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Value Costing... How it Dovetails with Value Pricing

Nevin Sendel
Posted by Nevin Sendel on Sep 8, 2021 11:49:27 AM

By now most of us have been exposed to value pricing, which is a simple concept based on the premise that we should get paid what we are worth or, more accurately, what a piece of work is worth to our client. Value pricing takes the place of charging a fixed rate per hour and then having to track our hours on times sheets. Many of you probably know this pain very well.

If you have already taken the plunge with value pricing, consider including a value costing methodology to deliver on the goods. Even if you already have Employees, you can still add to your existing team with participating Contractors.

In this article, I’ll be explaining the concept of value costing and how it dovetails with value pricing. To learn more about how to cultivate a value costing structure, please join us at Scaling New Heights 2021 for my breakout session “Moving From Prospect to Customer”. We will be sharing our structure, our approach and all our forms. This is a pay it forward undertaking for all that Scaling New Heights has meant to me and my business.

Why I turned to value pricing

When I commenced offering cloud bookkeeping and business advisory services in 2013, I was no different than other bookkeepers and accountants. I fell into the same trap of offering my services on an hourly basis. Let’s face it, just how much can we really score on an hourly basis anyways? $25, $45, maybe even $75 per hour? Just to put this into perspective - how much do you pay your plumber per hour? What about your car mechanic? You don’t blink an eye at $85, $95 or even $115 per hour! And they often invest less in their education than we poured into our own. Nevertheless, somehow bookkeeping and business advisory services are somehow perceived as having a lesser rate.

I used to ask prospects if their toilet was more important than their business. Unfortunately, this was equivalent to calling a prospect ‘stupid’ and effectively poking them in the eye. Nobody really wants to work with you after that. A great mentor once asked me, “Nevin, do you want to win, or do you want to be right? These are not always mutually inclusive”. And here I was failing that test yet again!

Naturally, it did not take me long to figure out that value pricing was the answer to my frustration.

Not to belabor the above point, but I really do want to share the following anecdote. One of my first clients in 2013 whom hired me for $45 per hour, recently reached out to us for support. In 2014, we changed him over to value pricing, and we worked together until I moved from Toronto to Long Sault, Ontario in 2017. Although we had deployed cloud accounting for this client years earlier, they just felt more comfortable with somebody dropping into their offices. Well, fast forward another 4 years and they want to switch back to us. They shared the fact that they were paying our replacement the original $45 per hour (still) that they had started paying me. Can you imagine? Potentially working for somebody without a raise for 8 years … yikes!

What is value costing?

Keep this story in mind as we now delve into value costing. What is it, and why should I want it in my business?

Thankfully, my business continued organic growth until I could simply no longer manage without another pair of hands to assist. However, if I hired somebody their salary would come out of my revenues, knocking me down immediately in earnings, until I could rebuild. And I really loved my earnings!

I could bring somebody on part-time, but that makes training so much more difficult, and they could leave me if they found a full-time gig. Then, it was back to square one, but worse, because I would have to cover their desk and my desk while finding and training their replacement. Does this sound at all familiar? Additionally, if I were paying my staff by the hour, then I would have needed to track their hours against the value pricing charged to their client files to ensure profitability. UGHHH, more work for everyone. Instead, we elected to deploy what we refer to as value costing.

In our model of value pricing, we offer Essentials Service (full-cycle bookkeeping), Premium Service (includes Essentials along with Controller level offerings), or Platinum Service (includes Essentials + Premium along with CFO level offerings). Initially, we brought in bookkeepers and trained them to manage the Essentials Services taken by ALL our clients at a minimum. We offered them a percentage of the file and treat them as contractors rather than employees. In this regard, we have NO traditional tracking and CANNOT lose money on any of our client files. Further, our contracted bookkeepers participate with the growth of the files that they service. As we charge more for our services to these clients, our contractors’ percentage increases along with the jump in fees.

Moreover, as our contractors get better at streamlining the procedural approach to each file, they invest less time on said file while earning the same amount or more. This keeps our entire team focused on the same deliverables as our business. What is good for them individually, is equally good for us as a whole. We row together in the same direction, and not at odds with one another.

Other incentives include the fact that our team works remotely across North America. We seek to retain the best staff available, not just the best staff we can find in our own backyard. Naturally, one needs to be onside with the laws pertaining to employee versus contractor within your jurisdiction. Some of these considerations may include, but are not limited to: contractors must make their own schedule, use their own equipment, are not exclusive to one client, do not receive benefits from employer, have their own offices, have their own corporation, just to name a few.

We never require our bookkeepers to handle more files than they are comfortable with. So, they can work part-time or full-time hours as they wish, and at the pace they prefer, with no manager hovering over their heads. Our “Golden Rule” is don’t guess at a problem since you have the support of an entire team. And don’t make errors since NOBODY gets paid for having to go back and make corrections.

Finally, we have also created upward mobility for bookkeepers with our Account Executive and Ambassador (lifetime annuity) positions. Yes, these too are contractor opportunities.

Again, if you would like to learn more about how we have built our business around value pricing and value costing, please join us at Scaling New Heights 2021 where we will be sharing our structure, our approach and all our forms.

We have surpassed our wildest dreams, and this sort of success awaits you too!

Topics: Practice Management

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