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FROM: NOV-DEC 2008 ISSUE | BY MARK WARDELL
What are the benefits of packaging services based on value rather than billable hours? How can I determine if commoditizing my services will be a lucrative option for my firm?
There are many benefits to offering value pricing. When it comes right down to it, what your clients really value are the benefits they receive from your work, not the number of hours you put into their file. So anything you can do to increase these benefits without significantly adding to your cost of services will allow you to increase your fees and grow your margins, all while making your clients happier.
A growing number of firms are recognizing the advantages of commoditization and considering ways to package aspects of their accounting services. Not everything can be easily packaged, but when it works, the advantages include a healthier bottom line for the firm and greater peace of mind for clients.
Value pricing can be structured in a variety of ways. Fixed price contracts can include bundled services, such as unlimited phone calls, tax returns, ongoing tax support, monthly financial statements, payroll services, etc. in a range of bundles for a monthly fee. When offering any type of bundled services, it is important to be extremely clear with clients about their options at the first meeting to ensure the scope of each job is fully understood and pre-approved.
Prince George-based Terlesky Braithwaite Janzen (TBJ) has found that offering value-based pricing has improved almost every aspect of their business. Says partner, Jeff A. Janzen, CGA: “We’ve found that by offering services based on value, we attract clients who are focused on the value of services, rather than being hung up on rates. We’ve never received a complaint about fees from clients who opt for fixed price value pricing contracts.”
Commoditizing services also allows a firm to increase its efficiencies by streamlining internal systems. In many cases a firm’s profit margins will increase dramatically as the firm develops new levels of systemization. After switching to value-based pricing, TBJ’s profit margins increased from 25 to 45 per cent. The firm achieved this by focusing on a variety of internal efficiencies. For example, Janzen and his partner developed an internal system to make 70 per cent of everyone’s work day chargeable, while ensuring that staff time was 100 per cent billable (recoverable). They set specific targets with each person, and rewarded each accomplished goal. The firm is now increasing efficiencies around file preparation by creating a system whereby files are error-free by the time they are reviewed.
Commoditizing services is far from the status quo in accounting. But it is often a better option than billable hours. Among the firms I’ve seen embrace it, value-based pricing has enabled them to become more systematic and profitable, with the ability to offer better client services – an excellent option for many firms and likely for yours as well.
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