Increasing profitability is a perennial need of most CPAs. One of the most effective ways to increase profitability is to charge premium prices for at least some of the work you do for some or all of your clients. Until they decide to build a micro-niche practice area, most CPAs do not think about premium pricing. Yet virtually all CPAs should be charging premium pricing for some of their work. The challenge for most of these CPAs is how to have a premium pricing mindset.
When I ask CPAs what they charge for their services, most will say, “I charge $200 per hour.” Some might say, “I charge $500 per hour.” Most of the CPAs I talk with charge an hourly rate that is the same for everything. There might be CPAs in their firms charging different hourly rates, but the hourly rate remains the norm. What about you? Do you charge a flat hourly rate? Do other CPAs in your firm also charge a flat hourly rate?
Another approach would be to define services that require more – more time, more education, more knowledge, more experience, more skill. These premium services would be billed at premium prices (perhaps a multiple of your basic fee). Does anyone in your firm or in your circle of contacts charge different fees for some services? Based on my observations, this does not happen often. The single exception I have encountered is tax return preparation. Some CPAs calculate the cost of tax return preparation based on the complexity, the amount of knowledge and the time required to complete each form. Some charge different rates based on the complexity of the total return. These, however, appear to be the exceptions.
As you can see, enhancing your pricing model requires a change of mindset. You must adopt a premium pricing mindset. Take a moment to think about all of the work you do for your clients. Ask yourself these questions:
· Is all of the work of the same complexity?
· Does all of the work include the same level of liability or risk or responsibility?
· Does all of the work require the same amount of time?
· Does all of the work require the same knowledge?
· Does any of the work necessarily require other work for the client?Is it easy to find alternatives for the services provided?
The flaw in the pricing strategies of most accountants is in charging the same rate for all work. Behind this practice is an assumption that all work deserves the same pricing. Is that actually true? Should it be true?
The first step in developing a premium pricing mindset is accepting that all work is not the same and, therefore, should not be valued the same. If all work you do for a client is of the same value to the client, perhaps a flat hourly rate is appropriate. You must learn to look at the work you provide for each client from the client’s point of view in order to understand the variable value of each piece of work you do. Your pricing should reflect the varied values the client places on the work. Thus, more valuable work should carry a higher price.
Next, look at all of the work you do for all of your clients. Try to sort it by the knowledge or expertise required to do the work in a way that is valued by the client. You are likely to have several groups of services you provide. Those requiring the very least of your knowledge and experience should be billed at your basic hourly rate. Rank and price the remaining groups of services using the minimal as the baseline. The pricing should increase according to the required knowledge and expertise.
Next, bundle together services used by groups of your best clients. Create a package of services you provide. Calculate the cost of the individual services in the package, based on your hourly rate. Then price the package more than your hourly rate. It is important to understand that you provide greater value to the client with the package of services than by providing only one or two of those services.
Next, identify two or three areas in which you provide special work for clients. These areas should be those in which you can justify a package of services and for which your special expertise is required. These are prime services for premium pricing.
Finally, analyze your client base and segment your clients. Identify what your best, highest paying clients need. Build a micro-niche around those services. It is best to build only one micro-niche at a time. Focus your time, your research and your attendance at industry events on this group of clients. Become the expert authority (the go-to person) for those clients and their colleagues.
Once you develop a premium pricing mindset, make it part of your interaction with clients and prospects by talking about the work and the value of the work instead of an hourly billing rate. Not only will you stand apart from the crowd by doing this, your clients will recognize your expertise and your knowledge that you are worth the premium price.
David is President and CEO of DGW and Associates, the parent company of The Micro-Niche Method (http://www.themicronichemethod.com) and author of The Micro-Niche Method: The Pathway to Premium Pricing and Increased Profitability for Today's CPAs.