Copyright ©Mark Wickersham

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How to price your accountancy services for maximum profityour practical guide to making a significant difference to your bottom line profits

I’m going to explain how to price accounting services for maximum profit. And I’m going to do this by talking you through a three-step process for massively increasing your results by applying much more effective pricing.

You will discover how to use simple and proven techniques to confidently raise your prices, and how to reduce the number of price complaints by communicating value to your clients. And you will learn how it is possible to increase your fees by as much as 347.9%!

About the author

Mark Wickersham – chartered accountant, public speaker and #1 best-selling author – is passionate about the accounting profession and helping accountants to become much more profitable.

As Chief Executive of AVN he leads the team that developed over a thousand tools and systems as part of the System Builder software suite for accountants, including many to help practitioners grow their fees, profits and capital value.

Mark is also a widely published author on practice issues. In May 2011 his book, ’Effective Pricing for Accountants’, was a number 1 Amazon bestseller. He has also co-authored ‘Your Blueprint for a Better Tax Practice’ and ‘Your Blueprint for a Better Accountancy Practice’, both of which have been widely acclaimed.

Introduction A big stupid mistake you must avoid What is at stake? There is no market price You absolutely must put your prices up The 1% effect Your ideal clients buy on value You must review pricing regularly Your price sends out a message into the marketplace Accountants are not selling time Cost-plus pricing creates an artificial ceiling Step 1: Increase the value Step 2: Explain the value Step 3: Link price to the value How to get people to pay 347.9% more Tips for success

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contents

The firms I work with are getting some incredible results from changing the way they price. For example, in this eBook I’ll share with you Phil’s story of how he increased his fees from £250,000 to £400,000 in less than a year just by changing one thing.

The big problems which are holding many accountants back include:

• A common misconception that clients are price sensitive,• A lack of confidence in pricing, and• A lack of knowledge and systems of how to price in the

most profitable way.

None of these problems will be an obstacle to you once you’ve read this eBook. I’ll explain the difference between ‘price sensitivity’ and ‘value sensitivity’. I’ll share with you the 1% effect. And I’ll share with you a 3-step system you can apply to every pricing engagement.

Accountants like Phil didn’t let these obstacles get in his way and he’s now getting incredible results.

introduction

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Let me tell you a little of my own story...

I started my accountancy practice on 31 May 1996 at the age of 29.

I thought I knew everything.

That was my first big mistake in business… you can never know everything. Learning is a continual process and if we want to get better results, we need to keep learning to find a better way. Steve Pipe opened my eyes to this in 1998.

I qualified as a Chartered Accountant in 1991 and worked for three different accountancy practices before setting up my own practices. It was a big leap of faith to leave full time employment and start a practice from scratch.

Over the next 2½ years I built my practice to just over £200,000 of recurring fees with about 200 clients and somewhere around that time had a team of 13 people. The practice grew very quickly because of a focus on marketing.

From a growth point of view it appeared successful. Unfortunately I never made a profit in that first 2½ years and cash flow was a constant battle. Quite simply I was over-trading… I was growing far too quickly (had moved office premises twice in those early years), my fixed costs were spiraling out of control and my bank debt was getting unsustainable.

Fortunately, in November 1998, I met Steve Pipe at his 3-day Masterclass in Exeter.

Steve helped me realise that I actually knew very, very little about running an accountancy practice. And that many of the things I had learned on more conventional ‘practice development’ courses were actually wrong. In the couple of years following that Masterclass, my practice and my life changed considerably. I focused on getting the right clients and the right team and ended up generating the same level of fees with considerably less clients and considerably less people, started to make money and clear the bank debt. A few years later I sold the practice to the client managers through a management buyout.

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I made lots of mistakes in those early years… too many to list here. However, there was one mistake that nearly crippled my practice: Getting the pricing horribly wrong. This was my number one mistake and it cost me many, many thousands of pounds in lost profit.

When I started my practice I was very focused on growing my ‘gross recurring fees’ as quickly as possible, rather than on profitability. This error is common amongst accountants I talk to, and probably stems from the fact that traditionally accountancy practices are valued based upon a multiple of fees (a formula that I predict will change in the not-too-distant future).And so as accountants in practice we become obsessed by building capital value at the expense of building a profitable practice… we look to get as many clients as possible, even when many of those clients are the wrong type of clients and working with them drains our energy.

My ill-thought through strategy at the outset was – when seeing a prospect for the first time – to find out what they were currently paying their existing accountant. This often involved some feeble excuse for needing to see a copy of their last set of accounts… the first thing I would look for is the line in the profit and loss that said “accountant’s fees.” Of course, some clients were wise to this, so gave me a doctored set of accounts where they had applied Tippex to that number. Being a typical accountant I would then pull out my calculator and pretend to do some tax planning calculations, when really I was taking fixed costs and deducting all the itemised amounts, knowing that “accountant’s fees” would be the balancing figure.

Having found this number I would prepare a fee quote with my proposal magically coming in at about 10% less than the current accountant. In those early days I used to kid myself that my ability to win new clients was outstanding… after all, I was signing up at least half of all prospects that I saw. In reality – and in hindsight – I was being incredibly stupid. I was positioning myself (without really realising it) as a cheap accountant.

It was little surprise that I wasn’t making much money.

In fact what has become apparent to me over the years is that the vast majority of accountants know incredibly little about pricing strategy, pricing psychology, pricing tactics and pricing

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best practice. Most accountants charge prices that are far too cheap and do not reflect the value they give to their clients or the years of training, learning and experience we have undergone. So given that most accountants don’t know how to price and price too low, why on earth would anybody have a pricing strategy based upon what the previous accountant charged? And yet that’s exactly what I did. And that’s what most accountants do… we base our fees on what our competitors are charging. It’s mad.

I learned many things from the pricing mistakes I made. It led me to develop my 7-step formula which I’ve been teaching accountants since the year 2000. This 7-step formula completely changed my profits, completely changed my life, and has changed the lives of the many accountants I’ve had the privilege to work with.

For example…

I often advised unincorporated clients and prospects to transfer their sole trader business or partnership into a limited company where they would save many thousands of pounds in tax. After I went through my internal script for explaining the advantages and disadvantages of incorporating and the tax benefits, they would always ask “How much will it cost?”

That was easy to answer. You see, I spent my first 6 years in the profession working at (and qualified at) the largest independent firm in Sheffield. A firm in Sheffield that many other practices in the area aspired to be like. And I knew that they typically charged £300 for forming a limited company.

So with my wonderful strategy of basing price on the competition, and even worse, going in cheaper, I always responded to the “How much will it cost?” questions with, “Between £200 and £250.”

What staggered me is how often (and certainly over half the time) the response I would hear was “Ouch! That’s a bit expensive.” I’d heard that people from Yorkshire were said to be tight, but surely they appreciated all the work that incorporating a business entailed. Surely they knew that the price I was quoting was a good price. How an earth can they say, “That’s a bit expensive.” It made me really angry. Until some years later I realised that the fault was all mine. I knew

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absolutely nothing about pricing strategy. I hadn’t learned any pricing tactics. I didn’t know pricing psychology existed. I hadn’t considered the importance of having pricing systems and tools. I just assumed I knew how to run a successful accountancy practice.

Here is just one of the many things I learned from the mistakes I made…

Never ever quote a vague range of prices. I’ll explain exactly why later on. Once I realised what I was doing wrong with my proposals for incorporation work I put in place some systems. Overnight my pricing increased more than threefold. And because I had a system for answering the questions, “How much will it cost?” – a system that demonstrated the value – no one ever said “That’s a bit expensive” again… even though I was charging over three times the fee (and you’ll hear about some other firms in this book that used this strategy and are getting over 10 times the price they used to).

In this eBook I’ll dispel some of the big myths. And one of the biggest is that clients are price sensitive. They’re not.

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The best way to start is to set some context – establish just how much is at stake if you get your pricing right. More important… the amount of money you could be missing out on.

It’s always good to start with some numbers to get a feel for what the possibilities might be. So, I want you to think of a number: the fees-per-partner for your accounting practice. And remember, that’s per partner. So if your practice has a total fee income of £500,000 and there are two of you, then that number will be £250,000.

Write down your number.

Hang on to your number for now while we look at an interesting figure: the national average.

Research shows that the average fee per partner (excluding the top 50 accounting firms) in the UK accounting profession is £245,720. Now, of course I don’t know what your number is. It might be bigger or it could be smaller. But imagine if you could increase it – and without losing any clients?

Let’s say you can increase your fees by 20% on average. Not necessarily for every single client – for some it will be more and for some less – but the average increase will be 20%. That 20% price increase will not only affect your top line, but will fall straight to your bottom line too.

This is what is at stake.

So, go back to your own number and divide it by 5. That fifth is the average increase you could be making per year per partner.

Using the UK average of £245,720, that is an increase in fees £49,144 – and that will be extra profit every single year. Now, I don’t know what your number is, but for many firms this would be a big number. And this is the result you’d get every year between now and the year you retire or sell your accounting firm.

So, let’s say that you intend to be in practice for another 10 years. Based on the UK average, that would be almost £500,000 at stake!

What’s your number? And not just the number for one year

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(your equivalent of the £49,144), but the number between now and when you expect to either retire or sell your accounting firm. How much would that add up to for you?

I suspect, as with many other accounting firms, it’s a big number. And the important question is, “What difference would it make to you, to your life, and to the lives of the people you love, your friends and family, if you could have that amount of extra money in your bank account when you retire or sell?”

You see, there’s a lot at stake – so we have to get this right.

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I carry out a number of benchmark studies of the UK accounting profession, and a recent one (January 2010) showed the revealing numbers that you can see in the table below:

The number that grabbed my attention most was the profit per partner. Now, this research excluded the top 20 firms, but nonetheless an average profit per partner of £68,706 is not a lot! When you compare it with other professions, such as doctors, or even some trades like plumbers, it becomes clear that many other types of business have greater average profits.

And it’s not a lot when you realise that most accounting firms do not take account of the market salary for the owners’ time… the owners’ salary is not included within the accounts for a sole practitioner or partnership.

Let’s consider the implications of this.

What about the market salary value?

When I’ve asked partners and sole practitioners how much they would expect to be paid for the same work they do now if they were employed by one of the top four accounting firms in the UK, they all go for at least £70,000.

So, if this was included in the accounts as the market salary for our worth as partners or sole practitioners, it means that over 50% of UK accounting firms are actually making a loss (i.e. it’s more than the £68,706 average profit)!

And the number one reason why we’re not making enough money is because we don’t know how to value our services and

Source: AVN July 2010

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more importantly, how to set and communicate price.

Let’s dig a little deeper. In 2010 Steve Pipe and I looked into a number of issues around how much firms charge for pricing tax-related services. And the fascinating discovery was the huge range of prices!

Here are two examples from the survey.

The first relates to a very straightforward tax return for someone with rental income. Here the accountant completes an income and expenditure account and the Land and Property pages. The price range was staggering – from the cheapest price, £94, to the most expensive at £750.

The second example looked at the fees charged for incorporating unincorporated businesses. Here the range is even bigger, going from £50 all the way to £4,500. And it happens in other areas – for example, company car tax planning (ranging from £50 to £3,500).

These and many more examples show clearly that there is no such thing as a ‘market price’ for accountancy and tax services.

And this is great news!

It means some of these firms have found ways to charge significantly better prices. And so can you. You just need to learn some techniques, which we will come to shortly.

First, however, here are just a few illustrations of people who have already learned the techniques.

Most accountants from the research charge between £250 and £400 for limited company incorporation services. Tony Kensington of Aspirations reported how, following some pricing training, he was able to charge a fee of £9,000 for helping a client incorporate, having charged only £250 in the past.

Another accountant, David Logan from McIlveen Howard in Northern Ireland, learned the same techniques and managed to charge £10,000, having previously only charged £350 for similar jobs.

So you see, it does work! And I’ve got dozens of stories of firms

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that I’ve taught how to price, and how they have subsequently transformed the results they get. For example, in this 30-minute interview I did with Stuart Ramsay of Accountancy Extra in June 2013 he explains exactly how he changed his pricing and his profits – watch the video.

Accounting services are not a commodity

Accountants often say to me, “I can’t charge a higher price for my tax returns because that’s the market price, that’s what the market expects to pay.” I explain that they are simply in the commodity trap because there is no such thing as a market price for accountancy services.

When a client buys accountancy and tax return work or other compliance services from them, they are not buying a product or commodity. They are buying solutions to their problem and trusting in the unique personalities of the people in your accounting firm to deliver those solutions.

They can’t buy ‘you’ down the road at another firm. What you offer is uniquely different to anybody else.

So, there is no market price. We need to start thinking of ourselves as being unique and different.

If you want to join me on my step-by-step training programme which will give you all of the skills, knowledge and resources to completely transform your results go to www.EffectivePricingForAccountants.co.uk.

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Let me share something from my own observations.

At least 90% of accountants in the UK are too cheap. They’re not charging enough money. In fact, I’m yet to come across a UK accounting firm that is too expensive!

And that’s having a huge impact on bottom line profits for all of us. This is why the profession as a whole is performing pretty poorly. And as I’ve said earlier, when you take into account a market salary for the owner, over half of UK accounting firms are making losses!

The accounting profession has the ability to make a profound impact on the lives of the clients it serves. And my belief is that – when we make a profound difference – we deserve to be very well rewarded. To do this, the profession has to learn to price.

The one thing that you absolutely must do is to put your prices up and this report shows you how to do this.

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Before we go any further, I know it’s easy to be sceptical. You may be thinking, “Good in theory, but I can’t possibly put my prices up. I’d lose all my clients.”

So, let’s look at an interesting series of questions which we call ‘The 1% effect’.

Just think for a minute about a hundred of the most useful or favourite things you buy on a regular basis. How many of them would you stop buying if the price went up by one percent?

For example, would you stop drinking your favourite pint of beer if the price went up by 4 pence from £3.80 to £3.84? Or your favourite bottle of wine if it went up from £7.80 to £7.88? Or would you stop reading your favourite Sunday paper if it went up from £1 to £1.01?

If your answer was “No”, then what you’re saying is that, as a customer, if the product is good, a really small price increase won’t stop you buying it.

So tell me, are your products and services good?

If they are, then following your own logic means that you could increase your prices by an average of 1% without losing almost any customers, couldn’t you?

Notice, I’m not asking whether you could increase every price by exactly 1% for every customer. I’m asking whether you could increase some prices for some customers by a little more than 1%, and some prices by a little less than 1%, without losing a significant number of customers.

You could do that, couldn’t you?

So my final question is this: why don’t you do it… today?

For the average sized firm in the UK with gross fees of £245,720, a 1% fee increase means you’ll be running to the bank with an extra £2,457 – more than enough to take yourself and perhaps a couple of family members on holiday once or even twice a year!

A 1% price rise will have no significant impact on your clients,

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but will put extra money in your pocket. Your clients won’t desert you if you raise your price by 1%. But you’ll be glad you did!

Why settle for 1%?

I hope you are now asking yourself this question, because if you follow all the advice I’m about to give, 2%, 3%, 10% or even 20% is easily achievable.

For example, I recently helped Phil Bessant, a sole-practitioner accountant in Newport, South Wales. He is an outstanding accountant, bringing in recurring gross fees of £250,000 in an economically challenged area. After working through my training programme (Effective Pricing for Accountants) he sent me an email saying:

“I would like to express a huge THANK YOU. Having completely all 11 of courses in your series I have started to put them into practice and as a result have signed two clients this week worth £37,500 of fees which prior to your course at the very best I would have quoted £6,000. One paid £25k up front and one paid £6k up front. So a very very very big thank you, I think it is safe to say that the costs have been recovered.”

Shortly after Phil agreed to let me interview him. During the interview he explained how he had followed the processes I taught him and how, as a result, he was able to increase his prices by, on average, 28%! And this means he is well on target for increasing his gross fees from £250,000 to £400,000, all by changing his pricing strategies – watch the video.

What’s holding you back?

The number one thing stopping accountants from charging the right price is a lack of confidence. And we can go a long way to overcoming this with a different mind set plus acquiring the knowledge, skills and systems.

Price has got nothing to do with costs and everything to do with people. Pricing involves behavioural economics. And when we fully understand this branch of economic theory and have the skills and the systems in place, then we suddenly find that

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confidence. It’s not our fault that we’re not good at pricing… accountants are simply not taught how to price.

Price is also a mind-set issue. It’s about recognising the fact that we don’t want to work with everybody and recognising that, for some people, we will be too expensive.

Accountants often say to me, “Mark, my clients tell me I’m too expensive.” But when I ask, “How many clients?” it’s usually a very small proportion, maybe 10% or 20%. However, being told we’re too expensive is never nice. Hearing it, we then assume that all our clients think the same. And so we feel the need to keep our prices low.

However, this is all back to front, so look at it this way: if nobody ever says to you, “That’s a bit expensive,” it probably means that you are far too cheap!

The answer, therefore, is to adopt a mind set that can tolerate complaints or even welcome them. Once you hear 10-20% of people suggesting you might be too expensive, you know you’re on the right track to getting your pricing right.

Objections can be good.

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Sometimes I hear, “I can’t put my price up because my clients are price-sensitive.”

No. This is wrong.

Research shows that only a very, very small proportion of the population are truly price-sensitive.

The reality is most people are value sensitive.

In fact, consider this. I would suggest your ideal clients buy on value. So if you have some stubborn price-buyers on your client list, it means that you should rethink your client and marketing strategy.

Now, I’m not suggesting you sack half your clients! What you can do is to help them to understand how you are adding value to them, and thereby convert their price-buyer mind set to that of value-buyer. And you may need to find some new ways to add that value, which I’ll explain shortly.

But remember this. If you win a new client on price alone, be warned: as soon as they can find accountant down the road who can undercut you, they’ll be off!

In other words, clients who buy on price are also clients who leave on price.

And, yes, I understand that you may feel you can’t put prices up because you work in an economically challenged area of the country, or perhaps you’re concerned that we are still coming out of recession. There are powerful techniques you can use to get higher prices even in the hard times, as we shall see.

The bottom line, however, is that clients who stubbornly remain price-buyers are the wrong sort of clients.

Menu pricing

One of the most powerful techniques you can employ is menu pricing, getting higher prices from value-buyers while still keeping the lower price for the price shoppers. I’ve got dozens of examples that show this works.

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For example, Andrew Rhodes, from a very successful multi-partner firm in Pinner in London, sent me an email back in 2011 about a recent experience with a client. He said:

“Using your menu-pricing approach compared to our traditional proposal approach has increased the fees we can charge them by over £10,000 a year.”

It also works for sole-practitioners like Peter Atkinson in York. Peter, who had attended my training, successfully acquired a new client specifically by presenting a 5-star proposal rather than trying to sell the cheapest service. The net result… he got a much, much bigger fee.

So, you absolutely must put your prices up.

And not only that, you must revisit prices regularly. Let me explain why.

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Which do you think is easier: to put your prices up by 3% or by 18%?

The answer is obviously 3%.

And this is why one of the things you absolutely must do is to review your prices at least once a year.

You see, as the chart below shows, an annual 3% price rise will keep you roughly in line with inflation year on year. It also means that over a six-year period, your prices will have risen by a little over 18%. And of course, you get far less price resistance this way than by doing a big 18% hike every six years.

So, why do some accountants put off their price reviews year after year – until one day they realise how far behind they have fallen – and find themselves faced with having to undertake a big unpalatable price hike?

Because they’re lazy, that’s all. Or perhaps oblivious to the consequences.

Don’t be lazy; do a price review every year!

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Another factor to consider when contemplating a price rise is the message your price sends out to the marketplace. Price gives out signals.

People associate something that’s cheap as being of low quality.

In contrast, people associate something expensive as being of high quality.

Imagine, for example, that a loved one collapses at home one night. You call the doctor out. Ten agonising minutes pass and at last a car pulls up in the driveway. It’s an old rusty Ford Capri. What goes through your head? Does this influence your initial thoughts about the medical skills of the person driving it, the person about to save your loved one’s life?

It shouldn’t – but it probably will! A shiny, brand-new Mercedes wouldn’t have caused that reaction in you.

It’s all down to our perception and the judgments that we make. We have no idea whether that doctor is a good one or bad one, but we make a judgment call based on what we see. And our prices are just the same.

Many of your clients – your ideal clients – are entrusting their businesses, the safety of their businesses, and the success of their businesses in your hands as an accountant. And they want to know that they’ve got a high quality accountant. If your prices are cheap, then you’re giving the marketplace the impression that you’re low quality.

For most accounting firms the message is simple… they absolutely must raise their prices.

But a word of caution: you could, of course, simply put your prices up straight away. And that may be a great thing to do. But it may also be a knee-jerk reaction. It could result in you losing many more clients than you expect and harm your business.

So while it is likely that putting up your prices would be a great strategy, you need to think about it alongside strategies for adding more value, better communicating that value, making your price seem really small and finding ways to link your price to the value. And we’ll look at all of those things in a little while.

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When you increase perceived value and benefits and reduce the consumer’s sense of risk when buying from you it will ensure your clients are happy to pay your higher prices.

Let’s now look at how to price.

If you want to join me on my step-by-step training programme which will give you all of the skills, knowledge and resources to completely transform your results go to www.EffectivePricingForAccountants.co.uk.

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When I grew up in the profession, doing my training, everything revolved around keeping timesheets. Since then I have realised how bizarre this is; time in our profession has no relation to value whatsoever.

Imagine you’re doing some year-end accounts and you spend two hours finalising them. The first hour is spent reviewing an opportunity to save the client £50,000 in tax, and the second is spent down in the photocopying room, binding and stapling the accounts, before drafting the submission letters and doing some final administrative tasks.

Now, I understand that the costs are the same for each hour – your time, your salary. But the value to the client of each of the two hours’ work is completely different. One produced a £50,000 tax saving, the other was simply admin. And yet, we have this single hourly rate that we charge, assuming there’s some sort of relationship with value.

Now, it all came from Karl Marx, the Father of Communism, who said, “The value of the commodity is solely determined by the labour input that goes into it.” As this example illustrated, Marx was completely wrong. Yes, the same label input time is logged for both hours, but clearly the value is completely different.

The Austrian School of Economics also proved the fact that he was wrong many years ago. They showed that the value of anything in this world is solely determined by the person who pays for it. And towards the end of last century almost all businesses, trades and professions realised that this renders cost-plus pricing irrelevant – all but two, lawyers and accountants, who bizarrely stuck with the time-based billing.

After all, we’re not selling time. And if you want proof of that, simply turn to a client and ask, “What are you buying?”

The answer will be your skills, your expertise, your advice – but not your time. They’re buying value, tax savings, peace of mind that everything will be filed properly; they’re buying help to improve their profitability, and solutions to their creditor and cash-flow problems.

Your clients are buying results, not time. This is why you need to price your service on the basis of the results you deliver, not the time you take.

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“The value of anything in this world is solely determined by the person who pays for it”

– Austrian School of Economists

Sage did some interesting research back in November 2005, surveying tens of thousands of business owners. And one of the key discoveries was that the one thing clients hate more than anything else about accountants are surprise bills. And when you think about it, it makes perfect sense. I hate it when I work with lawyers and, on asking how much it will cost, am given the totally unhelpful reply, “It depends how long it takes.”

If as consumers we hate this, why do we inflict it on our clients?

They want to know with absolute certainty, right up front, before they engage you, exactly what it’s going to cost. Thankfully, over the last few years much of the profession has moved across to fixed pricing (although fixed pricing – whilst a big improvement on the out-dated time-based billing – is not necessarily the same thing as value pricing).

Here’s a big adverse consequence of time-based billing.

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There’s another way to approach pricing – and that’s by focusing on value. And when we combine this with the concept of risk reversal (i.e. removing the risk from the customer) we end up selling more and at higher prices.

Let me explain by taking the £50,000 tax-saving example used earlier, and approaching it from two completely different perspectives.

Approach 1 (the bad one): Focus on time

Cost-plus pricing in accountancy simply applies an hourly rate arbitrarily to whatever work you do. The mistake is to regard this as profit. Think of it as wages. And then ask yourself how many of your clients would feel happy if all of your work (and bills) was presented to them in terms of your wages.

So, you have an opportunity to save a client £50,000 in tax.

The client asks, “How much is this going to cost me?”

You say, “My estimate is 5 hours of work, and I charge a rate of £200/hour.” So, the client expects a bill of £1,000.

You go ahead and do the work, but it takes two hours longer than you expected. So the final bill to the client is £1,400.

Now, firstly, the client is taking all the risk – and it’s a dual risk too; the risk that your time estimate was accurate (and now paying a £400 surcharge because it wasn’t) – and the risk that your tax-reduction strategy will work.

Now, let’s say that some months later the taxman queries the £50,000; you revisit the planning and realise you made a few too many assumptions. Consequently the planning fails and the client does not realise any tax savings. The value of the work to the client is zero, and yet it cost £1,400. He made a big loss on the deal.

The client has borne all the risk, but you have lost nothing (since you recovered all of your chargeable hours). Actually that’s not true.

You have lost something – a lot, in fact. By tagging your fee to

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your hours, you might have ended up with £400 extra – but you also put in the time for that. What you lost was the opportunity to base your fee on the value of the work to the client. You put a ceiling on your profit!

So, using cost-plus pricing makes no sense at all. It’s not fair to the customer – and it’s not fair to you. Yes, a successful outcome would have been of enormous value to the client, but the only way your fee would have reflected this is if you had put up your hourly rates or taken even longer – both of which will send the price-buyer running off to a different accountancy firm.

However, there is another way, which is a win-win for you and your client.

Approach 2 (the good one): Focus on value

Let’s replace cost-plus with value-pricing. And let’s say we explain to the client that we intend to save them £50,000 in tax and that our fee will be 25% of the tax saving – £12,500 if the full amount of saving is realised.

Further, you make a promise to the client that you will reduce your fee pro-rata if the realised tax savings ends up being less. In fact, you promise the client to waive the fee entirely if you fail to realise any tax savings.

The client appreciates that you are sharing in the risk, and is much more able to see the direct relationship between the value of what you are doing for them and the fee you will charge. In this particular case, the client can’t possibly lose. You are ensuring that, whatever happens, the tax savings will exceed your costs.

So, with value-pricing, you have the opportunity to charge significantly higher prices and without creating an artificial ceiling.

Customers don’t care about cost. They don’t care about time. They only care about value or, to put it crudely, the profit they get from the deal. And therefore, we should be focused 100% on value.

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As Dolan and Simon say in their book, ‘Power Pricing’, “Cost-plus pricing is not an acceptable method as it ignores the central factor of the customer’s perceived value.”

“Cost-plus pricing is not an acceptable method... as it ignores the central factor of the customers perceived value”

– Robert J Dolan and Hermann Simon

Now, let’s start looking at the three steps you can take to raise your prices.

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If we want to be expert at value pricing and getting better prices, we have to increase the value in the first place. We have to be seen to give more to the customers.

To do this, we need to have a thorough understanding of the value equation and what drives value.

The graphic below shows the value equation. We need to see value from the customer’s perspective, and this value is the difference between the benefits to them and the cost to them (i.e. your fees, or to be more precise, their perception of the price). The bigger the gap between these, the more value they feel they are getting.

So, step 1 is finding ways to increase the benefits.

And to raise our prices we need to raise the perception of benefits by at least the same amount (and ideally more). If you don’t, there becomes less ‘profit’ in the deal for the client and so fewer clients will buy.

Now, there are two types of benefits: tangible and intangible.

In essence, tangible benefit is the actual work that you do, the service, the product, the objective outcome that they get.

And the intangible benefit is the wrapper that goes around your work and their outcome; it’s the service, the way it’s delivered. It’s the customer’s experience.

Let me give you some examples of how to increase tangible and intangible benefits.

Adding tangible benefit

Presentation: Add graphs and charts to your accounts. For

Perception of Perceived PriceTangible Benefits

+ Intangible Benefits

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example, many AVN members use software to create five-year analyses with graphs and charts. These add real value, especially as most business owners don’t relate easily to balance sheets and profit loss accounts.

Benchmarking: Every year, benchmark your clients against their competitors. Show in which areas of their business they are performing relatively well, and in which there is room for improvement. When you have the year-end meeting to go through the accounts, show them your analysis of how they perform in comparison with their competitors. Do some ‘what if’ analysis and suggest how they can improve those numbers. Use ratio analysis with the clients so they understand the numbers better.

One Page Plan: Never overlook the power of a one-page plan (another tool used by AVN members). This measures, on a single sheet of paper, the key numbers that matter most to a business; numbers which do not necessarily appear in their statutory financial statements.

Tax reviews: Many firms I work with go through a structured tax planning system every single year, called TaxAbility. This is a systematic way of giving valuable tax advice, which leaves no tax planning stone unturned.

My training programme, ‘Effective Pricing for Accountants’, considers over 20 different ways to add this type of tangible value – so there’s no excuse not to do this! However, we must not overlook the client’s emotional association – the intangible benefit.

Adding intangible benefit

Emotional association comes from the way that you deliver things. This includes everything from the speed of response to the seniority of the person dealing with the customer.

And these things are important.

You see, the customer experience is the part of the equation that triggers the strongest emotions (both good and bad). To illustrate what I mean, here are two simple examples of mistakes – one is a flaw in the tangible benefit and the other a

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shortcoming in the intangible side of the equation.

First, let’s say you’ve done a set of accounts for a limited company and you forgot to do the fixed asset notes.

This is a flaw in the product – the tangible benefit – but the client probably won’t really care as long as you a) put this right and b) they don’t suffer any penalty.

Second, let’s now say that they want their accounts back in 30 days. They’ve got a meeting with the bank manager to apply for more funding. Things are busy at your end and you take twice as long, 60 days.

This will matter and will annoy them intensely. They will be much more affected by your slow response (the customer experience) than by a small technical error (product flaw).

Of course, as accountants we would view missing out a fixed asset disclosure note as being a critical thing – and so we should! But from an emotional point of view, clients often care much more about the experience.

If you want to join me on my step-by-step training programme which will give you all of the skills, knowledge and resources to completely transform your results go to www.EffectivePricingForAccountants.co.uk.

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There is not much point going to all this trouble to add value if the value of what you do isn’t noticed – so we must learn how

to communicate the added value, how to explain it. I’ve found that when accountants don’t do this it is because they fail to understand this added (or hidden) value themselves – so let’s start by finding it!

Finding the hidden value: don’t wrap all your Christmas presents in one box!

Let me give you an example. Imagine your loved one again. Think about someone you really love – your partner or your child – and imagine it’s Christmas time. Now, let’s say you’ve bought this person several presents; would you put them all into a single wrapped package to sit under the tree? Of course not! You would wrap them individually. But why?

Well, the reason is very simple.

When we individually wrap all of the presents it looks like there is more. Even though they are the same presents, whether wrapped individually or all put into one big box, they give a greater perception of value.

And it is just the same when ‘wrapping things up’ for our client. Put it all into one ‘box’ and we miss out on a massive opportunity to communicate value. Here’s an illustration:

It’s time for the annual accounts. The client drops off a plastic bag, perhaps filled with sales invoices and some purchase invoices, perhaps some computer print-out or their sales ledger, and maybe there’s a USB stick or a CD in there as well.

Then, 30 or perhaps 60 days later, you invite them into your office to present them with their completed accounts, all nicely bound with a smart cover.

Your work amounts to five or six sheets of paper.

You also present your invoice. The client looks at the result of your work, the few sheets of paper, and thinks, “Why on earth am I paying £2,000 for this?”

If the client truly understood what you do and the benefits to them they wouldn’t question the value. Let me give you an example of one of the many things UK accountants do (and I’m

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sure accountants in other countries do similar activities)…

When we do a set of accounts in the UK, one of the processes is to reconcile the VAT returns and produce a VAT control account (Note: Whilst not the same, VAT is a little bit like Sales Tax in other countries). There is a very real benefit to the client of doing this reconciliation, such as making sure your client has claimed every penny of VAT back on their expenses that they’re entitled to; ensuring they have not overpaid a single penny of output VAT on their sales; and also making sure they haven’t under-declared, and thereby saving them from a VAT penalty and sleepless nights.

Now, how many accountants ever explain to the client at the pricing stage that this VAT examination is one of the benefits of doing the accounts? I’ve never yet met an accountant who does. But if you think about it, your VAT control account should be one of the separately-wrapped presents under the tree!

Another example would be the sales ledger reconciliation. The added value to the client is the knowledge that they have been paid every penny due to them by their customers.

So, stop and think about your compliance work and all the tasks it involves; look at it from the client’s perspective and start appreciating the hidden benefits within it. Start telling your clients exactly what you do.

Communicating the added value: The importance of language

Now that you know where to look for this added value, we’re ready to think about how you communicate it to the client; the words you use. Words can have a massive impact on how the client sees value, and here are three techniques for communicating value.

The importance of language: Get your price out of the way early

The first technique concerns quotes or proposals given in writing (not face-to-face).

Think about how most businesses do this – even one as simple

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as landscape gardening. The price is always down at the bottom, the last thing on the page. Whether the reader jumps straight to this or leaves it as the last thing they read, it is the one thing which sticks in their mind.

This encourages them to be a price-shopper, not a value-shopper. So, let’s do it a different way.

When you send out anything in writing, get the price out of the way first and then move straight on to the features or scope of the work. This is what you will deliver for the price, then the benefits, the unique selling points, payment terms, etc. This is a far more effective way to present your proposal.

By the time the client has finished reading all about the benefits and unique selling points of what you will do the price will have been forgotten. This structure leaves the client focused on value and not price.

A system I teach accountants for doing this effectively is called ‘The Contract Renewal Letter’. It’s also one of the systems at the heart of what Phil Bessant did to increase his fees by 28% with little price resistance.

The importance of language: Linking phrases

You may have heard of this in relation to marketing – it is all about turning features into benefits. People don’t understand features; it’s the benefits they buy. Let me give you an example to make this really clear.

Imagine you are about to buy a house, an old house, and you realise you need to invest in a comprehensive survey. Several surveyors give you proposals in writing. And they all boast that they carry professional indemnity insurance.

Now, does that get you really excited? I doubt it. It certainly wouldn’t register with me as a way of shortlisting the final candidates. It has done nothing to sell one or other proposal to me.

So, let’s say that one proposal is different. This one says, “We carry professional indemnity insurance,” but then adds, “which means that you are fully protected in the unlikely event we

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missed something in our survey. This means you have complete peace of mind and are never left out of pocket.”

Now, that sounds like something worth having. You, as the consumer, can appreciate the value in this item.

The device used here is called a linking phrase. Here is an accounting example.

Let’s say you are sending out a proposal for annual accounts which you know will include a tax review. You might say, “As part of your annual accounts we will also carry out a tax planning review.”

You and I, as accountants, know exactly what we mean by this, but most clients have no clue what a tax planning review is. This means they can’t see the benefit, the added value. So, we need to use linking phrases. We need to build on it by adding, “This detailed review will identify tax savings so that you pay the absolute minimum amount of tax legally due.”

It’s easy to use linking phrases; simply start with your service item – here it was ‘tax review’ – and try out words like “which means that…” or “this means you can…,” or “so that...” This will force you to articulate something of value in your proposal. The other way is to read your draft proposal, step into your client’s shoes, and try applying the “So what?” question to each statement or item. If it’s not immediately apparent what the true benefit is, then it means you should be saying more about the value of that item to the client.

The importance of language: The ultimate benefit

This technique takes the previous one even further by outlining the ‘ultimate benefit’ to the client.

With our tax example, as well as using the first linking phrase to highlight the benefit of minimising the tax bill, we can go one step further. For example, we could clarify that “This means you will keep more of your profits and have more money to spend on you and your family.”

We are simply translating the benefit into a format that really hits home where it matters – in this case, cash in hand to spend

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on other things.

Now that we have learned how to add value (or uncover hidden value) and we’ve used the right language to communicate this,

there is one final step. We must set our new prices relative to this enhanced value. And we must do this in a way that makes that price seem really, really small by comparison.

But first, an important question to address is when the price discussion takes place.

There are really only two options: to have the price discussion up front, or leave it until you send the bill. The latter, which is the way I used to work, is the coward’s choice – to try to win the business without mentioning price (to say nothing), then go ahead and do the work (without having agreed to anything) and then bill what you hope is acceptable.

But remember the Sage research that found just how much clients hate surprise bills?

We absolutely must give a fixed price up front, and not just because of this research but because it’s the time when you have the most leverage. Leave it until the work is finished, when the client doesn’t need you anymore, and you’re not in a good negotiating position! If you want to retain that client who is now arguing the bill, you may find yourself having to give a discount or offering a credit note against future work.

If, however, you have that discussion when you are still in control because their need is at its most acute, you are in a stronger position to talk about price.

Remember: a fixed price is fixed – it is not in a range from X to Y. This might sound obvious, but it’s a common mistake, and one I used to make when I was doing a lot of tax planning and company formation work.

I knew my rival’s benchmark cost was between £300 and £350, so I would go in lower by quoting £200-£250. When the client agreed and the meeting was over, I would assume that they had agreed to £250. And that’s what I would ultimately invoice. The client, however, only remembered the lower figure of £200, and so we ended up in a fee dispute. So, never ever, ever give a range of prices. Commit to a fixed price… give the client complete certainty.

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Later on in this article I’ll take you through a practical example to illustrate the kind of thinking required when calculating a value-based price. But first I want to share with you some powerful techniques for making your prices seem really, really small.

How to make your price seem really small

There are three ways to do this, but first, let’s just go back to the value equation:

The word I want you to focus on now is ‘perceived’.

We’re not talking about absolutes but perceptions – and about managing customers’ perceptions. And one of the ways we can give the perception of more value is to reduce the perception of price.

Here are three powerful techniques for managing the perception of price:

1. Reframe your value

At first glance, which of the following seems smaller?

(a) £1,008(b) £84 per month for 12 months

Research shows that most people go for answer b). It’s been proven that people perceive £84 per month over 12 months to be smaller than £1,008, even though the two amount to the same.

In this example, £1,008 is the headline price. Don’t reveal your headline price. Instead, use the technique which I call ‘chunk

Perception of Perceived PriceTangible Benefits

+ Intangible Benefits

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it down’. People will always be drawn to the smaller figures, so use those. This is such a simple but powerful technique, and you should use it all the time.

2. Change the description

Now, consider this. Which of these seems smaller?

(a) “a £5 fee”(b) “a small £5 fee”

Surprisingly, research showed that simply adding the word ‘small’ increased the response rate amongst price-sensitive clients by 20%.

As you can see, it is only a tiny change in the description but it has an enormous impact on the perception of price-sensitive people. Moral: Words matter.

3. Keep prices simple

Finally, which of the following seems smaller?

(a) £1,599.00(b) £1,599(c) £1599

Research from 2012 reported in the ‘Journal of Consumer Psychology’ shows that the third variation is the one that appears least expensive. Believe it or not, £1,599.00, which tries to emphasise precision with use of decimal places, is seen as the highest price.

You see this at work, for example, in up-market restaurants where they put the price in full pounds without using pence. So, get rid of the commas, get rid of the pence and it seems a smaller price.

So how do you then arrive at your price? How do you link your price to the value?

Perhaps the best way to explain this is with a practical example. So let’s look at that next.

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So, we have now looked at three different steps you can take to master value pricing and enable you to put up your prices. The question lingering at the back of your mind is, “Yes, but by how much?” especially if you have already done the 1% rise I recommended.

Well, how would 347.9% sound to you?

Remember Phil Bessant’s story and how his gross fees went from £250,000 to £400,000 in just a few months, simply by changing the way he priced his services? He is not alone. I have worked with dozens of firms that have done the same.

I’d now like to share Marc Lawson’s story with you. Marc is a sole practitioner based in Devon.

The ideas I will share with you in this practical example can be applied to any work you do, but I’m actually going to look at mortgage reference services, and for two reasons.

Firstly, I carried out a price survey a few years ago and was staggered that, when asked what they charge for doing mortgage references (sometimes referred to as mortgage certificates), 41% of firms reported that they just give it away for free.

Secondly, mortgage reference services are a fantastic example of a service that can have huge perceived value to a client, creating the scope for serious price increases.

So, why are some firms just giving it away?

Some simply don’t know how to charge, but others say, “Well, it’s not a valuable service. I wouldn’t charge much anyway, probably £100; it’s a quick thing to do. So, if it’s a valuable client, I might just do it for free. It’s easier and quicker than having to work how much to charge.”

This is crazy. When people are buying a house it is a big event in their life, and if you can be one of the parts of the jigsaw puzzle helping them to get their dream house, that’s massively valuable.

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Marc Lawson’s 347.9% story

Marc conducted a pricing test based on a resource I created as part of my ‘Effective Pricing for Accountants’ training programme, with fascinating results.

Marc runs a business club with nearly 80 business owners. For the test, he split the room into two halves of approximately 40 people and he said to them, “Imagine you’re about to buy a house and, because the bank wants a mortgage reference letter, you need me as the accountant to complete that reference and enable you to get the mortgage.”

To one side of the room he gave out a green piece of paper which said what an accountant would normally say: “We will complete your mortgage reference and send it to your lender with all the relevant information contained on the form.”

Now, although this is what most accountants would say about this particular service, they haven’t used any of the techniques that I’ve discussed about communicating value. So, when he asked this half of the room how much they would be prepared to pay based on this description, the average response was £92.42.

At the same time he had given the other half of the room a yellow piece of paper, selling exactly the same service but using a few of the tricks and techniques to communicate value. In fact, it contained a full page and a half to explain the benefit of the service. This half were prepared to pay, on average, £413.99 for exactly the same service! That’s a staggering 347.9% more.

Nearly a third of the ‘green group’ didn’t see any value at all in the service, which perhaps explains why 41% of accountants don’t charge for it. In the ‘yellow group’, everybody placed some chargeable value on the service. The lowest value offered was £25, but at the other end of the scale, 25% of the group said they would pay somewhere between £750 and £1,500!

And the only thing that changed was the way that he communicated the benefits.

So, what exactly generated such huge differences between the two groups? What did that yellow piece of paper actually say?

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It started by setting the scene with…

“We understand that buying a home is really important to you. Getting the right mortgage is a critical part in the process. We want to help make the process as simple as possible for you and make sure you get exactly the right mortgage that will make your dream come true.”

The explanation then went on to describe the scope of the work. It also talked about the importance of speedy response and getting the information back to the lender inside 2 days. In fact, it went further than this. If offered a turnaround promise.

All the features were turned into benefits using linking phrases. Additional value was created by offering some additional services which had high value but zero cost of delivery for the accountant (for example, a carefully crafted referral system).

The strategic use of language painted a very, very different picture of the value to the customer.

347.9% more value! As judged by the (potential) ‘customers’.

So, how would you implement step 3 to link the price to the value? The answer is to identify factors that influence value.

How to price the service

Here are three factors which can influence the value of the mortgage reference service, all relating either to the size of job or speed of the work.

First, the size of the mortgage: The bigger the house, the more value there is in all the services going into buying it. And if it is someone’s ‘dream home’ then their emotional investment is even greater. And in these circumstances, of course, they are far less price-sensitive. So, the price you charge can be influenced by the size of the mortgage.

Secondly, the loan-to-value ratio: Arguably, a client looking for a 95% mortgage may well not have much in the way of a deposit, so your help in getting the full 95% is really important. Incidentally, in this scenario the lender is likely to ask for more detailed information, which means more work for you – so,

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of course, your fee should be higher anyway. Your price can therefore be influenced by the loan-to-value ratio.

And thirdly, speed of response: A component of value is speed which is one of the intangible benefits; the way the service is delivered which impacts upon the emotional experience of the client. So your price should be linked to the speed of response. For example, you could offer two options; two prices. One could be for the standard service, the other for your fast track service.

Once you have identified all of the components of value create a pricing structure that varies as the total value varies.

When you join me on my Effective Pricing for Accountants training programme you’ll get access to the full mortgage reference resource and software which is enabling firms to charge much, much higher prices for this service.

If you want to join me on my step-by-step training programme which will give you all of the skills, knowledge and resources to completely transform your results go to www.EffectivePricingForAccountants.co.uk.

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Thank you so much for reading my eBook.

Pricing in the right way has the potential to completely transform your results. So it makes sense to invest some time and money in pricing training. A small investment in training will reward you many, many times over for the rest of your professional career.

In this eBook I’ve shared with you my 3-step strategy for making a great start. If you want to take your learning to a whole new level I’d be delighted to work with you and share the full 7-step ‘The fastest way to double your profits’ formula. Here are just some of the things I will share with you:

• The 2 critical decisions you must make when building your pricing strategy

• The importance of little things and how they can help you charge 20% more

• 7 different ways of pricing more profitably

• The fundamental elements of the value equation

• The power of ‘emotional associations’… the most overlooked aspect of value

• 7 powerful techniques for communicating value

• The 12 methods of pricing… and which ones to use

• The 9-step question process for value pricing when value is subjective

• 5 techniques for making your price seem really, really small

• Why, if you have a single price, it is the wrong price

• The power of price discrimination… how you can double your profits

• The 5 essential steps to implementing effective menu pricing

• And much, much more

If you want to join me on my step-by-step training programme which will give you all of the skills, knowledge and resources to completely transform your results go to www.EffectivePricingForAccountants.co.uk.

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I hope that the ideas and examples here have inspired you to rethink your pricing strategies. Perhaps you have already identified some services or some clients to target with new techniques? If you want to find out more, there are plenty of ways to do this.

You can link with me on Facebook. I have a page called ‘Effective Pricing for Accountants’. When you visit the page and click the ‘Like’ button, you’ll be one of the first people to hear of any new events or webinars I am running.

My YouTube channel contains dozens of pricing ‘how-to’ videos plus stories from firms I have worked with. When you subscribe to the channel (which won’t cost you anything), YouTube will automatically let you know when I create new videos.

Connect with me on LinkedIn. When you connect with me I’ll send you some links to some other free resources I’ve created for accountants.

And if you want to join me on my step-by-step training programme which will give you all of the skills, knowledge and resources to completely transform your results go to www.EffectivePricingForAccountants.co.uk. I’d love to work with you and help you build an even more profitable accounting firm.

Thank you for reading and I hope to catch up with you soon.

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How to price your accountancy services for maximum profityour practical guide to making a significant difference to your bottom line profits

written by mark wickersHam

www.effectivepricingforaccountants.co.uk

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