work. That’s because the client determines value. The value one client obtains from her work differs from the value enjoyed by the next client and so on. Her pricing reflects this value variation!
As an example, consider two legal firms. Tom’s law firm specializes in business law and civil litigation. Jamie took over the financials, because he no longer had the time to do them himself. As a result of Jamie’s services and advisement, Tom saves $50,000 in expenses and increases profits by $300,000.
Now let’s consider Sarah, who started her family law practice last year. With Jamie’s insights, she ultimately saved Sarah $10,000 in expenses and her profits increase by $40,000.
Now with fixed fee, both clients would pay the same for her services. According to the numbers, Tom receives greater value from Jamie’s accounting and advisory services. Since she prices the client rather than the service, Tom’s fees are greater than Sarah’s.
Value is Subjective
As I mentioned earlier, value is subjective. When meeting with potential new clients, Jamie asks specific questions so they realize her value. With this client-centered conversation, they realize what they gain from hiring her is greater than her fees.
Even if she invests the same amount of time doing similar work, the resulting value differs considerably from one client to the next. As a result, it makes sense to pair her fees according to each client’s value. And yes, this means one client may pay a higher or lower rate than the next.
Over time Jamie became more comfortable with this price strategy. And, any guilt about charging different prices to different clients for similar services disappeared.
Value Pricing Paves the way to Success
When you separate fees from time, you earn more without working additional hours. Clients no longer watch the clock, challenge your invoice or question the amount of time you spend in their file. When your accounting firm leads with value, you gain awareness about your client’s perspective. This price strategy grows your bank account without working additional hours.
It takes a while before grasping the difference between fixed fee and value pricing. Imagine only working with clients who value and respect you. They appreciate your service and happily pay your fees. Claim your FREE RAISE YOUR RATES CALCULATOR now and you’ll be one step closer to earning more without working more.