By Jody Padar, The Radical CPA
Your firm serves many stakeholders with different needs. Clients want results. Employees want satisfaction. Partners want a secure future. Interestingly, one facet of your business plays an important role in meeting the needs of every stakeholder — pricing. Yes, pricing impacts profitability, but it can also help you create a more desirable culture while improving client satisfaction. What’s not to like about that?
It all starts with eliminating the billable hour; that ceiling on your potential profitability. Time is a finite commodity. No matter how hard you work, there are only a limited number of hours in a day you can bill. Sticking with the billable hour means your growth is limited by available hours. Yet, there is no limit on how much satisfaction you can deliver to your clients. Value pricing unlocks the profitability offered by superior service.
When you value price, you scope the parameters of every project or service and set a reasonable price for delivery. Pricing is consistent with the value of the service provided to the client while also ensuring you cover delivery costs. By decoupling your revenue from hours, your team can focus on delivering premium-priced, high-value services that clients desire. The effects of this pricing change will go far beyond greater profitability, too. The following are some of the other positive impacts of value pricing.
Increased Client Satisfaction
Clients don’t want to feel like every call or email is a ticking meter. Every month they see an invoice for X number of hours and take a deep breath. Did it really take that long to do a simple job? How much does it cost every time I talk to someone? Things are different, though, when your pricing model is based on the value of any particular service to each client. Clients begin to feel that they are paying for results, not time. And results are more valuable to them than the time it took to get there.
A Better Firm Culture and More Satisfied Team
Do you know a single accountant who wants to work more hours? Someone who wants to measure their value in 10-minute increments? Absolutely not! They want to accomplish something of value. But, if their income depends on how much time they spend at their desk rather than the quality of their work, their happiness and commitment to their job are bound to suffer.
Value pricing flips this dynamic on its head. It encourages them to focus on what really matters: Delivering great results for clients. This simple shift in focus fosters a healthier work culture where creativity, problem-solving and building relationships become more important. All are more fulfilling to the kind of employees you’d like to have in your firm.
Greater Profitability
Imagine your financial future depending on the number of hours you can bill while the most labor-intensive parts of your business are rapidly becoming fully automated. It’s not a formula for continued success. In the meantime, you and your employees have specialized knowledge that is both in demand and highly valued, including how to automate many of the services you traditionally supplied. It isn’t hard to see how this equation should be adjusted.
Projects and recurring services are priced based on the value of the results you’ll deliver rather than the time your staff spends doing the work. The higher your service quality and value, the higher your profits will be. Possibilities expand when you free yourself from the tyranny of the clock.
More Efficiency
Efficiency depends on incentives. If you are incentivized to work faster, you’ll find ways to be more efficient. But, if you are being paid by the hour, the incentive is the opposite of efficiency. The longer it takes to finish a job, the more you’ll make. The incentives don’t align with what clients like. Value pricing, on the other hand, encourages firms to streamline their operations and leverage technology to deliver results faster and more accurately. The incentives align with what clients like.
Improved Recruiting and Retention
Few accounting professionals leave college drooling over the opportunity to work themselves to the bone. Most want to feel important to an organization and be recognized for their skills and expertise. Measuring their worth by the number of hours they bill is counterproductive. Value pricing encourages employees to focus on delivering value and solving problems, which is way more satisfying than punching a time clock. In addition, firms that embrace value pricing are often seen as more progressive and innovative. These are the traits that tend to attract top talent.
Aligned Scope and Expectations
Scope creep is the slippery slope when clients keep asking for “just one more thing” without understanding the extra costs involved. Under the hourly billing model, this is a nightmare scenario because it’s often hard to pin down what should actually be included. Value pricing clearly defines the scope of any product or service. Clients know exactly what they are getting. There are fewer misunderstandings, leading to better client relationships.
No Limits on Firm Growth
To grow under the billable hour model, you have to keep hiring more people who will log more hours. When using value pricing, you can grow revenue by adding more high-margin work tied to the skills of your current staff while automating the grunt work no one wants to do to begin with. Growth becomes scalable without necessarily adding employees. When you do look to add employees, you can pinpoint specific expertise that will help you expand service offerings while improving margins. By focusing on outcomes rather than hours, you position your firm for long-term success. You’ll be able to take on higher-value clients, offer more advisory services, and build a reputation as a forward-thinking, client-focused firm.
Say Goodbye to the Time Clock
In an age where automation is taking over many of the functions accounting firms used to consider their meat and potatoes, perhaps it’s time you threw away time-measurement software. By moving to a value pricing model and investing in the kind of services clients want, and are willing to pay more money to obtain, you’ll be able to break through growth ceilings. All this at the same time you’re creating a more desirable place to work and a more attractive partner for clients.
A change to your pricing strategy has many ripple effects that better position you to meet the wants of all your stakeholders, and be a better firm as a result. It’s time to start the pricing conversation in your firm today.
