Effective Pricing Strategy for a Cloud Accountant
The cloud has given accountants the opportunity to change how things have always been done; they are adopting new processes and applications to automate compliance. These changes are making firms a lot more efficient and reducing the number of billable hours, which is great for the client but unsustainable for the firm. This, compounded with the fact that firms are writing off an average of £187,523 in fees every year, shows the need to move away from hourly billing.
What are the options?
Value based pricing is based on the value of the service from the perspective of the client. As a result, accountants might provide the same service to two different clients, but the bill is different. This adds a sense of flexibility to a firm's pricing and encourages interaction with the client as they no longer have one eye on how long a particular job is taking. Furthermore, value based pricing embraces the efficiency of the cloud because profits are no longer connected directly to the number of hours a job takes.
However, value based pricing is only really suitable for smaller organisations that offer a specialist service. Firms run the risk of being undercut by competitors if value based pricing is used for the lower cost, non specialist services.
This is exactly what is says on the tin, fixed prices are set for each module of a firm's services. This allows owners to see exactly how much money is coming in every month and ensures the full value is gained from a firm’s service. Relationships with clients are strengthened because they have more incentive to interact, as there is no fear of being charged for calls, emails and meetings.
The main drawback to fixed fee pricing is the difference between what the firm thinks is a fair price and what the client is happy to pay. The firm is at risk of losing out in both scenarios; either their price is too high and the client goes elsewhere or the price is too low and potential revenue has been lost.
The third, but lesser used option, is agreed pricing. Agreed pricing is based on an external or previous price e.g. asking how much your client’s last accountant charged them and offering a 10% discount. Agreed price will often be implemented for high level advisory work or large projects. It can also be a good way to entice a new client to your firm – using agreed pricing for the initial piece of work and then moving to one of the others thereafter.
Which strategy is right?
A combination of fixed fee and value pricing has proved lucrative for many cloud accountants: use fixed pricing for regular routine work and value pricing for high level advisory or project work. Adopting this model will allow firms to set an efficient delivery model for routine work while building a foundation for their high-margin services. Another model adopted considered by cloud accountants is a ‘freemium’ model: give away compliance services for free while charging a high premium to set budgets, KPIs and monitor performance.
However, the best advice we can give cloud accountants is simply to experiment. Develop a pricing strategy over the long-term. Start with a small group of clients then test, learn and adapt.