Some Thoughts on Pricing in the Pandemic
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.