Are you pricing your accounting services appropriately?
The way you price your firm’s work directly impacts your likelihood of growing your business. You need to be strategic when establishing your price, and you need to justify your price to your clients.
Gusto, along with our partners at CPA Academy, delivered a great webinar all about pricing strategies titled “Pricing Strategies for Accountants: There’s So Much More Than the Billable Hour.” You can watch the full webinar here. It featured the accounting and pricing expertise of Greg Kyte, founder of Comedy CPE, and Caleb Newquist, Editor-at-Large at Gusto.
In this article, we cover value pricing, establishing a narrative around your price, giving service variations, and how prices affect consumers psychologically. You’re going to learn a great deal of strategic pricing advice that you can apply to your firm, so let’s get started.
Value pricing your accounting services
When offering different accounting services for your clients, it’s crucial that your firm evaluates your value price.
But what is “value price,” exactly? Greg Kyte cited a helpful definition from author Rafi Mohammed:
“[Rafi Mohammed] says, ‘You got to start by determining what your value price is for the services that you offer. The way to do that is you look at the next best alternative.’ … The first one is you need to know what the next best alternative charges, and you also have to know … how you’re different from those other options that people have.”– Greg Kyte
You need to determine your value price by evaluating people’s alternative options to your service and how your service differs. Greg used the example of utilizing popular tax preparation companies like H&R Block and Liberty Tax. He used each service for different tax years and found that it was more expensive than using a CPA, and the tax “experts” at H&R Block and Liberty Tax made simple mistakes:
“It was amazing how badly they screwed up my taxes. … We don’t make those kinds of mistakes, and here’s why: We have multiple reviews. We have checklists that we go through. Obviously, those checklists weren’t followed there. Whatever you have to do to be able to talk about [your value price,] there needs to be a narrative for the pricing that you have.”– Greg Kyte
Knowing your competition’s price and weaknesses is a key way to value your services and develop a narrative around your price. A CPA firm could charge more than H&R Block and tell customers, for example, that their price differs because they’re more thorough and can get customers a larger refund.
“If you say, ‘Here’s what differentiates us from other people. … All of our returns are prepared by licensed CPAs, and we have extensive training. … That’s why we charge more because we’re going to do the math right, and we’re going to find you the deductions that you deserve.’ … That can actually go both ways. You can say … ‘We give you the same quality, but we can get you a lower price.’ That’s also a narrative. [It] doesn’t matter if [the price is] up or it’s down.”– Greg Kyte
Developing a narrative around your price and services is a crucial part of gaining clients. Whether you’re charging more than the average CPA or less, everyone in your firm needs to be prepared to tell the story around your pricing to win clients.
Give customers variations of your services
After establishing the narrative around your price, you need to develop different options to offer your customers:
“The next thing which is a huge strategy for this is offering variations. … Giving your customer a menu of options that they can choose from to retain your services. … Pricing options are ways to not to leave money on the table.”– Greg Kyte
Offering variations of your services is a great way to make additional revenue from clients. A common way of doing this is offering audit protection as a bonus service that clients can pay for. When offering bonus services, not only will you make additional revenue, but you also provide services that customers may want and would seek elsewhere:
“Some of your customers … would love to pay you $250 … for your audit protection program. They would love to give that to you because the peace of mind they get from that is worth way more than the money they’re parting from. … There are people who might even look elsewhere to providers who would offer that if you don’t offer it.”– Greg Kyte
In addition to adding on to your traditional price, you can offer clients options for lowering the price:
“If you say, ‘Okay, $683.75 is too much for you. What if we did it for $550, but you have to get everything in this tax planner? Here’s your annual tax plan. … If you can get me everything that I need in that tax planner by January 5th, I will do it for $550.’… [Or] ‘We can do $550, but we’re going to file an extension for you, and we may or may not get your taxes filed before April 15th.”– Greg Kyte
Reducing your price by offering alternative options is another great way to gain and keep clients.
You’re more likely to gain a client when you offer variations of your services, especially if you offer three different options. Clients stop comparing you to your competitors when you give options:
“In terms of what the research shows, that’s the ideal thing, [to] give people three options. … [Clients are] going to compare you against you. They’re going to say, ‘Okay, so these are my three different options. Which one makes the most sense to me?’ Psychologically, a lot of times you get to capture business just because you offer three options and they feel they have more power and control over the decision because you gave them a decision to make.”– Greg Kyte
Although offering variations of your service is a great way to value your prices and gain clients, it’s essential that you avoid contingency fees, meaning that you receive payment based on the amount of the return. Charging different prices based on the quality of your accounting work undermines the validity of your tax services:
“In the accounting profession, [contingency fees are] frowned upon. Because again, you don’t want to say, ‘Hey, if you get an unqualified opinion [it’s] going to cost you this much, and a qualified opinion is going to cost you this much, and the adverse of this is going to cost you.’ That erodes the entire thing of assurance work— same with tax work.”– Greg Kyte
When you offer different fees based on your tax services’ quality, you’re potentially undermining your reputation. You’re essentially saying that you will offer low-quality tax work for a lower price.
Bottom line: Provide your customers with three different options that affect your price, but don’t charge contingency fees.
The psychological effects of pricing
The price of your services affects how clients perceive your work. Caleb Newquist observed that prices can sometimes trick consumers:
“When you think about stuff that is $1.99 at the grocery store, you say, ‘Oh, it’s $1.99.’ And for whatever reason, our brains trick us into thinking, ‘Oh, it’s closer to $1 than actually $2,’ when that’s obviously not the case. It’s obviously closer to the two versus one.”– Caleb Newquist
Prices can influence the way consumers and potential clients view products and services. But unlike grocery shopping pricing, you should set your prices higher for professional services:
“High prices signal higher value. When you have a professional service, and that price is $10,000, people’s brains automatically go, … ‘This must be a very valuable service.”– Caleb Newquist
Establishing a high price suggests that customers will receive quality services. Potential clients may be less inclined to pick inexpensive professional services because it could indicate low-value work:
“Low prices, for better [or] worse, they also signal a low value. It’s like, ‘This only costs 100 bucks. Is it not that valuable?’ … The psychological effect[s] of those things are real. That’s an important thing to keep in mind when you are pricing these things.”– Caleb Newquist
If you offer your accounting services at a lower cost than other accountants, people could assume that you’re offering lower-quality work. Setting your prices higher infers that you offer high-quality work, and it motivates you to provide high-quality accounting services:
“If your prices are high, that’s going to signal a high value. … High prices are [also] going to force you to be an amazing accountant because you have to justify those prices because you want them to come back next year.”– Greg Kyte
Think about the psychological implications when establishing the price of your services. Remember that setting high prices will set an expectation, , and you will have to meet your client’s expectations to justify your price.
Learn more about accountant pricing strategies
The prices of your services and the options you offer can affect your ability to sign on and maintain clients. Establish your value price by comparing your services to others and develop a narrative around why people should work with your firm. Offer prospects three price options so that you can give them more control when making a decision. Finally, remember that high prices may also set high expectations, meaning that clients will want high-quality services.
An effective way to add value to your accounting services today is to sign up for Gusto’s People Advisory services. Through People Advisory Certification, you’ll learn valuable tools and consulting services that you can offer your clients, like payroll, benefits, and HR. If you’re ready to add more value to your accounting firm, sign up for Gusto People Advisory here.