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Value Pricing and Why It Matters for Your Firm

Gusto Editors  
Woman sitting across from client a female client discussing value pricing options

Do you know how to determine the value price of your services?

Strategically determining your firm’s value price is crucial for your success. If you price your services too low, you’re not optimizing your revenue stream, and if your prices are too high, you’ll have difficulty retaining and gaining clients. tTo succeed in the market, you need to find your firm’s optimal price. 

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Fortunately, Gusto, along with our partners at CPA Academy, presented an informative webinar all about value pricing titled “Value Pricing: Dividing the Accounting Profession for 25 Years.” You can watch the full webinar here

After reading this article, Part One, be sure to check out Part Two of the webinar article series, where you’ll learn more about value pricing and the steps you need to take to value price your services. 

In this part,  you’ll learn from Comedy CPE Founder Greg Kyte and Gusto’s Editor-at-Large Caleb Newquist about the importance of value pricing your firm’s services. Greg and Caleb will teach you all about why you shouldn’t let time determine your price, what to consider when evaluating your value price, and the importance of making your clients feel like they are profiting from your services. It’s practical advice for determining your firm’s value price, so read on.

Don’t let time determine your price

When establishing your firm’s prices, consider the result over the amount of time your services take. Your services might not take a great deal of time, but if they’re of significant value to your clients, they’ll still be willing to pay high fees. Greg observed that clients care about the quality outcome over the amount of billed time it will take your firm: 

“All they care about is the outcome. That’s what they’re paying you for. … Ultimately, what people are paying for is the result — not for the amount of time it [takes] to go to the result.”

Greg Kyte

Consider the work you’re doing for your clients rather than the amount of time it takes you. One commonplace example illustrating this concept is how you bill your client the first year they use your services. You might offer your new clients a discounted rate to obtain their business. The first year you’re working with them will require more time, but you’re charging them less than the second year as an incentive. You’re not charging them based on the amount of time it takes for you to do their taxes but on the quality of work you’re doing: 

“The second year you do that tax return, you just roll over all the information from the last year, and you confirm with your client what information has changed. It’s way easier to do the second tax return than it is to do the first year tax return. … Does that mean you should charge people less for the second year that they’re at your firm? No. … You should be charging them more because you’ve hopefully gotten to know them and their business, and [you] get more insight into what they’re doing and how to save them money on their taxes by the second year.”

Greg Kyte
Male hand with palming facing up holding a vintage stop watch

In Greg’s example, even though you’re spending significantly less time on your client’s taxes in the second year you’re working with them, you should charge more money because of your services’ quality and value. Evaluate your services based on quality and value rather than time.

Determining your value price

So how do you determine the value of your services? 

You need to consider the economic and subjective value when calculating your value price, and ultimately, you should estimate the maximum price that a customer is willing to pay for your services:

“We can look at economic value. We can look at subjective value. They’re interrelated these two things. … A value price is the maximum price the customer will pay for a specific outcome.”

Greg Kyte

Your value price is the maximum amount that a customer will pay for the result of your services, and you need to consider your services’ economic and subjective value when determining your value price. To calculate the economic value of your services, determine the amount of money that you’re saving your client: 

‘If you charge a customer $10,000, and from the work that you do, you’re able to save them $50,000, then that customer just made $40,000 profit on that transaction. … That’s the economic value. Not all value is just going to be economic. There’s non-economic subjective value that you have to worry about as well.”

Greg Kyte

Clients have subjective values that you need to consider. One common example of subjective value is the feeling of security. Some clients feel more secure using CPAs over corporate tax services like H&R Block and Liberty Tax, so they’re willing to pay more for that subjective value. 

Some forms of subjective value may actually contradict economic value. Greg recounted a case in which a business stopped doing their taxes with an accounting firm because the business owner wanted to receive a tax refund:

Woman siting at desk with clothing behind smiling while working on her computer

“[The accounting firm was] trying to make his taxes as low as possible. They’re trying to send in as little estimated taxes to just cover the amount. … They’re trying to get to that exact balance. But this guy’s bouncing out, and he says, ‘I’m going to another firm because I’m sick and tired of never getting a refund.’ They’re like, … ‘Economically, the best thing for you is for us to hit that exact equilibrium where what we send in [is the correct amount].’ He’s like, ‘For once in my life, I want a refund from the government.”

Greg Kyte

The business owner’s desired subjective value won over economic value because he wanted a tax refund more than his maximum savings. You need to be aware of what your clients value because it may differ from rational economics. When establishing your firm’s prices, consider both the economic value and subjective value your services provide your clients. 

Customers should feel like they’re profiting from your services 

When calculating your price, you need to determine the maximum amount customers are willing to pay for your services, but customers also need to feel like they’re benefitting from the transaction: 

“Both parties, the person receiving the service and the person providing the service, have to feel like they’re winning.”

Caleb Newquist 

If you offer quality services, you’re benefiting your clients economically by helping them make or save more money, but your clients need to recognize that they’re profiting from using your services. Otherwise, they’ll take their business elsewhere: 

“Your customer must earn a profit on this transaction. … They at least have to look at the stack of money they’re giving you and go, ‘What I’m getting is more important than this. … If I thought the money was more valuable than what you’re doing, you’re not going to get my money. But I feel like it’s more valuable, so I’m going to give you the money to get the other thing.’ That’s an indication—if they’re willing to have the transaction, that means that there’s customer profit.”

Greg Kyte

Your clients will be willing to pay a high price if they recognize that they’re still profiting from your services. When determining your value price, you need to find your rate’s sweet spot—you need to find the maximum price a customer is willing to pay, but you can’t exceed that price, or you’ll lose their business: 

“[Value pricing is] more of an art form. It’s aspirational. … It’s kind of like The Price Is Right because you want to get as close to the maximum amount that a customer is willing to pay, but you can’t go over. … If you go over, you’re out of the game. They’re going to go, ‘No, that’s ridiculous. I’m going to go find somebody else.’

Greg Kyte

You need to accurately determine your value price to get the most revenue for your firm while also gaining and retaining clients. If you undervalue your worth, you’re leaving money on the table that could go towards expanding your firm, but overvaluing your price will dissuade potential customers from using your services. It’s crucial that you find your exact value price and get the most out of your firm’s services. 

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Learn more about value pricing 

If you’re ready to learn more about value pricing and value-based pricing strategies, check out Part Two of this webinar article series. You can also watch the full webinar here

Determining your services’ value price is critical for your firm’s wellbeing, and a great way that you can further support that wellbeing is by joining Gusto’s partner program! With our partner program, you’ll receive invaluable support for your firm, and you’ll even get a dedicated partner advisor. You’ll also get free payroll and HR tools, and as you continue using Gusto and add more clients, you’ll receive a listing in our partner directory and access to VIP support. If you’re ready to grow your firm and increase your value price, join our partner program here

Updated: August 17, 2021

Gusto Editors
Gusto Editors
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