Ethical Issues in Pricing

August Aquila: "If someone is going to be unethical, it will not be a result of the billing method he or she uses."Specifics of Rules 302 and 503.

By August J. Aquila
Price It Right

In the old days you could go into a shoe store and purchase sneakers or gym shoes. Nowadays, there are tennis shoes, running shoes, cross trainers, aerobic shoes, basketball shoes, soccer shoes and the list goes on and on. Perhaps the billable hour paradigm soon will go the way of the gym shoe.

MORE: Applying Cobb’s Value Curve to Your Firm | 13 Questions about Providing Value | How Demand Affects Pricing | How to Shift from Production to Marketing Orientation | How Traditional Fee Methods Hurt Firms | 6 Questions for Planning Your Succession | Underperformers Come in Many Shapes and Sizes | 6 Focuses for Managing Partners
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Accountants need to realize that in pricing their services, one pricing method will no longer do. As with athletic shoes, accounting and consulting services can be priced in many different ways. This post will explore ways for you to move away from the hourly billing paradigm.
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Applying Cobb’s Value Curve to Your Firm

Hand turning a knob up to the maximum with a dial where it is written "value added""Pricing – that is, fee-setting – is above all a marketing decision."

By August J. Aquila
Price It Right

There is a completely different way of looking at value and it is tied into the type of accounting or consulting work that is available in any given market and the type of accounting or consulting work that your firm provides.

MORE: 13 Questions about Providing Value | How Utility and Value Affect Pricing | Understanding the Product Pricing Life Cycle | 4 Ways a Production Orientation Can Harm a Firm | Price to Get the Maximum Fee
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Nearly 30 years ago William C. Cobb wrote "The Value Curve and the Folly of Billing-Rate Pricing," providing a great deal of insight into the concept of pricing and value. Many of the ideas that follow are based on Cobb's article.
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13 Questions about Providing Value

Hand moving triangle along beam to indicate balance between price and valueRate both yourself and your firm.

By August J. Aquila
Price It Right

There are things that you can do to help your clients perceive a higher value in you and your services. These are not activities that will immediately increase your fees, but if done consistently, they will reinforce to your clients the added value that you bring to them.

MORE: How Utility and Value Affect Pricing | The Four Types of Competition | Marketing and the 5 P’s | Why Choose a Marketplace Orientation? | Why Value Pricing?
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Innovative firms realize that it takes more than just a seminar or newsletter to provide added value to the client. Everything revolves around the personal relationship that ultimately develops between the professional service provider and the client.
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How Utility and Value Affect Pricing

Man's hand drawing upward arrow with words "value for money"It's time to shift focus away from the service provided. Also: the 8 kinds of utility.

By August J. Aquila
Price It Right

If indeed we believe the phrase "perception is reality," then it is the client's perception that is the only reality. Ultimately, only a client can determine the value of your service, that is, the fee he or she is willing to pay. If the client perceives that he or she has received a benefit there will be some perceived value attached to the service.

MORE: The Four Types of Competition | How Demand Affects Pricing | How to Shift from Production to Marketing Orientation | How Traditional Fee Methods Hurt Firms
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Consciously or unconsciously, the client's determination of the correct fee for a service is related to two concepts: utility and value. Let’s look at these two concepts and how they apply to setting prices.
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The Four Types of Competition

Businessman drawing one arrow longer than others6 ways to differentiate your firm.

By August J. Aquila
Price It Right

After demand, perhaps the next most important factor affecting a CPA firm's pricing policies is competition.

MORE: How Demand Affects Pricing | Understanding the Product Pricing Life Cycle | 4 Ways a Production Orientation Can Harm a Firm | Price to Get the Maximum Fee | 7 Issues in Partner Retirement Planning | 5 Ways to Keep Your Edge | The Toughest Job in the World: Managing an Accounting Practice | How to Become the Firm of Choice
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As clients and prospects become more educated about CPA firms in their market, more sophisticated about the services offered and more cost-conscious, pricing becomes more important and more firms are beginning to stress the price of their services, especially in competitive request-for-proposal situations. Intensive price competition in most professional service industries is now a way of life, from hotels to airlines, from car rentals to telecommunications and from law firms to CPA firms.
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How Demand Affects Pricing

Word cloud related to demandOne word: elasticity.

By August J. Aquila
Price It Right

Economists define demand as a schedule of the various amounts of an item (a good or service) that buyers will purchase at different price ranges during a given time period.

MORE: Understanding the Product Pricing Life Cycle | Marketing and the 5 P’s | Why Choose a Marketplace Orientation? | Why Value Pricing? | Solving Underperforming or Dysfunctional Partners | The 3 Types of Partners You Need
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According to the theory of price elasticity of demand, there is an inverse relationship between price and the quantity of an item bought. In other words, as the price of a service decreases, the quantity demanded increases and as the price of a service increases, the quantity demanded decreases.
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Understanding the Product Pricing Life Cycle

Chart of a product life cycleWhich of the 4 phases do your products fall into? Here's how to tell.

By August J. Aquila
Price It Right

There is an important concept in marketing that provides companies with tremendous insight as to what they can expect for their products or services in the marketplace. It's called the product life cycle and, sooner or later, all products and services will go through the complete cycle. As they do, several external and internal factors change.

MORE: Marketing and the 5 P’s | How to Shift from Production to Marketing Orientation | How Traditional Fee Methods Hurt Firms | 6 Questions for Planning Your Succession | Underperformers Come in Many Shapes and Sizes
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The accounting industry and the services it provides are no different. The figure above displays the life cycle of a typical service or product.
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Pricing Strategies: The Real World vs. The CPA World

Businessman and tablet with the word "pricing" above.7 types and how they work.

By August J. Aquila
Price It Right

Pricing in the real world is much different than in the accounting profession.

MORE: Marketing and the 5 P’s | How to Shift from Production to Marketing Orientation | How Traditional Fee Methods Hurt Firms | 6 Questions for Planning Your Succession | Underperformers Come in Many Shapes and Sizes | 6 Focuses for Managing Partners | 10 Steps to Transitioning to a New MP | What Managing Partners Should Be Doing
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Usually, wholesalers and retailers set their prices by using markups as the product moves through a distribution channel. Producers or manufacturers usually set a list price. Think of the manufacturer’s suggested list price on the window of a new car. Car dealers will use various methods to price the new vehicle.
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Why Pricing Is the Fifth ‘P’ in Marketing Plans

Not 4. That's old thinking.

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By August J. Aquila
Price it Right: Valuing Accounting Services

Forty years ago, in 1977, the landmark U.S. Supreme Court decision in Bates & O'Steen v. State Bar of Arizona, 433 U.S. 350 (1977) changed the accounting profession forever.

MORE: How to Shift from Production to Marketing Orientation | 4 Ways a Production Orientation Can Harm a Firm | Price to Get the Maximum Fee | 7 Issues in Partner Retirement Planning | Is It Time for a Partner Compensation Checkup? | 13 Points of a Good Compensation Plan | 5 Ways to Keep Your Edge | The Toughest Job in the World: Managing an Accounting Practice | How to Become the Firm of Choice
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That decision prompted accountants to pursue a wide range of marketing activities. And, ever since that eventful day, accountants have been struggling with the meaning of marketing and the impact of marketing on their practices.
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The 12-Step Plan for Embracing a Growth Mindset

Stack of cards labeled with question marksWhen the 'production' mindset fails.

By August J. Aquila
Price It Right

There is no quick way to change from a production orientation to a marketing orientation.

MORE: 4 Ways a Production Orientation Can Harm a Firm | Why Choose a Marketplace Orientation? | Why Value Pricing? | Solving Underperforming or Dysfunctional Partners | The 3 Types of Partners You Need | How MPs Can Make a Real Difference
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Firm leaders need to embrace this new orientation and reward partners accordingly. To help you evaluate your firm see the table below.
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4 Ways a Production Orientation Can Harm a Firm

Men doing precision work on a production lineWhat kind of partner is more valuable?

By August J. Aquila

A pure production orientation can have negative consequences for an accounting firm.

MORE: Why Choose a Marketplace Orientation? | How Traditional Fee Methods Hurt Firms | 6 Questions for Planning Your Succession | Underperformers Come in Many Shapes and Sizes | 6 Focuses for Managing Partners | 10 Steps to Transitioning to a New MP | What Managing Partners Should Be Doing
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These consequences include a focus on internal measures, billable hours and technical aspect of tasks, and inhibit the development of a marketing orientation.
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