For the past two weeks, we have been sharing the steps to strategically market your firm - starting first with the definition of your firm’s positioning and then your product and service mix. Now it’s time to discuss your strategy for pricing the products and services you will market.
Pricing is often one of the first questions you are asked from a prospect as it’s a quantifiable differentiator if they are considering other firms, and they can easily determine if their budget is a match for your services without a lot of additional research. That certainly doesn’t mean that you should strive to be the least expensive in your market. Instead, your pricing strategy should consider - and be in line with - the differentiators, core competencies, and market positioning you have defined for your firm (see our previous blog on this subject).
Rather than simply adding a certain percentage or dollar amount to increase your fees each year (which is a common scenario we see), how you price your products and services deserves serious consideration in your marketing planning. Two common strategies include:
• Cost-plus pricing. This method is the traditional CPA firm method where you establish fees based upon the actual cost you incur to deliver the product or service. To do so, you take a multiple of each staff person’s estimated cost, and then price engagements based upon the number of hours you believe the job will take. In firms with IT practices, pricing for software might be based on a mark-up of your cost to purchase the product. Before you reaffirm cost-plus pricing as the right pricing strategy for you, you should also consider the impact that the shortage of qualified accounting staff and increase in compliance, regulation, and complexity have on rates. Our readers from CPA firms could get a better understanding of what other firms your size in your geography are charging by exploring benchmark surveys like the AICPA PCPS MAP Survey (www.aicpa.org/pcps). After reviewing the MAP Survey data for our “cost-plus” clients, we’ve discovered that, in many instances, they have room to increase their fees - so you may, too!
• Value-based pricing. Value-based pricing is essentially pricing your products or services based upon the perceived or projected value of the product or service and the difference it will make for your client. This method of pricing is different from the strategy above in that the price you set is not tied to your cost to deliver the service or produce a product, but instead on the value your client receives. When you are trying to determine the value, consider factors such as what your client will save as a result of the service, what they will gain when they use it, and also the availability of that particular product or service in your market. To learn more about value-based pricing and decide if it’s the right strategy for you, read any number of Ron Baker’s books including Pricing On Purpose and his Trashing the Timesheet booklet.
When you talk about pricing, you also need to consider packaging. Most CPA and IT firms sell their services individually, but you might also explore offering a number of like services together as a package or bundle. For example, you may be able to package some of your most frequently used small business services – tax planning, tax filing, bookkeeping, payroll processing, and financial statement preparation - together as a Small Business Services Package and price the services together as a bundle, billed monthly, versus individually.
Be sure to publish a rate sheet to make your pricing consistent among all who sell products and services for your firm to minimize confusion and inconsistency and maximize your firm’s profitability. Further, consider implementing a pricing policy that requires those who wish to make exceptions to the firm’s pricing strategy to get concurring support from their department head or the Managing Partner.
Whatever pricing and packaging strategies you employ, start by determining your firm’s intended market positioning so you can ensure that your pricing fits into that positioning. Share the strategy with your team so all are on the same page when selling your firm’s services. Then, as you market based on this strategy, the factors that set your firm apart and the difference you make will be at the forefront for your prospects, too.
What pricing strategy does your firm employ? What are the benefits and/or challenges you encounter with your chosen strategy? Please post a comment to add to this discussion!
Warmly,
Krista
The cost of hiring professionals to carry on the marketing strategy for a business can be high. However, if you do not have the knowledge and skill to do this, it is best to hire since the time that you will be spending learning before you get to implement or even create your own marketing strategies will not suffice for the professional service fee that you will incur.
Good point Trevor! For those that have the time to properly design and execute a thorough marketing strategy - this is certainly something that can be learned with the appropriate research and support. But, for those who do not have the time and energy to invest - having a marketing consultant or coach is a wise option worth the investment.
Trevor, what have you done in the past? Have you done some (or all) of this type of marketing work yourself or have you hired it out?
Warm Regards,
Michelle