When your accounting firm launches a new specialist service, you’ve got to decide how to package it, how to promote it and, of course, how much to charge.
Pricing is absolutely fundamental: there’s no point in offering a service if it’s not a moneymaker for your practice.
Or, at least, it ought to serve some specific business goal, perhaps acting as a loss leader to generate leads, or to increase loyalty among existing clients.
Working out the price of a service is always harder than pricing products because there are so many intangibles.
If you’re selling bread, for example, you can calculate the costs of flour, water, yeast, electricity, and so on, down to the last penny.
But what value do you put on expertise and staff time?
As with many aspects of running professional service businesses, you have to begin with sensible estimates.
Start by estimating ‘cost of service’
How much does it cost you to deliver a service? That’s the baseline for your pricing strategy because, obviously, what you charge needs to cover that and then some.
Again, it’s easier said than done – how long does it take to give advice? It might be ten minutes on the phone, or 12 hours, face-to-face, over the course of weeks.
All you can do here is decide a reasonable average. Ideally, you should base this on customer contact data from your CRM or practice management software. But an intelligent guess will probably do the job.
In practice, some clients will need more time, some less, but it ought to balance out over time.
You might also be able to make some assumptions about the complexity of client needs based on what you know about them. For example, it’s relatively easy to handle payroll for firms with three employees in general industry but much harder if they’re in construction and have 40 staff.
And don’t forget to take into account things like software licencing – accounting software is sometimes charged per client – and transport and subsistence, if your new service has to be delivered at the client’s premises.
What you need at the end of this process is a number you can use as a baseline. It might be cost per hour, per client or per year, depending on your pricing strategy – which I’ll get to a bit later.
Conduct market research on pricing
It’s often a good idea at this point to carry out some research with the kind of people you’d like as clients for the new service.
- Is there demand?
- How much will people pay?
- And how would they prefer to pay?
Market research sounds scarier than it is. In an ideal world, you’d have a massive budget and hire a specialist market research firm – if you can afford it, do it. For most smaller firms, though, a combination of desk research and phone calls will probably do the job.
First, you should gather intelligence on the competition. Are other accountants, especially those near you, offering a similar service? What do they charge? You might find this on their website, or you might have to dig a bit.
One way to focus your research might be to look at the extremes: what would a potential client find if they wanted (a) a budget option or (b) Rolls Royce premium business class?
Think about how the budget firm is achieving its price. In most cases, it will be by putting strict terms in place, such as a set number of hours of contact per month.
Once you’ve got some benchmarks, start talking to existing clients. First, ask them what they’d pay for the service you’ve outlined without suggesting a price. You might be surprised by their answers, pleasantly or otherwise.
Then put a few options in front of them and see what they say. As with all research and testing, try not to lead them, and ask the same questions to each subject if you can.
This process can be eye opening and might send you back to the drawing board. Ideally, though, you’ll come away with a clear sense of what the market will bear and confidence in the appeal of your new service.
What are the four pricing strategies?
There are four common ways to price a service – although you might also hear people talk about ‘the three pricing methods’, too, or five, or seven… Four works for me, though.
Each strategy has pros and cons, of course.
Value pricing – this is about setting the price based on its perceived value to the client, and is where market research comes into its own. It can help push the price up and increase profits. On the downside, it’s easy for competitors to undercut you and the clients you get won’t cut you much slack if they’re paying big money.
Bundle pricing – grouping services together to make it easier for prospects to choose and buy at a reduced cost. For example, you might offer ‘The complete construction package’. This works well in giving clients a sense of good value and clarity about the offer. At the same time, it reduces flexibility – clients often prefer to pick and choose.
Subscription pricing – a fixed monthly price for services is a great way for clients to spread their spending and also gives you a reliable monthly revenue stream. Clients will, however, expect something for their money every month and can be wary of commitment to a regular payment.
Pay-as-you-go – paying for services as when they’re required with no commitment on the client’s part. This offers them total flexibility but makes it harder for you to manage your resources and predict revenue. That’s why à la carte is always more expensive in restaurants.
Review your pricing regularly
Your initial pricing will always be based on assumptions and you should reckon on reviewing it within a few months of the new service going live.
Did you get your estimates on staff time right? If people are spending longer than expected to deliver the service, you’ll be eating into your profit.
Have new competitors emerged? What seemed a reasonable price before might now seem expensive if you’ve been undercut. Is there room for you to compete by lowering your fees, or enhancing your offer?
It’s also worth reviewing your pricing on a yearly basis if only to get clients used to the idea of an annual increase. They might not like it but a gradual increase in line with inflation will annoy them much less than a sudden jump after five years.
Learn more about developing your practice’s offer with our free guide to packaging, marketing and pricing.