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Let’s start with what we believe to be several pricing truths as it relates to the accounting industry:

*Most accountants are pricing apologists. That is, we apologize for having to charge our clients for the valuable services we provide. We don’t agree with this approach. Most people can count the number of people who know how much income they earn on one hand. Of course, accountants are part of the count. Put another way, accountants and their clients have very intimate relationships.

*Price discrimination is a reality. By price discrimination we mean that not all clients are willing to pay the same price for the same service. As an example, one household may be willing to pay $100 a month for a gardening service and another may be willing to pay $200 for the same size yard. Why? Everyone has a different value system that is applied to how they spend money. And an individual may value something differently today from how they would value it next week if, say, the urgency of the situation suddenly escalates. This principles works for accounting services as well. We see far too many firms attempt to equalize pricing. This is a losing proposition.

*Pricing is a function of self-esteem. Our definition of self-esteem in this case is taking care of your own needs before taking care of others. Please do not misinterpret our definition. You absolutely need to provide fantastic service and take care of your clients, but don’t be fooled that they are going to take care of you. We see far too many firms thinking their clients will take care of them. It doesn’t work out. You and only you are responsible for making sure your prices generate a healthy profit for your firm.

Pricing is by far the variable that can drive the most profits and quality of life in an accounting firm. We can only become so efficient or cut costs so much. Unfortunately, many firms spend far more time on other areas of Practice growth when they need to be spending more time working on how they can provide more value to their best clients and increase their fees accordingly.

To that end, you need to be acutely aware of what you sell to each of your clients. In our experience, in working with hundreds of firms around the world, here is what you don’t sell: Tax Returns. You do sell protection from the taxing authorities, peace of mind that your clients are making the right financial decisions for them and, ultimately, you sell outcomes. That is, you need to know exactly what your clients’ deepest financial fears and desires are and do everything you can to help them achieve their objectives and avoid their fears.

We had an interesting conversation with an accountant last week who provides general business and consulting advice to some of his business clients. We were discussing the topic of raising rates and he said, “It’s amazing…the client is happy to pay my highest rates and all we are doing is talking. I can’t believe they are willing to pay for the fluff.” Of course, this was like a red rag to a bull. We went on to explain that any firm can provide a tax return, yet the high value service is going beyond the tax return and helping the business owner/individual think through their issues and objectives. Please note, the value is in the relationship, the advice and being the Trusted Advisor, not the tax return or financial statement.

Directly related to self-esteem is the function in many accounting firms of working for free. We see it far too often. It ranges from not charging for phone calls to scope creep (could be in the form of a fixed price agreement or progress billing). Working for free is the second largest factor in low productivity in accounting firms. The first is taking on low level seasonal work and then carrying the overhead burden all year.

Why do accounting firms work for free? You don’t expect your lawyer or doctor to work for free? Why do you think your clients expect you to work for free? The answer is: they don’t. It comes back to accountants being pricing apologists and lacking self-esteem. You need to be charging your full fees or rates or walk away. It serves no one to undercharge (please note your team members suffer the most as you are essentially de-valuing them when you work for free or don’t charge full rates). You must absolutely learn to say no.

Here are critical things you can do to make sure you reduce the amount of time you work for free:

*Require that all time go on a time sheet. Again, because many accountants lack self-respect they will “eat time” to make sure they hit budget. No one benefits.

*Use scripts to discuss change orders, scope creep and how you charge for phone calls/meetings and “non busy season” work.

*Believe in yourself and the services you provide. You worked very hard to obtain your CPA certificate and have lots of business experience.

*Let the client be the judge of whether the value is there to justify the fee. Neither the service provider nor the team member determines the value. The client does.

Finally, we understand there are family members and friends that we service for free. In my experience many CPA firms allow working for friends and family to justify low fees. Put another way, the free or low cost returns become out of control. We recommend no more than 5 free returns per partner. This should cover immediate family and a non-profit.

Here’s a script on how to deal with your friends/family that you can no longer do for free/”cost”:

“John, we have been friends for a long time and I have appreciated being able to prepare your tax return. However, I have not been serving either you or our firm well with our current fee structure. Therefore, in order for me to prepare your return in the future, we have two ways forward. 1) I can charge you full retail pricing which is to achieve an average hourly charge rate of $150 or 2) I will do your return for free. Your choice.”

In conclusion, you will never receive what you don’t ask for.

  • Pingback: MOST ACCOUNTANTS ARE PRICING APOLOGISTS | Solutions For CPA Firm Leaders

  • Ron Baker
    October 27, 2010

    Shannon,

    Great post, until you said this:

    “Require that all time go on a time sheet. Again, because many accountants lack self-respect they will “eat time” to make sure they hit budget. No one benefits.”

    If customers don’t buy time, then why measure it at all, let it alone quote hourly rates. Time doesn’t measure value, or costs. You’re advocating plunging a ruler into the oven to determine its temperature. It’s the wrong measuring device.

    I thought you got this, or do you guys sell a time & billing program–the buggy whip of the knowledge era?

    Regards,
    Ron Baker, Founder
    VeraSage Institute
    http://www.verasage.com

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