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How To Price Your Advisory Services

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How To Price Your Advisory Services

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How To Price Your Advisory Services

Customers nowadays want to know the price of your services upfront. As the accounting industry evolves, firms are finding new ways to price value-added services such as advising. Traditional billing based on billable hours now gives way to value-based pricing and subscription models. 

This article will delve into the different pricing strategies to help you evaluate the right approach for your accounting firm’s needs.

Understanding Different Pricing Models

You should be aware of three pricing models: transactional pricing, value-based pricing, and subscription pricing. Transactional pricing relies on predefined hourly or service fees calculated based on internal firm costs plus a standard markup. On the other hand, value-based pricing leverages the perceived value provided to clients and what they are willing to pay. This approach takes into account the complexity of the situation and the engagement. Subscription pricing, a common form of value-based pricing, divides fees into regular increments across the timeline of the contracted engagement, making it ideal for recurring services.

Pros and Cons of Hourly Fees:

Charging an hourly rate for services has its advantages and disadvantages. The transparency of hourly pricing allows clients to know the fee upfront. However, it can become problematic for valuations and consulting projects where clients prefer a fixed fee. For recurring services like tax planning and bookkeeping, transitioning to a subscription fee model can provide stability and limit client-driven changes.

Adopting Value-Based Pricing and Subscription Models:

Shifting to value-based pricing requires a change in mindset within the firm. Firms must communicate their value beyond tax liabilities, focusing on tax savings and advisory services that drive revenue growth, increased profits, net worth, and overall business expansion. Creating a mindset around outcomes rather than task completion is essential for success. Adopting a value-based pricing and subscription model necessitates a paradigm shift and proper employee training.

Considerations when Shifting to Value-Pricing:

Several factors need to be considered when transitioning to value-based pricing:

  1. Determine who will calculate and approve new client estimates.
  2. Standardize and tier solution bundles to offer different pricing options.
  3. Implement tracking mechanisms to record and measure the value delivered in engagements, such as dollars saved, credits earned, time saved, and client satisfaction surveys.
  4. Train staff on the new pricing and service model and establish key performance indicators to support it.
  5. Communicate with existing clients to set new expectations and explain the shift in pricing approach.

Tips for Calculating Pricing Based on Value:

To establish competitive pricing based on value, accounting firms can follow these steps:

  1. Research competitive pricing to gauge industry standards.
  2. Gather historical proof points by quantifying the value generated for existing clients through services provided.
  3. Leverage service bundles or packages to distribute value across various components, reducing client focus on high-priced individual elements.

Fixed Pricing vs. Value Pricing:

Fixed pricing involves setting a fixed price for each service across the board, offering certainty to clients. On the other hand, value pricing determines prices based on each client's unique situation and willingness to pay. Fixed pricing provides scalability and simplifies pricing, while value pricing offers the potential for higher margins but requires a more customized approach. A hybrid approach can also be adopted, where some services are fixed-priced, while others are value-priced, depending on their commoditization.

Steps to Follow When Pricing Accounting Services:

  1. Understand Client Needs and Scope: Prioritize understanding your client's specific requirements and the scope of the engagement. Schedule a meeting or consultation to gather information about their accounting needs, goals, and any unique circumstances that may impact the pricing.
  2. Define the Pricing Model: Choose a pricing model that suits your firm's objectives and aligns with the value you provide. Consider the pros and cons of each model in relation to your client's needs and preferences.
  3. Estimate Time and Resources: Assess the complexity of the engagement and estimate the time and resources required to complete the work. Consider factors such as the size and complexity of the client's financial operations, the need for specialized expertise, and the volume of transactions or accounts.
  4. Evaluate Additional Costs: Account for any additional costs or expenses associated with the engagement. These may include software licenses, data analysis tools, third-party services, or any other direct expenses that are specific to the client's requirements. Factor in these costs when determining the overall price.
  5. Determine Profit Margin: Calculate the desired profit margin for your firm. Consider your fixed costs, variable costs, and the level of profitability you aim to achieve. Ensure that the pricing structure covers your expenses and generates a reasonable profit for the services rendered.
  6. Prepare a Pricing Proposal: Create a detailed pricing proposal to present to the client. Clearly outline the services included, the pricing model chosen, and any applicable terms and conditions. Be transparent about how the pricing reflects the value and benefits the client will receive.
  7. Negotiate and Adjust: Be prepared to negotiate and discuss the pricing with the client. Take into consideration their budget, perceived value, and any specific circumstances. Consider whether adjustments can be made to accommodate their needs while maintaining your profitability goals.
  8. Document the Agreement: Once an agreement is reached, document the pricing details in a written engagement letter or contract. This ensures clarity and serves as a reference for both parties. Include information about the services, pricing structure, payment terms, and any other relevant terms and conditions.
  9. Monitor and Review: Regularly review the profitability and effectiveness of your pricing strategy. Monitor client satisfaction, profitability, and market trends. Evaluate whether your pricing remains competitive and adjust as necessary to maintain profitability and client satisfaction.

Additional Considerations:

  • Communication and transparency: Clearly communicate your pricing methodology, explaining how it aligns with the value and benefits provided to the client. Transparency builds trust and helps clients understand the rationale behind the pricing.
  • Market research: Stay informed about industry trends and competitor pricing to ensure your pricing remains competitive while reflecting the value you offer.
  • Client segmentation: Consider segmenting your clients based on their needs, size, or industry. Tailor your pricing and service offerings accordingly better to address the specific needs of different client segments.
  • Value-added services: Identify opportunities to offer additional value-added services that complement your core accounting services. This can justify higher pricing and strengthen client relationships.
  • Client feedback: Regularly seek feedback from clients regarding the perceived value of your services and pricing. This feedback can help you refine your pricing strategy and identify areas for improvement.
  • Continuous improvement: Continuously evaluate your pricing strategy and learn from client engagements. Adjust and refine your pricing approach over time to ensure it aligns with your clients' needs and delivers optimal results for your firm.

How can Taxfyle help? 

Pricing advisory services for accounting firms require a thoughtful approach that considers the value provided, client preferences, and market dynamics. While transitioning from traditional hourly billing to value-based pricing or subscription models can bring stability, increased profitability, and enhanced client relationships, it takes time to establish and maintain a new pricing model for your firm, especially during the busy seasons. If you need an extra CPA or EA to pick up the busy work occupying much of your firm’s time, partner with Taxfyle.
We connect firms like yours to our domestic network of licensed CPAs and EAs who can help your firm on-demand during the busy times of the year. Tax season won’t hold your firm back after you partner with Taxfyle. 

Legal Disclaimer

Tickmark, Inc. and its affiliates do not provide legal, tax or accounting advice. The information provided on this website does not, and is not intended to, constitute legal, tax or accounting advice or recommendations. All information prepared on this site is for informational purposes only, and should not be relied on for legal, tax or accounting advice. You should consult your own legal, tax or accounting advisors before engaging in any transaction. The content on this website is provided “as is;” no representations are made that the content is error-free.

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published

May 17, 2023

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Antonio Del Cueto, CPA

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