2019 has been a year of transition for the profession and it is expected to continue into 2020. Smart firms are rethinking ways to be competitive and relevant in the midst of technology disruption and changing client needs. One significant shift taking center stage is in the area of billing protocol. A new normal appears to be emerging as firms of all sizes increase the use of value pricing methods and hourly billing declines, according to the recent PCPS/CPA.com National Management of an Accounting Practice (MAP) Survey.
If your firm is ready to make the switch to value pricing but is not sure where to begin, this article is filled with insight, best practices and resources you can use.
Establish common ground
Let’s first address some central talking points.
- What are the hallmarks of value pricing?
As you prepare for a successful transition, get clear on the elements of value pricing. Don’t worry, they are not complicated to understand or implement. Before you take on new engagements for your clients, simply adjust your thinking and doing. Here are three value pricing keys to focus on as you get started:
- Proactive approach to identify the services you will provide and the cost the client will pay for those services before the work begins
- Based on collaborative conversations with your clients to determine the value of what’s important to them
- Tier-based service offerings centered around the client’s desired outcomes
Going forward it will be important to define the components of value pricing in your firm.
- What benefits can your firm achieve with value pricing?
With commitment and purposeful steps, your firm can benefit in all sorts of ways. Join other practices experiencing upticks in productivity and profitability along with improvements in firm culture, talent and clients. This means happier employees, more satisfied clients and a stronger bottom line. Here are some new realities you may soon find in your practice:
- Improved employee recruitment, engagement and retention
- Better job planning and cash management
- Increased relevance and positioning for growth
- More rewarding engagements, deeper client relationships and greater job satisfaction
- Strengthened interaction between experienced practitioners and staff
- More flexible work arrangements and less hectic workloads
- Service and price selection to best meet their needs
- Clear understanding of the deliverables and the fees they will pay
- Increased satisfaction and trust
Want to learn more about these and other benefits? Tune in to Getting Started with Value Pricing a three-part series in the Small Firm Philosophy podcasts hosted by Carl Peterson, CPA, CGMA and AICPA Vice President of Small Firm Interests.
- How long does it take to implement value pricing?
Think of the move to value pricing as a journey rather than a one-stop destination. Regular activity will advance your practice toward its desired goals. While each firms is different, 12-24 + months is a good guideline. Establish realistic timeframes and milestones in the firm’s planning, implementation and review phases. You and your team will gain greater confidence with each step along the way.
- How to handle unplanned changes?
It is easy to provide your clients with additional assistance once an engagement begins through what is known as a ‘change order.’ This is a simple agreement, similar to what a general contractor uses, that spells out specific services to be provided, details around that work and fees the client will be responsible to pay. It protects practitioners from scope creep that is difficult to charge. Change orders provide clarity, establish boundaries and identify extra costs and time needed to complete the work.
Five steps toward a successful transition
1. Define the endgame
Before moving forward, define ‘why’ you want to adopt value pricing and ‘what’ outcomes you want to achieve. Start by asking the following questions:
- Why do we want to implement value pricing?
- What outcomes do we want to achieve from value pricing?
- What does success look like in the following areas?
- Firm benefits (i.e. profitability, better engagement management)
- Talent benefits (i.e. greater flexibility, more job satisfaction)
- Client benefits (i.e. more options, clear understanding of price commitments)
2. Become or select the firm’s Pricing champion
As a sole practitioner, it will be necessary to put on your pricing champion hat and lead the charge. No worries, you can do this with a long-term focus and a commitment to regular strides toward your goals. If your firm decides to appoint someone to this role, look to an experienced professional who is dedicated to the pricing agenda and will be diligent in moving it forward toward completion. Since this role will necessitate regular input from senior leaders, seek a practitioner who can command their respect and entertain new approaches more appealing to younger generations.
3. Get specific about delivering value
There are many ways your firm can deliver client value and now is the time to get specific about each of these. Let’s say someone in your practice is an expert in a service area or is a thought leader in a particular industry niche. You have the opportunity to provide more valuable insight to help clients achieve their desired results. This can include acting as a sounding board for new ideas, serving as an interim CFO or identifying new ways to maximize tax savings. Other ways to deliver client value may include positioning their company for sale, developing and implementing a succession plan or obtaining additional funding. Gather with your team and brainstorm the different ways you can bring value to your clients. Be as detailed as possible in terms of deliverables. Build a library of these offerings. House them in a central place so everyone can access them. For more insights, checkout the YOU are the Value Workshop located in the PCPS Practice Growth & Client Service section.
4. Offer tiered pricing
Today’s clients want choices. This gives them greater control of their services, the fees they will be responsible to pay and the relationship. Provide them with options based on their objectives. An effective way to do this is with multi-tiered packages. Three levels are ideal for today’s clients. Use names such platinum, gold and silver or words associated with your firm’s brand. Include varying degrees of service and assistance in each level. A Platinum Package may include a tax planning session, tax return preparation, quarterly meetings and unlimited calls during the year. You may want to include the services you currently provide to existing clients in your basic package and build upon that in the higher levels, based on newly identified priorities. Consider provisions for unlimited questions, calls and regular meetings with the engagement team in your premium level offerings. Two practical resources you can use are the Pricing Tool and the Overcoming Pricing Objections Tool located in the PCPS Trusted Client Adviser Toolkit.
5. Start with a pilot group
Identify a small group of clients to test the new strategy. This could include a thriving niche practice, new and recently retained clients or a hand-picked selection you think will be open to it. Prior to scheduling value pricing conversations with your test group, develop a simple process to follow. Gather with your team and conduct sample presentations. Explain why you are doing this and how it will benefit the client. Walk them through the different package options and encourage questions. Practice these conversations until you feel comfortable. Before you know it you will be well on your way.
Here’s to jumpstarting value pricing in your firm. May your actions pave the way for many positive outcomes for you, your team and the people you serve.