Picture this scene: you’re in a high-end footwear store at your local mall and you’ve just tried on an amazing pair of shoes. They fit your feet, are comfortable to walk in, and match well with many of the clothes in your wardrobe.
Now imagine saying to the salesperson: “These shoes are great! How many hours did they take to make?”
If you’re like most people, you’d never even dream of asking this question about a nice pair of shoes. That’s because you already have an idea in your head of the value the shoes have to you. For luxury consumer brands – like clothing and shoes – the materials and hourly production costs are often far below the final selling price. Markups of 100% to 1000% aren’t uncommon for high-end fashion manufacturers.
They’re able to earn a significant profit because of a concept called value-based pricing, or setting the price of a product or service based on the perceived value of clients. Executed properly, value-based pricing can help your accounting firm unlock exponentially higher profits and grow without immense pressure on the team and leadership.
Technology can serve a key role in this proper execution. We’ll examine how below.
Improved measurement of outcomes
As its name implies, value-based pricing is based on the amount of value a client believes they will gain from giving up the required amount of money to purchase a product or service. As the legendary investor Warren Buffet once said: “Price is what you pay, value is what you get.”
A great value, then, is not determined by price alone but by price in relation to outcomes. It can be challenging for some firms to properly measure these outcomes. How do you quantify the value of your clients having all of their monthly expenses finalized and documented each month or quarter? It’s still not the easiest question to answer, but thanks to technology, we can do a much better job.
Accounting firms will typically help clients look at a few key metrics to understand how outcomes have been improved by their services:
- Time spent on accounting tasks. Client employees will have to gather information, fill out paperwork, and submit pertinent documents on schedule – all of which take time that may or may not be billable.
- Emails sent. When a client team has to handle accounting work themselves, there’s typically not a specific process in place. This often leads to a lot of back-and-forth via email about who needs to complete which tasks.
- Documents submitted on time. Without the help of an accounting firm, maintaining a schedule for the submission of documents to regulatory bodies or even clients themselves becomes harder. Without an accounting firm’s help, an organization will typically see more missed submission deadlines.
Technology can help companies measure these and other metrics before and after obtaining the help of an accounting firm, quantifying the benefits of the outcomes they receive. More concrete data about improved outcomes make value-based pricing much easier to sell.
Advanced tools mean more efficient work
One of the things accounting firms and other service businesses appreciate most about value-based pricing is its disconnection from the time and cost required to render service. This kind of pricing model typically sells a specific outcome or package of services – not a set number of hours each month.
From an accounting firm’s perspective, better tools to complete work more efficiently means fewer hours invested in client work. An accounting practice management software tool for invoicing, for example, might cut the hours your team spends on invoicing by 50% or more. This leaves even more room for profit under the value-based model.
Better self-service for clients
While it may not be part of the fundamental definition of value pricing, in the professional services world, most practitioners of value-based pricing provide their clients with a way to examine relevant records and documents on their own time. This helps reinforce the value of what the client receives and fosters a sense of empowerment.
Almost any kind of service business will provide a report or summary of costs before or after service is rendered. If you can take this idea a step further by allowing your clients to customize their own reports and generate them, it goes a long way in adding to the value clients associate with your services. There are many accounting practice management platforms that can provide your clients with this kind of self-service access to their needed materials.
Final thoughts on technology in value-based pricing for accounting firms
Expanding your firm’s horizons beyond the traditional methods of pricing and billing can improve your business in a number of ways. Not only will it boost your profits, it can remove the burden of detailed hourly tracking from your team while helping clients focus on the key wins they’re achieving by working with you.
Accounting firms that don’t leverage the many benefits of technology to help them sell value-based pricing are missing out on a critical tool to assist with this model. Using an accounting practice management software platform to gather metrics from previous clients and track your own internal numbers will help both you and your clients get a stronger understanding of the value of accounting services, making everyone more satisfied with your business partnership.