When it comes to pricing accountancy services the advice sounds quite straightforward: never undercharge or overcharge your customers.
Yet things are never quite that simple.
Fundamentally pricing should be strategic because it can be the difference between simply surviving as a business and growing significantly by boosting margins and profitability.
Business psychologist and coach Rachel Cutler says the traditional way accountants have priced their work could be holding the profession back, especially as they introduce new advisory services.
She could be right. After all, timesheets were introduced more than 70 years ago and in a world of cloud technology, the idea of billable time does feel a bit old fashioned. The cloud has reduced overheads and enabled accountants to provide better advice in fewer hours.
5 pricing keys
Cutler has this advice when it comes to pricing new services:
- Be open. Don’t be afraid to admit you don’t know – and start your price comparison research.
- Be honest about your personal traits. Do you undervalue yourself generally? Mitigate against this and correct any potential to undersell.
- Don’t be greedy. Just don’t be.
- Explain. Make sure you can demonstrate to a client, colleague and yourself how and why you came to a price.
- Review and reflect. If you get stuck remind yourself what took you to this pricing strategy. Think about time, money and your experience.
Many accountants can struggle to stand back and look rationally and objectively at their pricing structure.
“When it comes to justifying your pricing, you should take an up-close and ugly look at how you got to the point you are at,” said Cutler. “Adding words to a list such as ‘blood’, ‘sweat’, ‘tears’, ‘relationships’ and so on will give you a sense of what you are worth at this point in your career. You should price new services in this context.”
More practices are choosing fixed pricing and value pricing models to better engage with clients who are perhaps using new advisory services for the first time.
Fixed price models
From a psychological perspective, accountants can find it difficult and stressful to shift to a fixed or value-based model. The advice is to start small, perhaps with one area, before introducing it across the portfolio of services.
There is an option to offer fixed fees for one-off projects or to have an annual fee. One issue with a value-based approach is that not everyone sees the same value from a specific service.
So how do accountants themselves approach the psychology of pricing? Do they need to boost their negotiation skills or are they confident enough to stand by their fee structures?
Pricing new services
Naz Khaliq is Managing Partner at Dynamix Accountancy in Canterbury. He has introduced many new services in recent years, including helping clients with business plans and business valuations, R&D Tax Credits and assisting them with the Government’s Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS). He is currently using a fixed pricing matrix system powered by the Go Proposal tool to price effectively.
“Our concept for calculating prices is based on a hybrid approach of how long something will take and the value it holds for a client,” he said. “We do have confidence in our expertise, but it’s also about being able to explain to people the value of what you are doing for them. You need to explain the value in terms of your training, knowledge and experience.”
Of course, clients can be quite different in their attitudes to pricing, so accountants need to consider their own target market, the local competition and the economic environment. A traditional cost-plus pricing model for new services might be more than adequate in some communities, although this does not consider how a practice’s competitors are pricing their services.
Other clients might prefer to see a menu of services and packages clearly priced with options for add-ons. This flat fee approach can be ideal for services that are regularly repeated.
Getting the right structure
One person who tries to offer fixed fees as standard is Jasmine Pentecost, founder of JP Accountancy Services in Pulborough.
She set up the business last year and admits she underestimated the costs for a handful of clients. She then spoke to a business consultant who helped her identify a pricing structure that accounts for initial set-up and ongoing support.
“Having fixed fees can mean that sometimes you get it wrong,” she said. “There is often more work involved during the first few months while you get to know the client. This has been a learning curve for me.”
Pentecost tends to base her fees on an hourly rate. She estimates the time a task should take based on her experience with similar size clients in other industries.
“As I have only just launched my business, most of my services are a new provision,” she said. “It is important to believe in your expertise because that is what the client values. You need to be confident in yourself and your knowledge to price appropriately.”
One service she is particularly proud of is an outsourced finance function. The company handles everything from data entry to year-end accounts and tax returns. She has monthly meetings with clients to discuss trends in the data and the two parties work together to find improvements.
“Most clients are happy with my pricing, and with a home-based business I don’t have to build in high overheads into my fee structure,” said Pentecost. “There is the odd client here and there who tries to negotiate a lower price, but I avoid this. I believe it undermines my expertise and experience and it wouldn’t be fair to clients who do pay the quoted fee.”
Pricing any new service should take into account the training required and the number of people needed to deliver it.
Andrew Bradley, the owner of Kent-based Cantium Accountants, said it is tricky pricing new services and there is always some guesswork involved initially.
“I try and estimate the level of staff required to deal with the work and the time involved,” said Bradley. “We tend to trial new services at a lower price to start with until we get a feel for what is involved. We then set the ongoing fee once we have a better idea.”
Two new services that the company has had to embrace are claims and advice regarding the Job Retention Scheme (furlough) and dealing and advising on the online capital gains tax reporting for disposals of UK residential property gains.
“In the case of these services, clients probably had little idea of what is involved so they are generally okay about our pricing,” he said.
“However, we have found more client resistance to our prices over the lockdown period than we did previously. We do occasionally get clients complaining about fees, particularly where they feel they are forced into incurring the fees. For example, contractors forced to use limited companies or to be VAT registered by the businesses they are providing services to.”
In any business exchange, the real currency is value, and accountants need to remind themselves of the expertise they offer. As an accountant’s confidence around pricing grows, so will their margins and profits.
Steve Hemsley Is a journalist, media trainer, and podcast presenter. .