The recently published CommBank Accounting Market Pulse Report [June 2018], observed that negotiating price with clients was the #1 reported business challenge over the past 12 months for top 100 accounting firms. [Click here to view the report].
The report observed that ‘in a market where supply has outstripped demand, clients have the power to be selective in choosing service providers and negotiate strongly on both price and contract terms. Experience suggests that these knowledgeable and empowered clients increasingly seek to determine budgets upfront before they commit. As a result, firms that are heavily reliant in traditional, hourly-fee based pricing models are under pressure to experiment with alternatives or risk losing out to their more flexible competitors.’
As a result, progressive firms are increasingly looking to adjust the way they structure their fees, with significant change expected over the net few years as fixed and value based pricing models replace more traditional time-based billing.
Whilst time based billing is still expected to be used in 50% of cases, fixed fee for service (32%), contingency payments (17%), value based billings (16%) and retainers (7%) will also play an increasing role in determination of pricing for professional services. Clearly, discussions about pricing incorporate a lot more than a simple (and often misleading) discussion about time cost billing vs value pricing. Where is your firm placed on this continuum of fee arrangements with clients?
A modern approach to price management should focus on four key areas:
1. Setting the price (the art and science behind defining the right price)
2. Getting the price (how to communicate and negotiate the value of service)
3. Managing the price (delivering services efficiently and appropriately)
4. Reviewing the price (providing the basis for continual improvement)
A recent publication by Stuart Dodds ‘Smarter Pricing Smarter Profit’ described an 8 step process that professional service firms should be using to manage pricing arrangements with clients.
1. Conversation – determine client wants and needs on the engagement
2. Pricing the client – develop your pricing options for the client
3. Detemine pricing options and provide choices to the client
4. Present options to the client
5. Client selection codified into the fixed price agreement
6. Project management – managing the work within scope and fee
7. Managing changes to scope of service
8.Pricing reviews – taking time to review, reflect and improve
All of these steps are important in really taking control of price in the relationship that firms have with their clients. Most importantly, Stuart (and others) suggest that firms should adopt a centralised approach to the determination of price for advisory services. Only when partners and managers are challenged on their pricing arrangements with clients does a sense of the true value of the services appear.
As a profession, we still have a tendency to over-emphasise the value of compliance services and under-emphasise the value of advisory services, exactly the opposite of the approach we should be taking with clients. Often the key issue comes down to negotiating the price with clients, and this requires specific training for the people who sit in front of clients in pricing discussions.
Pricing Policies for Professional Firms – A new eLearning course
The accounting and advisory firm of the future understands that traditional approaches to setting and managing price can be quite unreliable in achieving a strong return on investment. Compliance work is increasingly commoditised and price sensitive. Many firms struggle to persuade clients to pay for services that clearly add value beyond compliance.
This 10-module eLearning course is designed to help accounting and advisory firms develop and implement pricing policies relevant to the needs of their clients.
1. The psychology of smarter pricing strategies
2. The continuum of pricing options for advisory firms
3. Pricing ground rules for compliance and advisory services
4. Negotiate the fee for service with clients up front
5. Manage work to the agreed scope and fee
6. Address changes in scope of work and pricing
7. Increase fees for advisory and compliance work
8. Establish and manage fixed fee pricing approaches
9. Deal effectively with price sensitivity from clients
10. Establish internal pricing policies for success
Who should enrol?
The course is designed to be presented to the partners, managers and technical staff of accounting and advisory firms directly involved in setting and managing prices.
Latest posts by Dale Crosby (see all)
- Pricing pressure top of mind for accounting firms - July 2, 2018
- Rise of the solopreneur accountant - May 31, 2018
- The Proactive Manager – Focus on Compliance or Advice? - February 15, 2018