Accountants: Are Your Fees Too Low? By Salim Omar, CPA At Isnare.com Ezine Articles

Pricing is critical to the success of any professional practice or business. In fact, many books and articles have been written solely on the subject of pricing. I have seen that far too many smaller CPA firms have thinner profit margins than larger firms because they tend to under-price their services. If you think the only way to effectively grow your accounting practice is to under-price the competition, I want you to think again.

In the book The Firm of the Future, authors Paul Dunn and Ron Baker state that CPAs have been taught that the value they provide is measured by the “hourly rate.” Firms have taken their collective intellectual capital and commoditized it into a one-dimensional billing rate. From a marketing standpoint, that is a serious mistake since price is one of the important components of marketing and deserves much more thought and creativity than merely rate multiplied by hours.

Dunn and Baker go on to say that the firm of the future will price on purpose, for profitability, not market share. The main function of your firm’s marketing strategy should be not simply to acquire revenue at any price, but to gain your share of highly profitable work. It is not enough to price based upon a client’s willingness and ability to pay; you must increase that willingness by constantly communicating the value of your accounting and tax services.

One of the best resources I’ve come across on the subject of creating value is a book titled The Strategy and Tactics of Pricing: A Guide to Profitable Decision Making by Thomas Nagle and Reed Holden. These authors have developed the five C’s of value:

• Comprehend what drives sustainable value for customers
• Create value for customers
• Communicate the value that you create
• Convince customers that they must pay for value received
• Capture value with appropriate price metrics and fences

Every job for every customer has value drivers, and the firm’s job is to understand what those are. Why does the customer want you to provide the service? What is the actual motivation for hiring you? As Dunn and Baker explain, most CPAs do not pay enough attention to the client’s real motivations for seeking their services, because we think we know why they are being engaged to perform a service. But the client’s real motivations are usually more complicated than “I have to get my tax return in by the due date,” or “My banker is demanding a financial statement review.” You can’t just think about the technical service you’re providing for a client: you have to look deeper to discover the customer’s true expectations and desires.

Understanding what drives value for your customers begins with talking with them—and not just about the task at hand. I recommend that every relationship with a client begins with a discussion that includes some questions that will help you understand what makes your services valuable to the client.

Here are some questions that the CPA should ask in order to assess their needs, wants and value drivers.

1) What keeps you up at night?
2) What are your major challenges?
3) What are your long and short term growth plans?
4) What differentiates you from your competitors?
5) Do you anticipate capital needs?
6) Why are you changing CPAs? What don’t you like about your existing relationship?

Having collected this information, you will have begun to meet Nagle and Holden’s first “C”: comprehending the value drivers for your client. Now you can begin to apply this information to creating value for the client, communicating that value, convincing the customer that they must pay for value, and capturing value with appropriate metrics.

Remember, the end goal of this process is to price your services according to how valuable they are. As you come to comprehend the value drivers of your target market, you will find that not all of your services are equally valuable, and the one-price-fits-all-jobs approach will have to shift to accommodate pricing based on value.

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