Kick familiar to the curb and get paid what you’re worth.
By Jody Padar
Radical Pricing – By The Radical CPA
The familiar is always more comfortable than something new. Shifting your pricing model is bound to be disruptive because the billable hour is what we know and have always known. It is the default billing model of every new firm. It’s comfortable, familiar, embedded in our DNA and seems like the easiest billing solution.
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Certainly, there are some pros to billing by the hour. Profits remain relatively stable. If you work 40 hours, you know you’re going to bill and hopefully be paid for those 40 hours. There’s a clarity and certainty to it. But there are only so many hours in a week. By embracing the billable hour, you’re putting a profit ceiling on your firm.
Adherence to the billable hour also binds you to a traditional business model in a business world more dependent on progress than tradition. You risk becoming a dinosaur in a world filled with gazelles.
Modern accounting automation is also complex to account for in firms bound to traditional business models and the billable hour. There’s no compensation for the lift in productivity. Suddenly, your staff will accomplish more every hour, yet the value of their work will be less. Modernizing and embracing technology makes you more productive but less profitable if you remain tethered to compliance services and the billable hour.
As technology and value shift emphasis away from compliance work, firms must embrace up-front and value pricing to remain competitive and profitable. In fact, moving to value pricing and shifting emphasis to advisory and consultative services, which clients value more than compliance, unlocks tremendous profit potential by pricing for the value you provide regardless of hours.
The further away you get from the billable hour, the more your actual value shines through.
Moving to value pricing and shifting the client conversation toward what they perceive as valuable to them also shifts the emphasis from cost to value. The focus shifts to the client and what they want and need. Cost is now expressed in terms of the value they receive. They are placed exactly where they should be, at the center of all your thinking.
If this is a disruption, bring it on!
Scoping out the work involved in delivering any product or service is the most significant disruption when moving to an up-front pricing model. You’ll have to sit down and define what you must do and what you will deliver. In short, you have to systematize and productize what you offer, how you get it done and for whom you’re willing to do it.
Scoping is about more than defining a particular project or engagement. It’s also about assessing your clients, including what they need and want from you, which is often more than they are asking for.
The goal is alignment, knowing that you and the client are right for each other. Once you’ve determined alignment, you’ll need to analyze client needs and decide what’s most important to them. If you focus on delivering those values, you will delight the client and get the best value out of your partnership.
Delivering what clients value leads to greater profitability because you can now adjust client service levels and develop niche services in line with what they value.
You may not be able to increase the number of hours in a week, but you can always add knowledge, expertise and value.
