In the past few years, value-based pricing for advisory services has grown from a buzzword into an important strategy for accountants. Helping them convey more value to clients while getting paid fairly for their services in a changing industry.
Applying these concepts to Strategic Advising is especially critical for accounting firms switching from compliance-based services to more profitable strategic ones. However, switching from an hourly or fixed price model to value-based pricing can be a challenge. That’s why we’ve sat down with two industry veterans—Mark Wickersham and Kathy Gregory—to help you explore the benefits of value-based pricing, and navigate the challenges throughout the transition.
Mark Wickersham is a world leader, international speaker, writer, and mentor on the subject of value-based pricing for accounting firms. Kathy Gregory runs the LivePlan Strategic Advising program and has 25 years of experience in strategic planning, business development, and business process design.
What is value-based pricing?
Value-based pricing is a strategic pricing framework where you offer distinct services based upon the value that a client receives. This pricing model fully relies on your clients to help you define what they perceive to be valuable. It leverages customer data, the relative value of different services, and how they compare to competitive offerings to make an informed decision regarding how to establish your price structure.
It can be difficult to know where to start, so it’s best to leverage a value pricing framework to kickstart the value conversation with your clients. This involves fact-finding, appropriately packaging your solution, educating your clients, actually calculating the price, and then reinvolving your clients to confirm that it matches their needs.
Now, even with a framework, it can be difficult to navigate the transition to value pricing. So, let’s dive in and let these two experts showcase how you can effectively leverage value-based pricing and answer common questions sourced from other strategic advisors.
What’s the difference between value-based pricing and fixed pricing?
A fixed price is usually built bottom-up by establishing an internal cost, or the hours they work will take, and then adding a margin, or a sell price the firm can charge based on their estimate of what the market will bear. This can work fine for one-time work that involves a customer scope and a request for proposal, but for repeated work, such that accounting firms offer, this is not an effective pricing strategy. More importantly, it’s not an effective profit strategy.
The best strategy for profitability is to group your services into packages and allow the client to choose the items they want, giving a range of more or less involved options for each. For instance, with Strategic Advising, a client could choose from a monthly one-on-one meeting, or a quarterly meeting, or an emailed video overview.
Transitioning to value-based pricing—Why it’s difficult for some firms
Making any sort of transition is difficult and daunting. Even if it’s a data-driven method like value-pricing, there are a number of reasons why a firm may struggle to start and successfully implement this pricing model.
Hourly pricing is rooted in the business
“The first is habit,” according to Mark Wickersham. “As a profession, we’ve been pricing based on how long the work takes for so long it’s deeply entrenched into our systems and thinking. And so, even though we know we need to change to value-based pricing, we still think in terms of time, i.e. how long will this work take?”
Confusing value-based pricing with other pricing models
Since value-based pricing is rooted in an exploratory process that requires you to evaluate the needs of your customers—it can be complicated and easy to conflate with other pricing models. “It stems from misunderstandings around what value-based pricing means,” says Mark. “I hear many accounting professionals say they have made the shift to fixed pricing or flat fees, thinking this is value-based pricing. It’s not.”
“Just because we give the client a fixed price upfront doesn’t mean that price has been arrived at based on a value conversation with the client. Usually, it’s a best guess at how long the work might take. That’s still pricing based upon the hour, the only difference is a price is given upfront based upon an estimate of time.”
“That’s absolutely not value pricing and usually results in money left on the table.”
Value is subjective
Possibly the most difficult part of making the transition is actually defining value. You’ve been working from an hourly model and it’s not a simple switch to start pricing services based on value. Possibly the most difficult part of the transition is actually defining value. You’ve been working from an hourly model and it’s not a simple switch to start pricing services based on value.
“Let’s be honest. Value-based pricing is not easy. It’s very difficult. That’s partly because value is subjective. You can’t touch it, feel it or measure it. Always remember, only the client can determine value and every client values things differently.”
Keep in mind that this switch won’t necessarily be quick. However, if you take the time to explore your customers’ needs, understand what they find to be valuable, and educate them on why your services check those boxes—the long-term value will overshadow the initial time investment.
Your services are complex
“Accountants sell complex services.”
There’s no one size fits all approach. While you hope that your clients will leverage you in multiple ways, that’s not always the case. Some just need traditional bookkeeping, others may require monthly forecasting, and maybe a select few want to leverage your full suite of advising services. That becomes even more complex when every single service you offer will differ based on each client.
“Take bookkeeping for example. Every client is different with different needs, circumstances, quality of record-keeping, size of business. With all those variables, how do we give a fixed price upfront, based upon the value, and so that we are confident we’ll make a profit on the work?”
“And yet, despite all those difficulties,” says Mark, “those firms who have made the successful transition and are mastering value-based pricing are getting much better prices, better clients, and making more money.”
What are the benefits of value-based pricing?
So why is value-based pricing so valuable? Especially if there are all of those challenges to deal with when making the transition. Here are just a few of the benefits that make this pricing model worth using.
1. A fair way to price your services
“The first big benefit is to the client,” says Mark. “It’s a fairer way of pricing. Not only does the client get certainty right upfront about what the price is because it’s based on value, it means there is a real incentive for the accountant or bookkeeper to deliver as much value as possible.”
“Value-based pricing is a win-win pricing method. The more value you deliver the happier the client is, and when your price is based on that value, you are happier too because you get a better price.”
“It’s the opposite with time-based billing. You take longer and the price goes up. How does that benefit the client? It’s not fair.” In many ways, value-based pricing showcases how confident you are in your own abilities. You’re not hiding how much time or effort different services take, and instead provide options on a tiered system that directly relates to customer needs.
2. Your average price increases
In the same way that value-pricing makes your pricing structure fairer for you and your clients—it also makes it far more valuable. It makes your work far more transparent and easier to showcase why the price is fair for what they’re receiving. That also means that you can more accurately price your services, which in turn allows you to increase them.”
“When we price based on value, we get higher prices. I’ve worked with many firms who have increased their average prices across their entire firm by 20 to 30 percent within a year, with minimal—and usually no—loss of clients. That has a big impact on bottom-line profit. I’ve seen many examples of firms who have increased some of their prices by double, and sometimes much more.”
3. Extend the value of your best customers
As Mark said earlier, “every client values things differently.”
“That means some clients value what you do more than others. Those who value what you do will happily pay you much more when you add more value. Those are the clients you love working with.”
“However, I know you also have clients you don’t like working with so much. They are often the ones that don’t value you so much. They usually complain a lot. They pay you late. They’re a pain to deal with. When you move to value pricing, those clients may well leave.”
“And that’s a good thing. Because life is too short to deal with people we don’t like. And since your best clients are now paying you at a higher value-based price, you can afford to lose those other clients.”
The bottom line is this: You work with better clients, do better work, for more money, and without wasting time on those clients who are a pain.
What is the first step in value-based pricing?
Even if you understand why you need it, it can be difficult to know where to start when implementing value-based pricing. Yes, there’s a framework available that walks you through the broad steps, but even that can be a daunting process to dive into. That’s why Kathy Gregory recommends that you start by looking at your business.
“I think a big part of the transition is for a firm to understand what they sell and what their resources are for providing it. In order for a client to choose the things they value most, the services must be offered in chunks they can select from. A service packaged the right way, is really a product and the firm’s resources to build that product are the people and materials the firm will employ.”
“Spending some time upfront to define your Strategic Advising product and do some capacity planning around your internal resources lays the groundwork for a value-based pricing menu.”
How long does it take to shift to value-based pricing?
Like any large-scale change to your business, it’s difficult to say exactly how long it will take and it will vary from firm to firm.” It is not possible to say how long it takes for a firm to transition to value-based pricing,” states Mark. “It’s different for everyone.”
This is due to multiple factors. How complex your service offerings are, how many clients you currently serve, the size of your organization, and even how your tech stack is set up. And that’s all on top of exploring and working through the value-pricing framework.
“Some people grasp the concepts fast and can be getting amazing results within a few months. For others, it can take a few years. I’ve been teaching accounting professionals how to price since the year 2000. That’s a long time. And yet I’m still learning too.”
“The key step is to find a mentor. Someone who can help you on the journey. Someone who can teach the strategies and techniques and who can provide ready-to-use resources.”
Why is value-based pricing the best option for client advisory (or Strategic Advising) services?
“As accounting firms transition from compliance-based work to Strategic Advising, it’s important to also transition from hourly billing to value-based pricing,” says Kathy. “The work is so different—the pricing must also be different.”
“Advisory services are nuanced. It is not the type of work where x hours = x product. It is about applying knowledge and bringing value to the client month after month. Some months this work will take 15 hours, some months the work may only take three. And some months you might have to spend weekends helping the client build a new strategic plan.“
You need your pricing model to match how you actually operate and in a way that will actually support your customers. It’s not about stretching hours to make bookkeeping more valuable, but turning your strategic ability into a service that people want and need. In short, you want to build trust.
“If you show your clients that you can help them grow their businesses, they will pay for that value. But if you only price it by the hour they will be frustrated during the big months, and confused during the small months. And the whole time you’ll be making the same margin on each hour.”
Other similar pricing models may help you avoid this issue, but they take the customer out of the equation.“Other similar pricing models may help alleviate this issue, but they also leave one vital component out—the customer relationship. “Fixed pricing doesn’t solve the problem either. In a successful advising relationship, the work grows and changes over time. The early work you do will be replaced by work that is more and more strategic over time so it will be impossible to define a fixed scope.”
That’s the real beauty of value-based pricing.—it’s built to scale. You start with pricing and services that meet your customer’s needs right now and look for opportunities to expand when it makes sense.
That’s the real beauty of leveraging value-based pricing, it’s built to scale. You start with service offerings that are valuable to your customers and when it makes sense, look for ways to expand. Either within the slate of services you already have, or with new, more robust options.
“If you build a menu of services (or products) that can grow with your client relationship, you will accomplish both things: meeting the client’s true needs and being profitable yourself.”
Build your own value-based pricing
Adapting to a value-based pricing model for your advisory service is one of the most effective methods for growth. It ensures that you are being paid appropriately for your expertise and time, able to prioritize what’s important and better connect with your clients. It’s more than out-of-the-box static pricing—it’s a personalized system, unique to your services, that is backed by a proven framework.
Now, if the framework isn’t enough to get you started, it may be best to invest in tools that can help you develop your value-based pricing model. This is why we’ve developed this brochure along with Mark Wickersham, to help you do just that. More than a sales tool, your customized brochure helps walk your customers through the journey of identifying the problems you will solve for them. It brings everything together and helps you close the deal, showing them the value of your solution.
Put your practice first, and get the tools you need to launch the new year right. By offering advisory in a scalable and profitable way.