Are your clients paying you what you deserve? Do you feel like your quotes don’t reflect your value? Do you want to boost profitability? A switch to value-based pricing might be the answer.
Consider for a moment the price of raw materials when creating a painting. The canvas and a paint set together could cost around $70. Does that mean that the final value of the painting should be the same amount?
No! The amount of work done and the end result play a bigger role in determining its value. At least, that’s what the Picasso Principle suggests.
Now, imagine the same raw materials being used by Pablo Picasso. How much would the final painting cost? It’s likely in the millions, right?
Any artist worth his salt can work with the same materials. But will all their artworks share the value of a Picasso painting? Clearly not.
That’s because customers are fully aware of the value of Picasso’s work. The cost of the materials ends up being negligible compared to how much the market is willing to pay for that painting made by a master.
You can apply the Picasso Principle when creating prices for your accounting services, too.
It’s all about value-based pricing. There are probably many more accounting firms that offer services similar to yours. But that doesn’t mean they can provide the same value of service that you do.
That’s because your delivery matters most, even more than what you use to provide your services. You deserve to put a higher price on it than your competitors if you provide an excellent service.
Of course, the trick is to get your potential clients to see that your services are VITAL compared to others.
What Is Value-Based Pricing?
No matter what services you offer, you need an effective pricing strategy. It’s one that creates engagement but also rewards you well for your hard work.
Here is where value-based pricing comes into play.
Simply put, value-placed pricing is a pricing strategy used to set prices according to the estimated value of the service to the customer. It uses a perceived value from the market’s standpoint instead of historical prices.
This is a common strategy used when companies want to make their offering stand out. It also generally gives better results than conventional pricing methods.
Take cost-plus pricing as an example. With this method, you first set your desired revenue. You then add your expenses and overhead costs, then mark it up to get the profit margin you want.
But there aren’t that many labour and material costs to deal with in accounting. So, a simpler and value-based pricing approach can prove useful.
To make better use of this pricing strategy, you may need some tips to get you started.
Tip #1 – Define Your Intangibles
Perhaps the first step in switching to value-based pricing is defining your intangibles. Every company has them, so you should know what yours are.
What are some of the things that set you apart?
Here are some examples.
- Higher responsiveness
- Faster delivery
- Special services that others don’t offer
- You can directly effect an increase in ROI
Of course, you can add more that’s not on the list above. The more intangibles you can add to your list, the better your bargaining position. It means that you can afford to charge more.
Tip #2 – Determine What Your Clients Value Most
It’s an age-old problem of dealing with clients. For a successful value-based pricing strategy, you need to know how to sell your services. The best way to do so is to have a complete understanding of what your clients value most.
One of your primary goals is to determine their pain points. Figure out what they struggle with. And once you know that, your job becomes more manageable.
You can use those pain points to provide insights into your services. Put your services in the context of the client’s pain points. It gives you a better chance to explain your value and allow you to offer an engaging quote for your services.
The good news is that you don’t have to uncover your potential client’s pain points yourself. You can always talk to your audience. Ask what particular areas of their business consistently underperform.
Tip #3 – Understand the Difference Between How a Client Perceives Your Value and How You Perceive It
A common mistake is to put too much value on your services. Thus, it’s important to differentiate two things:
- How you perceive your value.
- How your clients perceive your value.
This can be tricky for one simple reason:
You are in a better position to judge and evaluate your services.
And chances are, your potential clients don’t understand the value of your services. That’s because it’s likely that only a few of them have an in-depth understanding of accounting. And they still may not fully understand the unique features your firm can offer.
It’s a situation that can lead to a lower customer perceived value of your offering. So, it’s up to you to change their minds.
It’s up to you to make the right marketing choices and show that you run a VITAL accounting firm.
How do you do that?
Educate potential customers on the importance of your services. If you think about it, value-based pricing helps consolidate your business on two fronts. For one, it can boost profitability. And it can help you enrich customer insights.
On that note…
Tip #4 – Know That Every Client Perceives Value Differently
While you may not be able to exercise the same pricing plan for all your clients, you can still use value-based pricing. But it’s essential to not forget about personalisation.
Not all clients perceive the same value for your services. What you offer as an accounting firm may be invaluable to some companies, but not nearly as much to others.
Clients that only need assistance with simple tasks and projects may not be overly impressed by your intangibles. That may seem harsh, but it is true.
On the other hand, some clients require special attention to detail and expertise. They’re clients you stand to impress more. And the ones you can charge more for your services.
It’s essential that you make this distinction between different kinds of clients. Value-based pricing can also hurt your business, especially if you oversell your services.
To avoid this, use different segmentation tactics. You can also re-evaluate your position and client acquisition methods.
Tip #5 – Create a Context for the Customer’s Plan
How do you create personalised plans for your customers? Well, you already know that you need to understand their pain points. You also know that you may have to treat some clients differently.
So, you combine the two concepts.
Ask about any particular improvements your clients want. Also, ask where accounting firms failed to help them. Doing so lets you get specific insights into the businesses of your prospects.
As you get clients to open up about their business, think about your intangibles. Put them in the context of those pain points. Can you uniquely solve their problems? Can you add value? Start by creating that context for yourself. If you find something that fits your client’s needs, highlight it.
Show your client that you can provide VITAL solutions for their unique issues. Explain how one of your experts can deal with a niche task – preferably in a way that no one else can. Highlight some uniqueness in your solution to raise its value. In short, so that you can charge more.
Tip #6 – Get Away from the Cost per Hour Model
The cost per hour model may seem fair from the outside. But it’s a risky pricing scheme for your company. That’s because most clients are different.
Imagine the following scenario.
One of your new clients is a startup that brings in no more than $150,000 per year. The accounting tasks they require are not at all very difficult. So, you charge them a base hourly rate.
Another one of your clients is an already established business that rakes in $750,000 per year. Surprisingly, the accounting tasks are similar in complexity. Do you charge the same base hourly rate?
The established business can afford to pay a lot more than a startup. And chances are, you can boost the second client’s ROI a lot more compared to their investment.
Value-based pricing allows you to take into account your impact on your client’s ROI. At the same time, it makes you think of certain risks involved. What happens if you make a mistake with a client that stands to lose more?
This pricing strategy can boost your profitability while also helping you understand what your risks are.
Value-Based Pricing Is More Thorough Than You Realise
It’s easy to think that value-based pricing is random. Or that its main purpose is to make your prices higher only to boost your credibility.
In reality, it’s very different.
Value-based pricing can prevent you from underselling your services. It can also give you a different perspective when dealing with clients. It can teach you how to set prices according to the client and project at hand.
And it’s also a great way to assess your risks before offering a quote and negotiating a contract. Especially with big clients.
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