Clients Buy Solutions, Not Time

Hand building word "solution" with letter blocksPlus 4 notes about client phone calls.

By Jody Padar
The Radical CPA

“Forget about pricing and think about what people buy.”

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Customers are not buying our time. They may be buying our expertise. But they’re really buying a solution to their problem.

Famed management consultant Peter Drucker says, “A customer never buys a product by definition, the customer buys a satisfac­tion. Satisfaction of a want, he buys value.” He’s buying a good feeling.

When lipstick leaves the manufacturer, it’s a solution. When it crosses the counter in a department store, it’s hope. From this perspective, how do we make our services into products or solutions? That’s essentially what you are doing with bundling and packages. You are productizing a service.

The question is, how do we make our services into products? How do we make sure that the experience is a good one? The customer doesn’t know if our calculations are correct or not. What they know is what they feel. Did we solve their problem? Have we added value to their business? Do they have peace of mind?

If you are selling a tax return, forget about the tax return. What is it the customer actually needs from us today to make their business better? They do not need a compliance document that they have to send the government. Sure, they need it but it offers them no value. Nobody ever wants to pay for compliance.

What they want to pay for is something that’s going to help them long term. That’s why it’s a lot easier to sell and provide tax plan­ning over tax compliance because a customer can see the value there. When you look at tax compliance, it’s done, it’s a requirement, there’s nothing else to do. Here is an example of what we sell.

If I don’t bill time, how do I know I’m profitable?

It’s out on the table. You have all wanted to ask that question. Go ahead, ask: If she doesn’t measure and bill time how does she know her firm is profitable?

Here’s how, all of our revenue goes into a “services” income account. I haven’t divided the income into lines of service because at this point, it’s not important to me. But you could, if you so choose. All I care about is my gross profit margin. My fixed employee costs and all of our software go into cost of sales accounts. My concern is whether I am profitable and have a good gross profit margin. Then my overhead and everything falls in behind. You guys know that. You’re accountants. You know how to do this.

What are my job costs? No clue! Time is not a correct measurement, anyway. You need to measure incidents or how many times we’re speaking with our customers so that we can track what the questions are and how we can serve them better. For me, that’s a better measure than my time spent on a specific customer.

We run ourselves more like a software company. We provide a cus­tomer support piece that is part of the product we sell. Unlimited support is part of our tax return package and just like software companies, not everyone is going to call every day.

I love when CPAs talk about it because they always say, “Well, my customers are going to call me all day.” But the reality is:

  1. Most of them don’t really want to talk to their accountant every day. (It’s true.)
  2. When they call, you should be psyched because it’s a way for you to solidify that relationship with them.
  3. The more work you can push out by tax season and get resolved outside of tax season, the better off you’re going to be during tax season. We want our customers to call. We want them to be in contact with us all the time.
  4. You still have to scope the work correctly.

2 Responses to “Clients Buy Solutions, Not Time”

  1. Bill Miranda

    You are wise beyond your years. Your approach to pricing and measuring your success is one that I use as well. My measure is to charge enough that I feel good about working for the customer but don’t charge so much the customer doesn’t want to work with me. That is my definition of “value pricing”.

    Reply
  2. Douglas McDougal

    I agree with all that you have written in this article as I don’t track time either. In addition, I flat-fee my clients. They love the fact that they can budget for their accounting/tax costs. I might eat some time at the beginning, but I more than make up for it as I become more efficient in handling their issues.

    I want my clients to call me because it makes me look good in the end. If they wait until February or March to tell me about the big new contract, the divorce, or the thought of cashing in a retirement plan to fund their business (had this happen this past tax season), I can only tell them the damage. And, it’s funny how it always ends up being our fault although we had no idea what was happening.

    I also don’t charge for those quick calls. I don’t want the client thinking about what it’s going to cost him to pick up the phone. If it’s outside our normal scope, I will tell him/her and let them know of the price. That way, they can make the decision to move forward. I don’t like surprises and assume the same of my clients.

    Furthermore, invoicing for a 5-minute call probably cost you more than you earned. By the time you invoice the client, collect the check, and deposit it at the bank, you’ve probably lost money on the transaction.

    Reply

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