How do you calculate a price? It’s a big question I get asked all the time.
There are essentially only two ways that you can price. Cost plus pricing, and value pricing.
Cost plus is the old fashioned way of pricing in the profession. It’s based on time.
Value pricing is the superior way of pricing. We price based on the value the customer places on our service. But how do we know what that is?
The problem is we don’t - the customer will have a number in their mind that they are willing to pay based on their perception of value. They won’t tell us what it is.
Nevertheless, we have to figure out some way of coming up with a price. I’ll give you three ideas…
You can watch the video here.
#1 - Get a fixed price upfront
You need to make sure that you cover your costs. You need to properly identify the scope of the work. That comes from the experience of doing the job and knowing the right questions to ask the client and building that into your...
It’s difficult to say no to your clients when they ask you to do a small task.
But it’s taking up your time. And you are not getting any money for it.
There are some tasks we often get asked to do, like:
These are really simple, easy tasks that we often just do for free.
But this is actually a form of what’s called scope creep.
Scope creep is when the work we do for a client ends up taking longer than we imagined, and therefore we end up spending more on costs, writing time off, and ultimately making a loss on the job.
Why do we let this happen?
It happens for two main reasons:
This is a huge problem. We are giving away so much for free.
But there are stages of tackling this...
Accountants and bookkeepers that I have spoken to tell me they find it difficult to uncover what their clients value.
There is a questioning process that we should be going through.
We need to have a set of questions prepared to ask our clients to get to the root of their pain, to find out what they really want and what they really value.
You can watch the video I did on this here.
Start off with background questions.
These are the questions we would often ask when we meet a client for the first time. We might want to know a bit about their background, why they got into business, what their goals are, what they want out of life.
Those are the questions we are comfortable with. They are familiar questions.
The next three sets of questions are the ones that are really important to uncovering what the client truly values.
#1 - Problem Questions
We need to drill down to what problems and pains the client is facing right now. What challenges are they facing in their business?...
There is a big mistake people keep making with menu pricing.
I think it comes from a lack of understanding of what menu pricing really means and the power of it.
Click here to watch the full video.
So, let me first explain what it means…
What is Menu Pricing
Menu pricing is giving people different choices, different options, bundles or packages.
Sometimes it is referred to as bronze, silver and gold. Sometimes, it’s the good, better and best strategy. If you read the textbooks on pricing, it’s very often referred to as versioning.
It works incredibly well. It’s so powerful.
Occasionally, I come across accountants that tell me it doesn’t work. That leaves me intrigued, because all the research and evidence is absolutely clear that this strategy works.
What are you doing wrong?
I’ve found that many people are doing it wrong. This is due to a lack of understanding, or lack of knowledge of how to build your packages and give people...
Bad payers are prevalent in small businesses. They are crippling them and many accounting firms as well.
Most people do the work, send out an invoice, then cross their fingers that at some point soon the client will pay. Hopefully within our payment terms. Hopefully within the next 30 days.
That’s a huge problem. Very often they don’t pay in time, or even at all.
We could build in our payment terms into our engagement letters. We could put it on the invoices.
But we know that very often clients ignore those terms and they pay when they feel like it or when they have the cash available.
Click here to watch the full video, or if you prefer, you can carry on reading below.
We are giving a service - we should be paid upfront
We are in the service industry. It should not work like that. We should not be acting as a bank and giving credit and lending money.
We should be paid upfront.
That’s how it works in the service industry.
Think about the last time you took...
I’m going to share with you the 4 types of buyers.
Once you understand their characteristics it will help you with your pricing.
If you want the full details, you can watch the video here.
#1 - The price buyer
The price buyer is the person that shops based on price. Price is the most important thing they are looking for.
They are price sensitive.
Thankfully, research shows there aren’t many of these types of buyers in society. It’s typically estimated this group make 15-20% of buyers.
These people aren’t entrepreneurs, they aren’t high net worth individuals.
They’re not the sort of people you might have in your client base.
#2 - The value buyer
The value buyer buys based on value.
Price is still important, but the value of what they get is of even more importance.
When we think about the value equation, it’s essentially made up of the benefits someone gets when they buy minus the cost or price. A value buyer is looking to maximise...
As a profession we are way too cheap.
We aren’t charging enough. Which is why every accountant and bookkeeper I speak to is telling me they are working long hours for too little money.
We have to put the prices up.
You can watch my video here, or by clicking the thumbnail below. Or if you prefer you can keep on reading.
Here’s how you do it:
Step 1 - Reframing
Existing clients know what you charged last year. They have a reference price.
Let’s imagine last year you charged $2000. This year you know you need to put your prices up by 20% to $2400.
The first thing you have to do is make it more difficult for the client to compare the price to last year's by reframing it. We need to change the way we express the price.
A strategy I use is called ‘chunking it down’, to avoid revealing a headline price. It’s easy to compare last year’s $2000 to this year’s $2400. But if we express that price as $200 a month, it isn’t a straightforward...
This is one of the most common questions I get asked.
First we need to understand, what does value pricing mean?
Simply, it means that we come up with a price based upon the clients’ perception of the value of what we do.
You can watch the video here, if you prefer. Or carry on reading.
Get rid of time-based billing
When we increase the value, and when they see and understand that value, they will pay a higher price. The price is based on value, not on old-fashioned redundant ways of pricing based on time.
There was a study done back in 2005 by a major software company, that asked thousands of business owners “What do you hate most about your accountant?” The most popular response was surprise bills.
With time-based billing the client doesn’t know the price until all the work has been completed.
Therefore, clients actually love value-based pricing. It’s in their interest because we are moving away from the shock of time-based bills, which customers...
The other day I received a lovely little package through the post. It kind of blew me away when I got it, I was seriously impressed.
Just to put this into context, this present arrived along with a thank you card from Reza Hooda, someone who I’ve mentored now for several years and helped with his pricing.
The card reads:
It was a lovely little message and he is someone who is doing incredible things in his firm.
Now, often accountants and bookkeepers may send a thank you note to their clients, perhaps with a bottle of wine or some such gift. But I think Reza’s gift takes this to a whole other level.
Firstly, it was beautifully packaged, with Reza’s firm logo Walji & Co on the case. Then inside was a beautiful really high quality power bank, a branded charger for the car, a portable speaker and a USB drive.
Watch the video here and you’ll get what I mean.
It’s something of high quality and real use to me. Something I will keep.
You should be doing...
Is the bookkeeping profession is crisis?
There is such a huge amount of change going on in our profession right now.
We are seeing the rise and increase of Cloud accounting. We are seeing artificial intelligence, machine learning, automation like bank feeds, and not too long ago we also saw Intuit QuickBooks launching Bookkeeping Live - alive bookkeeper, at really low prices.
What we are going to see over the years to come is increasing downward pressure on prices for compliance work and particularly for bookkeeping.
If you are a bookkeeper, CPA, accountant, or do bookkeeping services, this blog is for you.
I’m going to share with you my thoughts on where the profession is going and how we can overcome that.
How do we rise to the challenge? How do we make sure that we can continue to build a very successful accounting practise? How do we beat technology, outsourcing, low cost competitors and now software companies that are getting in on the bookkeeping action.
Here are four...