When you’re working out your pricing, you’ve got a fairly fundamental choice to make. Do you record the time spent on a job and then charge the customer based on an hourly rate plus your costs? Or do you agree on a fixed fee with the customer that covers all work done on the job, no matter how long it takes to complete?
Deciding between an hourly rate and a fixed fee can be a tricky decision. But we think there’s a third option to throw into the mix: value pricing.
Value pricing throws the old-school ‘hourly rate’ model out of the window and focuses on the actual benefits and value you’re bringing to your customer. And it’s an approach to pricing that we love here at My Accountancy Place.
So, what’s the underlying benefit of value pricing?
Why value is more important than time
The time and material (T&M) model has historically been the pricing model of choice. But T&M is basic and it means you keeping detailed records of the time you’ve spent and resources used. And, more importantly, it doesn’t factor in the insight or creative value you add for the client.
So is a fixed fee any better? Having a basic, fixed-fee approach means your customer isn’t directly aware of the time and materials spent on the project. But you’ve still got to cost the job internally and agree on one flat fee that covers the entire project – so you’re still focusing on time spent, rather than value added. You’re still watching the clock.
Value-based pricing
Here is the best alternative to these basic, and rather limiting, T&M and fixed-fee models. If you’re focused so rigidly on time, then quality and delivery can suffer. You’re constantly looking at the clock and measuring performance against time, which can lead to errors, sloppy delivery and poor quality work.
With value-based pricing, you charge based on the benefits and value of what you deliver, not on the time it took you. By agreeing this fee up front, your client knows what they’ll get and how much it’ll cost them. And it gives you much greater flexibility over your pricing points – so each job can be charged out at the right fee.
Why we use value pricing at My Accountancy Place
We use value-based pricing at My Accountancy Place because our clients love it. Our prices are based on the client’s perception of what our offering is worth – and that means we’re agreeing on the value of the work up front, so the client knows exactly how we’ll help their business issues and how much it’ll cost them.
Our focus is on how much value we can add to our client’s business. It’s not about products and deliverables like annual accounts or VAT returns – it’s about how our advice, insight and guidance can solve a business issue, create an opportunity or push their business forward. It’s about putting the client first, listening to their business goals and helping them to deliver on those goals.
We’ve actually found that a value-based approach helps us to understand our clients a lot better too. By sitting down to talk through a project, clients reveal far more about what they want from us, as an accountant and trusted business adviser. And that means we can focus our attention on providing what clients actually need, rather than pushing a product that we’re guessing they’ll require.
How do you put a cost on value?
So, as you can see, value-based pricing is a great way to get to know your customers and their actual business needs. But how do you put a cost on the value you’re adding?
There’s no set way to determine how much your customer will value your services. Each customer is different and each project is different. So the price you charge will be unique to that customer.
It’s all about listening. The key is to sit down with your customer to talk through their needs right from the start. By listening to their business goals, their ongoing challenges and issues and their unique business story you can start collating information as early as possible. And it’s this concept of collaboration and partnership that are central to value pricing. You work together to find a price that matches the inherent value you’re adding.
Build better customer relationships: add more value
By working in this way, you can cement the fact that you’re working with your client not for them – this is a true business partnership where you bring your stellar service to the table and help your customer to achieve their business objectives. It’s about taking a genuine interest in your customer, their business and their future. And by understanding their needs you can assess the work that’s involved, the value that can be added and the fee that you should be charging.
At base level, it’s about keeping your customer happy, and costing your fee based on the level of happiness you’re bringing to their business.
And your fee isn’t fixed either. If the project expands and you add more value than was in the original scope then you can agree this with your customer and charge accordingly – and a satisfied client who’s seeing the benefits of your service will be very happy to pay for that peace of mind.
If you’d like to find out more about how to apply a value-based pricing model, just drop us a line.
