Just like every other business (many are your clients) Accounting Practices can also come under pressure from clients to ‘go easy’ on the fees being charged.
Here are a 7 ways by which you can put your prices under the microscope so that ‘fair value’ is being delivered.
- Adopt New Approaches to Pricing—For some service offerings, like business advisory, the hourly billing model may place a strain on the practice and value pricing—which sets prices primarily, but not exclusively, on the value, perceived or estimated, to the customer rather than on the cost of the service or historical prices—may be part of the solution to alleviating fee pressure. Special prices could be offered as an incentive for clients to order a wider range of advisory services. Persistent and widespread under-pricing, however, will impair the perceived value of the service over time, so such practices should be avoided. Packaging services, sometimes more desirable services together with essential but less desirable ones, can also be a useful way of getting clients to focus on the concept of comprehensive service provision rather than on hourly charge-out rates.
- Stress to Clients the Value of Services Offered—Regularly and often communicate the value of their services to their clients so that they appreciate the benefits of the services they receive. Articulating this value to clients may help mitigate fee pressure. The ability to communicate value is an important part of value pricing.
- Focus Efforts on Most Valuable Clients—Evaluate which clients are the most valuable by ranking them and then focusing their efforts on serving these clients. For non-audit services like business advisory, tax, and accounting, practices might wish to implement different service levels (basic, premium, etc.) to suit different categories of clients and price accordingly. This technique, referred to as yield management, is widely used in the airline industry to price seats. Ensuring a proper amount of capacity is allocated to various client segments, while offering a differentiating value proposition within each segment, is an essential element of implementing value pricing strategies. In some cases, it may pay to move away from less profitable clients.
- Leverage Technology to Improve Processes and Lower Costs—Implement process improvements to maintain profitability in the face of stagnant or declining fees by maximizing the use of technology. For example, cloud computing solutions offer the possibility of delivering the same services like payroll and bookkeeping for less cost. And, simple choices like using email instead of regular postal services, and ‘Skype’ ‘Google Hangout’ or ‘Zoom’ instead of telephone or in-person meetings can also help lower costs. Practices may be in a position to pass on a portion of the cost savings associated with IT efficiencies, which will likely be well received by clients.
- Re-examine the Practice’s Service Offerings—Consider whether they can add value (and hence fees) with additional services for little extra cost or provide the same for less cost. Specializing in niche markets or services might be worth pursuing to set the practice apart in the marketplace. For others, providing a broad range of advisory services and offering value pricing (see above) may prove profitable.
- Find Cheaper Sources of Supply—many suppliers, for anything from Internet service to energy supply to computer hardware, may offer benefits to new clients that warrant switching providers. Competitive pricing and choice in suppliers may have improved considerably since the practice chose its suppliers, and therefore, warrant a fresh review.
- Tackle Overheads—Seek to minimize waste and make the most efficient use of resources, both human and environmental, including work space, energy, and consumables. For example, practices should consider optimizing the utilization of expensive office space and energy by encouraging staff to perform much of their work at the client’s premises or at home and to pre-book a desk space when in the office. Similarly, practices should seek the most efficient use of staff through improved distribution of workloads, ensuring adequate planning and supervision of engagements, and delegating work to the appropriate levels. Flexible working hours may enable the practice to avoid staff redundancies, which can erode morale and may make it difficult to recruit new staff as and when conditions improve. Shifting more routine work onto more junior staff can help cut costs, but, without adequate guidance, could also diminish the quality of the end result, which in turn, may impair the practice’s brand. Therefore, staff assignments need to be managed carefully.
A final note.
When you make your decisions on how to make your prices more competitive for your clients, tell them that you’ve done so. This way you’ll be on the front foot when it comes to discussing price with your clients.
And to take matters 1 step further, give your process for reviewing cost structures and business efficiency a ‘brand name’ and use this where ever and when ever you can in communications with your clients and prospects. This could become part of your Practice’s ‘Unique Selling Proposition’ (USP).