Whether you have a large accounting firm or are a sole proprietor handling accounting tasks, the big question is always, "What should I charge for services?" Charging too little is cheating yourself and charging too much will make it harder to find and retain clients. Deciding on just the right rate for different accounting services is not that simple.
As Brandon Jones of Canopy points out in this article, "Pricing should be strategic. Pricing your services effectively can mean the difference between scraping by and robust growth. If you are unsure about how to set prices that work for your firm, you may need to look deeper into pricing psychology and how other successful businesses make their products and services more attractive to customers who are more than willing to pay for them."
There are several different pricing strategies your accounting business can use. These different strategies are listed below:
Cost-plus pricing
A basic strategy for pricing your accounting services is cost-plus pricing. In this strategy, you take what it costs to offer your services and add a percentage to that amount to determine how much you should charge clients in order to make a profit. While there are advantages of cost-plus pricing, it often leaves a lot of money on the table for businesses that offer a service rather than a product.
Advantages
- Simple to implement and easy for clients to understand
- Still allows for-profit if your expenses are variable
Disadvantages
- Doesn’t take competitors into account
- Often doesn’t capture as much value as clients get from your service
Flat-fee pricing
Flat-fee pricing is exactly what it sounds like: you charge your client a flat fee for your services. Typically, your client would be aware of the fee to expect before you start any work for them. Flat-fee pricing is different from cost-plus pricing in that it doesn’t fluctuate based on what your expenses are; it remains constant no matter how much time and resources you devote to a project. This approach can work well for pricing basic or repetitive services such as preparing simple tax returns. It doesn’t work as well for more complex projects.
Advantages
- Simple to implement and easy for clients to understand
- You and your clients know what to expect
Disadvantages
- Inflexible
- Doesn’t always reflect as much value as clients get from your service
Competition-based pricing
Another strategy for pricing your services is competition-based pricing which involves comparing your offering to that of your competitors. What are your competitors doing, and what can you do to differentiate yourself? To stand out from the crowd you can employ one of three modes of competition:
- Your practice provides an equivalent product at a lower price than your competitors.
- Your practice can provide a better service or experience at a price point equal to your competitors.
- Your practice can provide truly superior service or experience and charge more than the competition.
It’s good to be aware of how your competitors are pricing their services if for no other reason than so you can know where you fall on this spectrum. Even better, try to learn from how other accountants are charging for their services. Keep an open mind and be prepared to change strategies if the change will help your business.
Advantages
- Can help prevent losing out to competitors
- Can help you market your services
Disadvantages
- Prices could be set too low
- Sometimes creates a passive mindset toward pricing rather than proactive
Time-based pricing
The time-based pricing approach is often the default approach to pricing for many accounting firms. This long-standing traditional way of billing clients requires firms to track every hour spent on a project. Then you present a list of services performed along with the hourly rate for your client.
Advantages
- Simple to implement
Disadvantages
- This leads to a surprise bill for clients at the end of an engagement
- Doesn’t always reflect the value your firm can offer
Valued-based pricing
Value-based pricing is when you price your services based on what your clients are willing to pay, or the value they perceive in your service. Value-based pricing isn’t all about charging the most, it’s about setting prices based on customer segments and information you have about the market.
Once you understand what kind of clients are interested in your services and know what your competitors charge for the same services, you then identify what differentiates your business. Value-based pricing is putting a dollar amount on that differentiation.
Advantages:
- Can improve client loyalty and sentiment if used effectively
- Helps prioritize clients
Disadvantages:
- Requires you to know a lot about customer profiles
- More complex to implement
Choose a pricing strategy that matches your values
The way you charge for your services shouldn't be an afterthought in the way you run the rest of your business. Let the values and ideals that guide your everyday work inform the way you structure the fees for your clients.
Do you pride yourself on being open and transparent with your clients? Expand that idea into a fee structure that lets the client keep close track of what you’re working on and where they’re spending their money.
Do you market your firm as a simple, painless accounting solution? Back that claim up with a simple, no-surprises, flat-fee pricing structure.
Do you work with wealthy clients or large businesses who expect an exceptional experience? Clients who expect a premium experience will look for products with a premium price tag. Set your prices accordingly.
There are many other ways you can match your pricing structure to your values, each of them unique to you and your firm. When done correctly, this will effectively turn your pricing into a feature that clients regard as an advantage rather than simply a cost.
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