Firms’ Reasons for Changing Pricing Models have Shifted from Years Past

My friend and colleague Gale Crosley kindly featured an article I wrote in her excellent Crosley+Company Business Discipline of Practice Growth newsletter last week.

Here’s a brief excerpt:

In the early days of new-model exploration, CPAs saw “value pricing” as an opportunity to lift the artificial revenue ceiling “hours X rates” creates. Others defaulted to fixed prices because they detested timekeeping or did it so poorly their bills were just guesses, anyway. Some felt it was a more ethical or appropriate way to price—that a seller should be able to answer a buyer asking “how much will this cost?”—not expecting clients to hand them blank checks. And others figured up-front pricing would be a competitive differentiator. These motivators still exist, but we have new factors at play now, as well.

I also highlight some outcomes from those early adopters and then talk about what it is that partners are telling me this year that’s quite different from before. I don’t want to give a spoiler but it has a lot to do with creating a business advisor culture.

Check out the full article on Gale’s site here: Are You Ready to Change Your Pricing Model Yet?
Or view PDF if you’re having trouble with the link.

Accounting Today Podcast Featuring Michelle Golden on Pricing in Advance

This week’s Accounting Today podcast is a 19-minute interview of yours truly by editor-in-chief, Dan Hood.

We cover:

  • the 4 elements of Advanced Pricing (also reference this blog post: What Exactly Are Advanced Pricing Methods)
  • how you benefit from giving multiple price options
  • the difference between billing and pricing
  • why the word “value” has baggage
  • some problems with traditional pricing methods
  • why it feels so bad to “bill and duck” & how to stop
  • some ways to get started pricing in advance
  • what 3 skills to build to be ready to use these methods
  • what I’ve learned working “inside” at KCoe Isom and with other large firms about institutionalizing pricing in advance
  • what led me to start Fore LLC

Check out Accounting Today’sA primer on the new pricing” podcast.

What Exactly are Advanced Pricing Methods?

What Exactly are Advanced Pricing Methods?

Advanced Pricing Methods℠ (APM) is a term I coined to encompass techniques that I teach professionals to use to price knowledge work before the work is performed. Key is presenting the work in such a way that the focus is on the worth of outcomes and results of the sellers’ solutions, rather than a list of activities and tasks the seller will undertake. My methods include learning how to incorporate options into offerings, significant attention to defining scope, and ways to engage in deeper dialogue with the buyer about what’s important to them, and discovering why or why not.

With APM, the buyer has certainty in price and a welcomed sense of control in the initial purchase as well as when accepting additional work that is also pre-priced. And with APM, once both buyer and seller have a strong sense of WHY the work is going to be done; they can agree on the worth. The buyer agrees to a price worth paying for their defined outcomes, and the firm agrees it’s worth doing the work for that price associated with their thoughtfully defined scope.

When would you rather know the buyer is happy with your price, before you do the work, or after?

Pricing in advance is not a foreign concept to CPAs who have pre-priced audit and certain other work for years, but it’s usually with the caveat that the price is just an estimate and will be adjusted if “actual” work took longer than the CPA firm originally thought. Long-term fallout from having this built-in “cushion” potential, firms simply aren’t careful about overages. But with that comes a handful of consequences that include having to choose between suffering unchecked profit-margin erosion or risking damage to customer relationships from hitting them up to pay “surprise” bills after work was already performed. I call this “billing and ducking.” As someone who did it, too (once upon a time when I used to charge hourly rates), billing and ducking was exactly what it felt like to send that bill and hope beyond hope that they wouldn’t be upset, they’d just pay it. What a terrible way to feel (on both ends). And I knew it was a lousy way to do business and that it compromised my buyers’ trust in me when I did that.

The biggest difference between pseudo pre-pricing (with after-the-fact adjustments) and Advanced Pricing Methods℠ is that APM eliminates surprises. When price certainty is adhered to, customer trust is not only preserved, it increases.

I suspect that the ability to rely on a back-up plan of billing overages after the fact has led to an unfortunate skill deficit: most firms lack people with highly developed project-management skills—skills that start with really good project definition—which is the number one way to prevent scope creep. Great project management corrects much of that margin-erosion problem even if work isn’t priced in advance. And it becomes essential when the firm commits to absorbing overage risks instead of transferring the risk onto the buyer. It also improves communications for managing expectations, both with the customer and among your team members. APM will enhance your project management skills, too.

My Advanced Pricing Methods℠ teach:

  • How to ascertain the most valuable part of what you do
  • How to identify scope risks and head them off at the pass (leading to better project definition for better project management)
  • How and why to offer multiple price options instead of a single price
  • How to use your options as a key scope-management tool
  • How to anticipate and easily capture extra revenue for the additional work that arises
  • Why it’s advantageous to put your customers in control of their purchases

 

Is your firm ready for Advanced Pricing Methods℠? Some firms institutionalize it, and others pilot with an industry group or two. No two firms are the same. And lots of CPAs just want to learn the methods and “go rogue” practicing the techniques one proposal at a time.

Either way, let’s talk.