New year, new pricing: how to price for value and advice

The last three years have significantly changed how we live and work. For many industries, accountancy included, concerned customers have flooded the phone lines and inboxes, anxiously looking for reassurance and advice on business issues as well as increasingly personal concerns, often at no extra cost. In fact our research found one in three accountants say clients expect them to deliver advisory services, on top of typical compliance work, without paying for it.

As we enter what many economists are describing as a long recession in the UK, this request for support will only grow. However, while some accountants have evolved their business models to charge clients based on the value of work they provide, many are still charging based on time and materials.

With margins already being squeezed by the cost of living crisis and high inflation rates, accountants cannot afford to give valuable work away for free. The time to talk pricing has come. There’s no doubt accountants should be appropriately compensated for the advisory service only they can provide. While this is easier said than done, there are a number of ways to approach this topic which can both increase client trust and practice profitability.

Accurately price your advice

It’s always a challenge to find time to stand still and take stock. Something busy accountants know only too well. Our recent survey found while one in four accountants want to introduce more value-added services, they are too busy supporting existing clients’ needs to do so.

The majority of firms often base their pricing on a time and materials model; whether that be the time spent, services delivered or relying on pricing software to determine fees. But very few charge by the value they actually deliver. This results in hours being spent on tasks that deliver relatively low client value. But a 20 minute phone call to a client could transform the relationship completely.

Value-based fee structures are the future for most accountancy firms. But this does need an updated skillset and a new pricing pack or service offering staff can refer to in client conversations. Accountants must get more comfortable with picking up the phone to clients and asking ‘how’s business? Is there anything that’s challenging you we can help with?’. Say a client responded saying yes they want help with wealth management, referring to the new service offering and pricing can help move this conversation from hypothetical to real work on the books.

To kickstart this new mindset, it’s always worth testing new service offerings and pricings with a few friendly clients to gauge their response. Once you find out what advice means to them, and what’s keeping them up at night, you’ll have a good starting point for moving forward.

Determine your pricing strategy

When it comes to pricing your advice, rather than relying on pricing software, it’s often best to have a pricing strategy underpinned by three key factors. The first is cost – how much will it actually cost your firm to deliver the service? This should include the time required by every person in the firm who will be involved to the technology subscriptions you might need to complete it efficiently and accurately. This is your break-even price, the amount you need to just about manage running operationally.

The second is your ideal price – based on what you feel the service is worth, and importantly the level of profitability you’d like in return, what do you want to charge your clients? Don’t be tempted to undercut yourself here. Do some market research, attend conferences, listen to podcasts and speak with peers to benchmark your service offerings and ensure you’re offering good, but profitable, rates.

The final price you must pre-determine before any conversation with a client is your walk-away price. As the minimum fee you’re willing to deliver the service for, this should be just below your ideal price. The aim should always be to stay as close to the ideal price as possible, unless a value exchange is on the table, which typically takes the form of defined referrals.

Shift the optics

As we enter busy season, firms should consider revising their business model to charge according to the value delivered. Too often accountants haven’t fully understood, or properly priced, their worth. As we enter what’s undoubtedly going to be a challenging new year, it’s important accountants embrace an entrepreneurial outlook, and charge what they need and deserve.

By Jim Scott, MD of Accountancy at IRIS Software Group

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