THE RADICAL CPA

Price By What You’re Worth

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Disruptive? We’re OK with that.

By Jody Padar
Radical Pricing  – By The Radical CPA

The familiar is always more comfortable than something new. Shifting your pricing model is bound to be disruptive because the billable hour is what we know and have always known. It is the default billing model of every new firm. It’s comfortable, familiar, embedded in our DNA and seems like the easiest billing solution.

Certainly, there are some pros to billing by the hour. Profits remain relatively stable. If you work 40 hours, you know you’re going to bill and hopefully be paid for those 40 hours. There’s a clarity and certainty to it. But there are only so many hours in a week. By embracing the billable hour, you’re putting a profit ceiling on your firm.

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Value Pricing: Three Major Drivers

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It’s a perfect storm. Embrace it.

By Jody Padar
Radical Pricing – By The Radical CPA

Ron Baker is known as the value pricing guru in the accounting space. He was way before his time in separating the price of labor from the value of a product. Labor-based pricing is based on the difficulty of doing a task. Value pricing looks at everything from the client’s viewpoint. His argument is as follows: the value you provide your customer, regardless of the deliverable, is worth way more than the hour.

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While value pricing isn’t new, automation has driven it to the forefront. Automation gives CPAs up to 90 percent more time to provide valuable services based on their expertise, knowledge base and experience.

Although it was clear the cloud was going to have a disruptive impact on our business model, Ron Baker would always explain: it’s not the technology that’s going to make value pricing the way to go, the value’s always been there.

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Knowledge Has More Value Than Hours

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The convergence of trends makes pricing changes imperative.

By Jody Padar
Radical Pricing – By The Radical CPA

The speed of change is faster than ever. How are you going to react to it? That’s what I’m really preparing you for – redesigning your entire business model to become a more client-centric advisor. Value-based pricing models are the key component but not the whole story.

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Today’s automation, new competitors, staffing challenges and new technologies are conspiring to bring clients more value than they could have enjoyed before. All of it is shifting the way you need to think about your services, what clients value and how you get paid fairly for the expertise you bring to the table.
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How the $25K Rule Works in Pricing

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Toss the timesheets and give your clients more value.

By Jody Padar
The Radical CPA

Consider the $25K Rule.

Because this method requires heavy lifting on the front end, a good rule of thumb is to only value-price engagements of $25,000 or more. If the client falls below $25,000, they are eligible for a fixed price or fixed price plus a value add. This rule is important because if your client is a small business, it doesn’t matter how much value they perceive in your services; they will not be able to afford value pricing above a certain level.

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Most services are fixed-priced, but based on conversations with the client, those prices may drop or be raised accordingly. Some of the data points used to set pricing are the PITA factor (pain in the a#%) and the client’s gross revenue.
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Why Offer Three Service Levels?

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Hand drawing a rainbow-colored 3

You still can add on other services.

By Jody Padar
Radical Pricing – By The Radical CPA

A tiered service offering should provide your clients with three options. According to experts in mindset and pricing, if you provide three options, people will usually choose the one in the middle. That’s the one you are aiming for them to buy.

Also, don’t forget that people buy the payment, not the car. There’s an entire mentality around monthly pricing. If you tell a client it’s a $24,000 engagement, they will balk. They would rather pay $2,000 a month than the full amount all at once. Of course, some clients will offer to give you the full engagement amount up front if the price is discounted. From a cash flow perspective, you can offer a small discount if a client is willing to pay this way.

Creating your service packages is not a one-size-fits-all activity. There should be different tiered service options for each client persona. It is also important for clients to know that they can upgrade or downgrade their service level when needed.
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