Most small business owners don’t charge enough for their services. Because the competition is so fierce, they typically undervalue what they offer out of fear that if they charge too much, they won’t attract enough clients or the right kinds of clients. But the truth is, the more you strengthen your relationship with your accounting clients and demonstrate your value, the more you can charge for your accounting services.
If your competitors are charging more than you, don’t make the mistake of thinking you’ll attract more clients by charging less money. More often, charging less can put you at a competitive disadvantage by making your services look less valuable. Accounting is a vital function for your individual or business clients—one they shouldn’t skimp on. If that’s not how you see your business, then it’s time to change your accounting service pricing philosophy.
The Bottom Line
Setting your prices encompasses analyzing your entire business—its operations and its expenses. How much does it cost to operate your accounting business? You know this—but a reminder won’t hurt—be sure to include both fixed costs such as rent, office equipment, and office supplies, and variable costs such as utilities, mailing costs and marketing expenses. Do you have employees? Consider salaries, employment taxes, benefits, workers compensation insurance and any other HR expenses you might have. You probably outsource some of your business functions such as web maintenance, IT services and business insurance—don’t forget about those costs, either.
Next, take a look at your past cash flow and expense spreadsheets. Have your accounting business’s expenses increased over the past few months or years? Have you hired new staff or outsourced to more freelancers? Have you increased your marketing efforts or paid to have your website redesigned? Are you paying more for utilities and rent than you used to?
All these factors should be taken into consideration when configuring your accounting service pricing. The true costs of operating your business help you determine a profit margin.
Accounting Service Pricing Factors to Consider
1. What’s Your Value?
For most of your clients, the services you provide are crucial to their business or personal financial well-being. Both consumers and businesses are willing to pay higher prices for products and services with a high perceived value. Being confident charging higher prices essentially comes down to self-belief, guts, and courage, according to Rob Nixon, co-founder of accounting consulting firm Panalitix. You have to show the client the value of your accounting services.
Nixon suggests saying to the client:
Based on our research, we know we can save you/make you $X by implementing some new strategies in your business. It’s going to take a fair bit of work from our team, and our fee for doing that will be $X. Is that OK with you?
Create a list of all the services you provide and then describe the value of each one. If you provide extra services the client doesn’t expect, such as incorporation and compliance, add extra value points to those services because they make you more valuable than your competitors.
2. It’s Okay to Price Wrong
Don’t stress about testing different strategies and price points. The amount you decide to charge is just a number. According to Nixon, you can pick any number you think is feasible. There is no right or wrong number. If the client says no, then you went too high. If the client says yes right away, you might have gone too low. You can always adjust prices in the future.
Nixon also suggests staying away from “time-based billing.” He says time-based billing promotes inefficiency (since the longer the job takes, the more you can charge) and also assumes the time estimated to do the job is always correct (when it rarely is).
Once you’ve agreed on a price, make sure your contract or statement of work explains exactly the tasks you’ll be performing, how and when the client will be billed, and any reasons your fees might change, such as an increased scope of work. Be sure to communicate with your client along the way. Let them know how the process is going and, if you run into a situation that requires increasing the price, give them plenty of notice.
Remember, pricing should be fluid and you can adjust yours when the market demands, when your business changes, or for special circumstances such as rush jobs.
3. You’re Not a Burger Joint
Not all your customers are the same, nor do they all have the same financial situations and needs. That’s why having a set price for services doesn’t always work when determining accounting service pricing. A good way to approach it is to come up with your own internal price sheet and then adjust and personalize prices depending on what the client wants and what you suggest. Create an offer letter for each client and spell out exactly what services you can provide. Break it down by task, so they understand exactly what you’re providing. Then include suggestions for services you think they will benefit from and the financial or other payoff for them.
If you want to offer discounts for long-term commitments or early payment, be sure the discounts are low enough so you don’t cut too much into your profits. Today’s consumers are internet-savvy and well-informed. Before they contacted your accounting business, they undoubtedly checked with your competitors and looked up your reviews. Make sure your accounting business website is always current in terms of the services you offer, and constantly monitor review sites to see what customers are saying about you.
Time for an Attitude Adjustment?
Accounting service pricing should never be about being the least expensive accountant around. Using price as a marketing tactic not only cuts into your bottom line, but it also cheapens your reputation. Your accounting services resolve the pain points and worries your customers feel not only at tax time, but throughout the year. Changing your attitude about the value of your services—and conveying that belief to clients—will help you become a stronger negotiator and grow a more profitable accounting business.
For more help with pricing, take the SBA’s Introduction to Pricing self-guided course to get valuable tips on pricing strategy for your business.