Determining your accounting service fees plays an important part in your firm’s overall strategy. Therefore, creating a pricing strategy that will maximize profits while continuing to grow your client base is important. Fortunately, there are several strategies that you can utilize to find the right pricing strategy for your firm.
One key factor that will help determine how to price your services will be the overall pricing psychology that other companies use to get the most from their clients while delivering perceived value. In this article, we will explore several viable pricing strategies for your accounting firm.
Pricing Challenge For Accounting Firms
There are several approaches that you can take when it comes to bookkeeping services pricing. First, you have to look at the services that you offer and determine the type of value that it delivers to your client. From there, you will want to create a pricing strategy where you can maximize profit while remaining competitive.
One of the biggest challenges is that no two clients are going to require the same types of accounting services. That’s why many firms use a menu-like approach to their bookkeeping services pricing structure. Many case studies have revealed that clients prefer to have a variety of choices when it comes to pricing. This type of flexibility will allow your firm to be more attractive to a wide range of clients.
Common Pricing Strategies For Accounting Firms
There are several popular pricing strategies available for accounting firms. Here, we will take a look at the top accounting firm pricing strategies along with their advantages and disadvantages.
The cost-plus pricing strategy is essentially the basic strategy for many accounting firms. With this approach, you take the cost that it would take to provide all the required services for the client and add a percentage which would be your firm’s profit. Many newer accounting firms prefer the cost-plus pricing strategies because it is so easy to calculate. However, this strategy does end up leaving some money on the table because it may not capture as much value as clients get for your service.
|This is a simple approach that will be easy for your firm to calculate and simple for your clients to understand. This is the preferred pricing strategy for new firms as well as smaller firms.||This may not be the most competitive pricing strategy. When you are only looking at your services and your profit margin, you tend not to consider the price of your competitors.|
|You can pretty much guarantee a profit since you are estimating your cost and adding profit beforehand.||You may end up with less of a profit since you are not considering the full perceived value of your service to the client.|
Perhaps the simplest strategy that you can employ is the flat-fee pricing strategy. As the name implies, you charge a flat fee for all of your services. The main advantage of this strategy is that it is easy for the client to budget for your service and even easier to market. The main disadvantage to the flat-fee pricing strategy is that the fee does not fluctuate with the amount of time and resources that you spend on a client. Thus, there is a chance that flat-fee pricing can negatively impact your bottom line.
Ultimately the flat-free pricing approach will work best for repetitive services such as preparing tax returns. You will likely want to avoid flat-fee pricing if you offer more complex services.
|Flat-fee pricing is simple for your clients and easy to market. If you offer a repetitive service, then flat-fee pricing may work best for you.||You don’t enjoy any real flexibility with flat-fee pricing. Therefore, you may be stuck if you want to expand the type of offerings that you want to bring to the market.|
|Both you and your clients know what to expect. Clarity from both parties will make your firm easier to work within the eyes of many clients.||Flat-fee pricing may not reflect all the value that you bring to your client.|
Just like any other market, your firm is going to face competition. Therefore, you may want to consider pricing your services against your competitors. This can allow you to gain business rather quickly if you are known for either undercutting or overdelivering versus the competition. However, getting into a price war with other firms will likely eat into your profits. Therefore, you can only really make this strategy work if you can work at scale and still maintain a profit.
When looking at competition-based pricing, you can employ three types of pricing strategies:
- You offer a lower rate than the competition for the same service.
- You offer more value than your competitor while not offering a lower price.
- You offer truly superior service which allows you to charge more than your competition.
Even if you don’t decide to use a competition-based pricing strategy, it is highly recommended that you know how much your competition is charging. At the very least, it will help you determine how much you should be charging for your firm’s services.
|Competition-based pricing can help prevent you from losing business to other firms. You can price your services in a way that will keep you competitive.||To get business right away, you may end up pricing your services too low. This could lead to razor-thin margins.|
|Competitive pricing is a great way to market your services. Your firm can be known for lower prices, more value, or better service right away.||Competition-based pricing is a passive way of pricing your services and will likely not optimize your profits.|
One of the most popular ways to charge for services is to use time-based pricing. With this approach, you complete the work for the client and charge for the amount of time spent by you and your team. At the end of the project or billing period, you present the client with a list of services performed based on the hourly rate.
One of the reasons that you may want to consider time-based pricing is that you can offer a wide variety of services without creating a complex pricing strategy. However, some clients may get “sticker shock” since they won’t know what they will be charged until all the work is completed.
|Time-based pricing is easy to implement. All you have to do is track the number of hours and create the bill based on the hourly rate.||Clients won’t have a concrete idea of how much they will be charged and may be shocked by some of your firm’s bills.|
|It is much easier to offer a wide variety of services.||Since you are charging an hourly fee, you may not be capturing all the value that your firm has to offer.|
With value-pricing, you will take a look at how much your clients are willing to pay or the perceived value of the services that you offer. This type of pricing strategy is the most conceptual since you have to consider what the client thinks your services are worth. From there, you can create a pricing structure that will appeal as attractive to your clients.
To make value-pricing work, you have to know what the competition offers as well as their rates. From there, you have to determine how to differentiate yourself from the competition to have more perceived value. For instance, you may decide to offer a faster turnaround time to deliver better value for your clients. However, be aware that value-based pricing is one of the most complex pricing strategies that you can implement.
|You can improve client loyalty if all of your pricing reflects a high level of value.||You will have to research both your competitor’s pricing and value strategy along with consumer profiles.|
|This pricing strategy can also help you prioritize the clients who perceive your firm as a better value.||Value-based pricing is one of the most complex pricing structures to implement.|
Choose A Pricing Strategy That Matches Your Values
The right pricing strategy is one of the most important decisions that you could make when it comes to managing your accounting firm. To discover the right pricing strategy, you will need to discover what values form the foundation for your firm.
For instance, if you pride yourself on being open and transparent with your clients, then you will want to market a simple fee structure that will make your clients comfortable. Perhaps you want to market yourself as the “stree=free” accounting firm with a simple flat monthly fee.
If you work with high-net-worth clients, then you may want to consider a pricing structure that emphasizes customer service and a premium experience.
In short, your accounting firm’s pricing structure will reflect what your company stands for. Therefore, you will want to make sure that you choose a pricing strategy that is aligned with the identity of your firm.
Tips To Remember When Pricing Your Accounting Services
As you create the pricing strategy for your accounting firm, you will want to keep certain ideas in mind. Here’s a look at several important tips to remember when determining the average cost of accounting services at your firm.
Any price must reflect value to your client
No matter which pricing strategy you implement, the client must feel that they are receiving value for the service. Even high-net-worth clients do not want to feel that they are overpaying for services.
One of the best ways to create perceived value is to take a look at everything that your firm has to offer that differentiates it from the competition. Some differentials can include industry awards, customer service, convenience, fast turnaround times, level of education, technological services, and portfolio of clients.
Consider pricing anchoring
Ever notice that there is never any one price for a product or service. Walk into an electronics store and you’ll see a $2,000 TV next to an $800 TV. In reality, the $2,000 TV is used to sell $800 TVs. How? People look at the $2,000 TV and say that is too expensive. However, the $800 TV has lots of perceived value next to the $2,000 TV.
The same can be applied to your accounting firm. You should offer a range of services. That way you can show off the value of your services. This is known as “price anchoring” and it is implemented in just about every industry.
Consider offering a premium package next to your standard package. While you may not sell any of your premium packages. That premium package may end up helping you sell more of your standard packages.
Choosing the pricing strategy that works for your firm
Discovering the right pricing strategy is all about finding out how much your client can pay and finding ways to deliver value that exceeds how much your client has in their budget. When you find the “sweet spot” where an attractive price meets high value and comfortable profits, then you will have a pricing strategy that will guarantee customer loyalty along with sustainable account growth.
Discovering The Right Pricing Strategy For Your Accounting Firm
The right pricing strategy is a critical part of your firm’s growth strategy. Be sure to explore several pricing strategies and see which ones resonate with your clients best. Also, don’t forget to research the competition. The more information that you have about what clients are paying for accounting services in your market, the better. Finally, continue to refine your pricing strategy as your accounting firm evolves in order to grow your customer base.
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