I keep reading how buyers across all sectors are “demanding discounts” and it’s easy to see how this creates strain and pressure for us to do the same. Fact is, CPA firms are a relatively low-margin-high-volume industry that, when billing by the hour, already writes off about 20% of WIP. Shockingly, that’s the equivalent of a day a week of “free” work (average realization rate of US firms is roughly 80%). We can do better! But I’m not going to talk further in this post about why hourly billing is a bad idea, or that realization is a bogus concept. I’m going to talk about what to do when someone asks you for a discount.
My point about profit margin is that you don’t have much wiggle room, and sometimes none, to do the current work for less money. And to agree to do the same work for less damages your price integrity! So please don’t go there. Whenever you change the price, you’ve got to change the deal. Period.
First, don’t panic if customers ask to negotiate price—even if they ask for discounts. This is actually GREAT news because it opens the door to discuss what they value and what they don’t. To do this most effectively, you’ll want to change the conversation from “what you do” (your inputs) to “what they get” (their outcomes). In other words, what goals, objectives or ideas of theirs are advanced as a result of working together.
Stakeholders satisfied so that… Expansion so that… Securing more capital so that… Streamlining the business so that…
It’s the part after “so that” that reminds the buyer (and you) about the worth of their investment in you. That’s contrary to what we default to in defending our hourly fees which is justifying the activities and inputs that lead to simply satisfying the stakeholders, aiding expansion, getting more working capital, and developing processes to streamline. Your activities don’t matter much. The “so that” is what very much matters. It’s the purpose of the work.
Take this opportunity to move those customers from open-ended hourly billing with unfortunate surprises to a fixed-price agreement where you both know exactly how much they’ll pay and when. Wouldn’t you like to have more predictable revenue? Probably almost as much as they’d like more predictable expenses.
Learn to offer multiple “package” choices (aka options). Through developing options, you’ll define scope parameters. Say you have a range of $3-6k in mind; options permit you to clarify what must be exactly “so” for $3k, and what considerations elevate price to $6k. People love choices. Even when we have to buy an annoying necessity (like tires or insurance… or tax help), simply having some choice empowers a sense of control. Businesses who’ve lost all control from recent events will especially appreciate this!
When it comes to options, “three” is the magic number. With current customers, it’s best to show goodwill with one option that’s actually less than they now pay, a middle option that’s closer to their current spend with you, and one that’s higher but you’ll need to make the ROI clear.
For all three prices, tie them back to the “so that” and you’ll find the conversation about worth is much more satisfying, and nowhere near as painful as a conversation about hours.
Final thought… if it truly doesn’t make sense to spend the energy to develop options (it’s usually worth it, though!) you can change the deal another way. Changing the deal can be something besides the actual work you perform… it can be the level of included access to you and your team, timing of the work, or even payment terms—maybe shoot for 1/4 down to 100% up front in exchange for a slightly lower price.
Two things this pandemic has taught us are that we have to be more creative in how we view things, and we have to be more flexible. It’s time to apply those to how we position our work and price it.
We’re seeing some really big strides in the business (and revenue) model shifts in the accounting profession. At this writing, FIVE of the US Top 100 largest CPA firms, and several Top 200 firms, are currently instituting Fore’s Advanced Pricing Methods℠. These brave large firms are on the very front end of the innovation curve: the pace at which new ideas are spread or diffused.
In her recent article about Changing the Business Model, INSIDE Public Accounting’s editor Chris Camara did an amazing job summarizing what’s happening, why (what’s driving changes), and some of my thoughts on how you can get started on a new pricing approach.
Here’s a snip (click on article thumbnail for the full piece):
Within the last few years, firm leaders have begun accepting that a new revenue model is inevitable, spurred by the rapid introduction of time- saving technologies. Since fewer hours mean reduced WIP-based billings, firm leaders are implementing – or at least investigating – different revenue methods that capture each solution’s worth, not the time spent on it, which is irrelevant as far as the client is concerned.
The impact of work speed on traditional billing is already being felt, says River. One East Coast firm, for example, implemented data analytics and reduced time spent on one aspect of audit from five hours to about 15 minutes. If an hours-X-fee system is used, the time reduction across hundreds of clients means a serious revenue deficit, River says. Another example is an IPA 200 firm that implemented Lean Six Sigma techniques and a workflow product that reduced tax preparation time up to 50% in some cases. Without another revenue model in place first, even after adding clients, they had a $900,000 shortfall between their 2017 and 2018 WIP.
If you’re interested in more “how to” check out my half-day workshop on Nov 5, 2019 in Indianapolis at the 2019 PRIME Symposium. This workshop is open to the public and is limited to 50 guests. Contact firstname.lastname@example.org for details!
My friend Greg Kyte is one of my favorite customer experience experts. Maybe it’s because of his authenticity? Or maybe it’s his ability to relate seemingly unrelated things. Whatever it is, he REALLY gets it.
(If you’ve been through any of my pricing workshops, you’ve probably “met” Greg via one of his outstanding videos like the Billable Hour Scratch & Win.)
Well today, I stumbled on a post he wrote about how buyers value different things. Enjoy this story about angry grandpas and tea-cup style spinny rides: The Value Conversations and LegoLand.