Summary

Value-based pricing is a pricing strategy increasingly being adopted by accountants, where prices are set based on the perceived value of services provided rather than just the cost of delivering them. It involves understanding customer needs and preferences and setting a price that aligns with the value they expect to receive.

This pricing strategy can help reduce unexpected costs and fees while allowing firms to charge for the integrity of their work while better-managing client expectations. We discuss how this model can lead to greater revenue, payment risk mitigation, and better client relationships.

“The tax industry is the product of a necessary evil.”

When it comes to taxes, most people just want it done fast, they want it done right, and they don't want to think about it again, explains Edward Nisanov, a New York-based tax advisor with Nisanov Tax Group. And if taxes are non-negotiable, the accounting industry, then, is a necessary solution.

“For us tax professionals, to meet these expectations, we need to understand the client’s tax picture, obtain the correct documentation, provide an analysis and get to work,” states Nisanov.

A seasoned professional with 20+ years of experience in financial audit and taxation, Nisanov was always determined to deliver quality service to his clients. However, despite his firm's reputation for excellence, settling the bill became a constant struggle.

Even when Nisanov identified significant savings for his clients, the traditional pricing strategy failed to reflect their work's value.

It was clear that a new approach was needed to ensure that the firm's services were priced accurately and fairly.

That's when Nisanov turned to value-based pricing and discovered the key to client satisfaction.

So, what is value-based pricing? Let’s find out.

What is value-based pricing, and what are the benefits for accountants?

Value-based pricing involves setting prices based on the perceived value of the services provided rather than simply on the cost of delivering them.

Becoming increasingly popular among accountants, this pricing strategy involves understanding the customer’s needs and preferences and setting a price that aligns with the value they expect to receive.

By using value-based pricing, accountants can create contracts and installment plans that are agreed upon by both parties ahead of time. Payment can then be made either upfront or according to a predetermined schedule of values, such as progressive billing.

Either way, this pricing model helps reduce unexpected costs and fees while allowing your firm to charge for the integrity of your work. Calvin Widmore, Chief Finance Officer for Investing Basic Rules (IBR), an investment resource blog, shares his professional insights on the subject.

“When businesses use value-based pricing, they are able to charge more for their products and services. Customers are willing to pay more for something that provides more value to them.”

Thus, he explains, “offering more products and services for a higher package price is a great way to increase revenue.”

Which is exactly what many accountants are doing. Rather than waiting for tax season and a mad dash to the finish line, many accountants offer year-round services that help them better serve their clients, quash roadblocks as they arise, and round out their workload and income throughout the year.

Widmore explains that accountants, in particular, can benefit from using value-based pricing in their businesses.

“When prices are based on the value of the product or service to the customer, it is easier to justify the price to the customer.”

For example, rather than filing year-end taxes, clients might be willing to pay for packages that bundle services into a year package. Accountants can provide their clients with a comprehensive suite of financial services that can help make tax season smoother and less stressful.

Value-based pricing vs. Traditional hourly billing

When getting paid, hourly billing takes away from the quality or perceived “value” of the work. Instead, it pitches suppliers against each other, competing for the lowest price and encouraging slower work outputs (the faster you work, the fewer hours you can bill out).

Long hours, jam-packed deadlines, and all-out sprints followed by long periods of drought will test your budgeting department, if not your staff burnout rate. You may have to cut corners leading to a loss in the integrity of your work, loss in reputation, and burnout of your staff. Furthermore, you might be underselling your talent and missing the opportunity to raise your prices, product, and overall satisfaction internally and externally.

The tangible difference in value-based pricing is the emphasis on the customer’s perception of value rather than the cost of production or time required to provide the service (although the business may advocate for these costs in the price.)

Benefits of value-based pricing for your accounting practice

Below, we have listed some of the more interesting reasons many businesses, especially accounting firms, are making the swap:

Business benefits

Because value-based pricing allows the client to know the total cost upfront, and therefore the work is paid upfront or billed progressively, there are many resulting benefits including the following:

Value based-pricing mitigates the risk of late or defaulted payments (especially on large sums).
It lends sellers the ability to sell other add-on services to increase the overall value of the file
Work can be scheduled to be spread over the duration of the year (including slower seasons) instead of when it’s needed in peak season
For the reasons above, this helps a business assess their upcoming workload and resources and to predict their ability to handle more clients and take them on appropriately.

Client benefits

Smaller, recurring payments instead of a large lump sum value at the end
This makes it easier to budget for accounting services
A resulting better relationship with your business
Less unexpected costs caused by unexpected work or late submissions of documents
Quality accounting for their business throughout the year as you can typically bundle services that will help them streamline their operations and end-of-year tax season.

Considering the above, clients may be willing to pay more for such a package, knowing that their financial needs are being taken care of by a trusted professional.

“Customers are receptive to value-based pricing because it allows them to get more for their money. They are able to purchase the products and services that are most important to them, and they don’t have to worry about overspending on things that are not important,” explains Widmore.

A Look at the traditional accounting process and client expectations

As a business owner, accurate financial statements are crucial for tax compliance and internal metrics. From determining proper tax positions to calculating deductible expenses and payroll, the traditional accounting process is essential.

Typically, this involves an initial interview and review of prior tax returns to estimate a fee. However, billing for these services can be challenging.

For accounting support such as payroll and sales tax, fees are determined based on the number of bank accounts, monthly transactions, employees, and jurisdictional considerations. These fees are itemized separately and adjusted frequently based on changes in volume per quarter.

However, Nisanov explains that often, while reviewing financials or working on tax returns, his firm would uncover tax-saving opportunities that were previously overlooked.

While this is a positive opportunity, when presented to clients, along with ways to implement tax strategies to save money and build wealth, Nisanov and his team would also adjust the bill to reflect the additional work performed and savings presented. Despite the added value, some clients push back on the fee.

While the traditional accounting process is necessary, there seems to be a missing piece. Could there be a better way to determine fees that accurately reflect the value added by uncovering tax-saving opportunities and implementing tax strategies? It's a question worth considering.

Taking your practice from reactive to proactive

Nisanov began to notice a pattern taking hold: There were too many variables and the client would not know what to expect. There was push back and dissatisfaction despite a job well done. Although providing excellent service and going above and beyond for clients was always a priority, Nisanov explains this traditional approach to pricing was broken.

“Taking a step back and analyzing the current approach, a realization came to mind. I was not in the tax business, I was in the business of managing client’s expectations,” he explains.

I was not in the tax business, I was in the business of managing client’s expectations,” Edward Nisanov, Tax Advisor.

“Humans are creatures of comfort. We do not like surprises – correction, we do not like surprises that result in us spending more of our hard-earned money. We like to know what to expect when it comes to engaging a company to perform a service. But how can we, as tax and accounting professionals, provide this sense of security when there are so many variables to consider when working with someone?”

Value-based began to look like a better way to bill clients, reduce unexpected fees, and even bundle extra services together in a way that meant consistent income, a deeper scope of the job and workload, and rates that reflect the quality of a job well done, rather than the status.

Bundled services: The new tax trend

“We began to offer more thorough screening calls, which we call strategy sessions, with prospects in order to truly understand their tax and accounting picture, find what they really need and provide a solution – all within an hour. We ask the necessary questions to not only understand the complexity of their tax and accounting needs but also uncover applicable tax saving strategies that have not been implemented by their prior accountant.”

Based on the collected information, he says they will offer several options, including tax planning, tax advisory, and client accounting services (depending on their needs).

Instead of an a la carte pricing methodology, he explains that bundled packages provide concise service offerings that fit the client’s needs.

Nisanov explains that when it comes to client accounting or tax advisory services, the monthly fee presented to the client is a reliable estimate of their ongoing costs. However, if there are changes in the scope of work due to business growth or contraction, the fee will be adjusted accordingly to reflect the new level of services required.

“The client has clear expectations of deliverables as well as an understanding of the investment to work with us on an ongoing basis. Contracts are for a 12-month period, so they have peace of mind when it comes to their cash flow. From the firm’s perspective, we have a better grasp on our cash flow and can budget accordingly for staff, education, equipment, etcetera.”

Nisanov explains that by combining services into a limited number of packages, his firm is even able to pick out and recognize a higher customer lifetime value, for example.

How to bundle accounting and tax services

Bookkeeping Services: Offer monthly bookkeeping services to clients to ensure that their financial records are organized, accurate and up-to-date throughout the year while preventing last-minute scrambling during tax season.

Tax Planning and preparation: Provide clients with tax planning advice throughout the year to help them minimize their tax liability and optimize their tax savings. With project scoping and year-round packages, you can avoid surprises during tax season and help clients plan ahead.

Payroll Processing: Many small business owners struggle with managing payroll. You can bundle in payroll processing service as part of their year package to make it easier for them to pay their employees on time and comply with tax laws.

Financial Analysis: Provide clients with regular financial analysis and reporting to help them make informed business decisions. Pro tip: This is a great way to spot those potential tax-saving opportunities your clients will love. Consider presenting previous client portfolios where this service has paid off when you are pitching this add-on.

Document or invoice management: Offer clients a secure invoice management system or CRM system to help them keep track of all their financial documents throughout the year. This could include providing clients with training to help them better manage their finances and prevent any errors or inconsistencies that may arise during tax season.

4 steps to making the switch to value based pricing

Here are 4 ways a business, whether retail or accounting, can make the switch to value based pricing.

Offer multiple pricing options

Consider offering multiple pricing options that cater to different customer segments. For example, you could offer a basic package for customers who are price-sensitive, a premium package for customers who value quality and convenience, and a middle-tier option for those who want a balance of both.

Focus on value, not just cost

Shift your focus from cost to value. Instead of simply charging based on the time or materials required to complete a project, consider the value you are delivering to your customer. This could include factors such as convenience, quality, or speed of delivery.

Communicate the value you offer

Communicate the value you offer clearly to your customers. This could include testimonials, case studies, or other evidence that demonstrates the impact that your product or service has had on previous customers.

Continuously assess and adjust your pricing strategy

Finally, continuously assess and adjust your pricing strategy based on feedback from your customers and changes in the market. This will help you to stay competitive and ensure that your pricing remains aligned with the value you offer.

Is value-based pricing a better solution for accounting services?

Value-based pricing is the latest buzz in the accounting industry, with an increasing number of accountants adopting this pricing strategy. Instead of charging clients based on the cost of delivering the services, value-based pricing involves setting prices based on the perceived value of the services provided.

This approach aligns with the client's needs and preferences and allows accountants to create payment plans that reduce unexpected costs and fees, increase revenue and payment risk mitigation, and create better client relationships.

By offering year-round services, bundled packages, and add-on services, accounting firms can provide their clients with quality accounting throughout the year, mitigating the stress of tax season. This pricing model benefits both the clients and accounting firms by providing a better relationship and quality services.