In this post and part 2 , I review some of the key trends, issues, risks and opportunities surrounding the pricing of accounting services and the pros and cons of offering basic accounting & tax services…
In working with accounting and tax professionals through the years, pricing for services continues to be a hot topic. Pricing strategy is often the cause of a great deal of anxiety and stress, especially for new practice owners.
Value Pricing + Price Transparency = A panacea? Or the Uber-ization of accounting?
On one hand, we have heard lots of buzz from experts and practice coaches about how firms should move away from old-school hourly and project-based fees to more value pricing or bundled pricing models. Value pricing usually involves bundling services together into transparent fixed prices, often in the form of ongoing monthly subscriptions. Moving to value pricing, some say, is the wave of the future -- your clients will soon demand it and your profits will increase.
On the other hand, we also hear about how standardizing pricing in this way would invite the robots and outsourced workers to compete with you head-to-head for the “same” services. At that point, some say, accounting will be “Uber-ized” and anyone around the world with cloud accounting software and a computer can now compete against you and undercut you on price.
Which vision of the future is correct?
While there is some truth to both of these scenarios, neither will become a reality overnight. However, these are definitely trends to be ready for.
Prices (Almost) Always Go Down
As most industries mature, the average prices tend to fall over time through innovations, efficiencies and competition. In the Bain & Co. book The Breakthrough Imperative, their “First Law” states that “costs and prices always decline.” They analyzed different industries and found a consistent pricing decline trend across product and services segments.
While there are exceptions to this rule, most industries see declines in the price-to-value ratio. With accounting services, even if prices for services remain flat, what your clients get for that same cost has steadily increased. With the emergence of technology-enabled accounting practices over the past 10-20 years, this increased value has come in the form of increased speed, accuracy, transparency, flexibility, channels of communication and 24/7 online resources.
While total value is increasing, there is also a trend towards lower prices for basic accounting and tax services. With the shift to robust cloud-based software and with the growing use of outsourced accounting and tax workers, the average prices for basic tax preparation services, bookkeeping and payroll will continue to go down over time.
So value is increasing while prices are (mostly) decreasing, causing the price-to-value to go down.
Pricing is near the top of the list of small business owner concerns
In addition to these industry trends, price shopping and price transparency continues to come to the forefront with the increased use of the internet by taxpayers and small business owners. Pricing information and comparison sites have empowered consumers with more and more information.
In a proprietary research study that we are about to publish, pricing is at the top of the list of reasons given by small business owners regarding dissatisfaction with their accountants. Pricing is also near the top of the list of factors these owners evaluate when hiring new accountants.
“That’s it, I’m done.”
In some cases, accountants have told us that pricing pressure on basic types of accounting and tax services has become so pronounced that some have thrown in the towel and have decided to stop offering some low-end services altogether. Instead of pushing clients into a bundled package that includes low end services, they refer clients to other accountants for these services and only offer high-end services.
On the surface, it may seem like a good idea to drop basic services in favor of more profitable services like financial planning, audits, tax resolution, assurance, risk or business consulting. In addition to being able to command higher fees, accountants often say these “high-end” services are more rewarding than churning out hundreds of tax returns each tax season.
For some accountants who already have a sizable client base, raising prices and/or shifting to the more profitable services might make sense.
However, to completely stop offering basic services and/or to fire a whole set of clients at once is a drastic move that most firms should not take lightly. There could be many unintended long-term impacts to your practice that may not be easy to “undo” later on.
How will you get new clients?
First, these basic accounting and tax services are usually the most common way to attract new clients. If you are looking to grow or you are a new practice just starting out, there are far more potential clients looking for tax preparation, payroll or bookkeeping than the other more “high-end” services. In some ways, it’s these basic services that are the “loss leader” for some practices.
In addition, if you are just starting out, it will be more difficult to secure high net worth clients or small business clients without having a sizable client base and/or testimonials and credible reviews on third party websites like TaxBuzz.com. As a new practice, these are the things that help demonstrate that you have done it before and are not a “newbie” accountant.
In most cases, you will need to be able to demonstrate that you have already worked with similar clients in the past providing similar services. You will also need to be able to point to your testimonials on your website and display reviews from reputable sites like Google My Business, TaxBuzz, Facebook, etc.
How will you get more testimonials and reviews?
Second, even if you are in a position to go from having 200 tax preparation clients to just 20 small business clients, this is still a drastic change in other ways. If your net revenue remains the same, you will have gone from having 200 clients who can leave you online reviews down to a maximum of 20 reviews, spread thinly across many review sites.
Most accountants work hard to get 10%-30% of their clients to leave reviews. With only 20 clients, that would be only 2-6 reviews spread across multiple review sites—this is not an easy way to build your reputation. Online reputation should be considered almost as if it was an asset on your balance sheet. Having fewer clients limits your potential to build this asset. If prospective clients see that you have very few, if any, third-party reviews, they will probably find someone else.
So the bottom line is to think carefully about drastically narrowing your pool of clients. Moves like this should be planned over time and with careful consideration of the other impacts. While cutting your services or reducing the size of your client base may have benefits, there are some significant potential downsides to keep in mind.
Strong reputation allows you to command higher fees
If you are able to build your client base and also get lots of great testimonial reviews, your overall reputation will increase, you will convert more prospects and, if needed, you may gradually shift your mix of services to offer more value-added services.
With lots of five-star reviews, you can command higher prices for the same services and you will spend less selling time on the phone trying to convince people to hire you. Over time, you also can be more selective with bringing on new clients.
With existing clients, if you do not compare well with other accountants on the internet, they might start to “shop around” if they think your prices or are too high (and/or value is too low). Having lots of great 5-star reviews re-enforces your value with existing clients too.
So, you first need to build your online reputation before you considering going upstream with your services and pricing – it is more difficult to do this in the reverse order.
Go deep in industry verticals
Once you have developed a base of clients and a strong online reputation, another strategy that should allow you to command higher accounting fees is to focus on some specific types of small business industry segments.
For example, with our own ClientWhys and TaxBuzz software and services, we only work with Accountants, Tax Pros, Bookkeepers and other financial professionals. Because of this focus, we have deep experience and technology that caters to the needs of these clients.
Similarly, if you have worked with small business clients and professionals in certain industries, your knowledge and experience can be extremely valuable. If you have worked with doctors, dentists, real estate agents, truckers or technology start-up CEOs, you will know the ins and outs of the specific tax and accounting rules that impact these industries and you will be able to “speak the language” of prospective clients in those fields.
When looking to secure a client, it is incredibly powerful to be able to say to the prospect, “I had a client in your exact industry who had a very similar situation… here is how I was able to help them…” It is even more powerful to point prospects to 5-star reviews left by business owners in these vertical segments.
Prospective clients do not want to pay you to learn and they also believe their situation is unique. So, if it doesn’t seem like you have much experience, you may not be able to command higher fees.
For small business owners, hiring someone with experience in their niches (and who have testimonial reviews to prove it) reduces their perceived risk and increases their confidence. If they feel like you understand them and their needs and, better yet, you can point to client reviews that spell this out, you will be much more likely to command higher fees.
In my next post on value pricing and basic accounting services, I will review the pros and cons of displaying your pricing on your firm’s website, having the pricing conversation with prospects and a few suggested next steps for your practice…
At CountingWorks and TaxBuzz, we work with our clients on many of these strategic and marketing issues and we can offer guidance on what might be the right approach for your practice. If you would like to discuss your goals to see how we might help, please call us at 1-949-438-2186 or book an appointment here.