Many bookkeepers struggle with staying profitable, and it's often due to how they price their services. This problem stems from clinging to a faulty pricing model. Here's how you can change it for the better.
Pricing is the most important element in your profit equation. If you get it right, your profit will soar. But get it wrong and you'll end up with a loss. Unfortunately, many accountants and bookkeepers struggle with this crucial business element. That's why we need the help of experts in the field.
Luckily, we've found just the man for the job.
Mark Wickersham is an expert in profit improvement and effective pricing. He comes from the U.K. and is a chartered accountant, public speaker, and successful author.
He became renowned for helping bookkeeping companies boost their financial state. And the companies he helped saw their profits double in less than a year and a half, which is a fantastic feat in itself. The best part was that Mark helped them get those results without burdening their workload or marketing budgets.
The method Mark used to improve profits stems from a better way of pricing he discovered. He found out that there were two mistakes most bookkeepers and accountants make regarding their pricing. Then, Mark found the ideal solution to avoid those mistakes.
In this article, we'll share what the two common pitfalls are and explain how you, too, can get your price right and get your profits moving upward.
The Two Mistakes
Bookkeepers and accountants usually get things wrong in their businesses through no fault of their own. Instead, the reason why certain critical mistakes happen is that nobody's ever taught us to do things differently.
Regardless of the cause, the fact is that we make mistakes – and we need to fix them.
In terms of pricing, the issue comes down to two things:
- Quoting hourly rates
- Selling too cheap
When we quote an hourly rate, we're already putting ourselves into a problematic situation, and it's due to the psychology around the issue.
You see, we don't really know the price of anything. In fact, prices are nothing more than arbitrary numbers – there's no science behind them. This applies to everyone, including you and your customers.
When your client hears your quote, they'll immediately try to make some sense out of it, and it'll happen subconsciously.
But how do we gauge a price?
It's relatively straightforward:
We make a comparison.
By comparing one price to the other, we're trying to estimate whether the one in front of us is fair, low, or too expensive. That's precisely what your clients will do. And that's when the trouble starts.
When you quote your hourly rate, you'll have no control over what the client's comparing it to. However, one thing is almost guaranteed: the comparison they make will never be favorable.
Your client will think about the hourly rates they pay their secretary, house cleaner, or gardener. Of course, since those rates are lower than yours, the client will think you're expensive.
And there's another reason why they might believe that’s the case.
It’s because hourly rates have no inherent value. Nobody wants to buy an hour of their bookkeeper's time, and no person on earth wakes up in the morning excited that they'll spend an hour with their accountant.
People want to buy a solution to their problems, not our time.
Now, the second great mistake comes right after you've quoted your price.
Bookkeepers who charge by the hour often expect that the client will think their price is too high. So, out of fear of losing a customer, they tend to give a price that the client will hopefully agree on.
In most cases, that price is much lower than what the service is worth.
In fact, if the customer says Yes to the first price you quote, you can be sure that you've undersold and left money on the table.
You might've noticed that both mistakes stem from a common source, and it's charging by the hour. Luckily, there's a solution to these issues.
And it lies in changing your pricing system.
As stated above, people aren't buying your time, but rather solutions. Your clients are willing to pay for your knowledge, results, and the value you provide. And that's how you should price your service.
The solution to the problems hindering your profit is to switch from an hour-based to a value-based pricing model.
Determining your price in the new model might present something of a challenge. That’s why Mark proposes finding the right price by going through three phases:
All three phases refer to the value you provide.
Uncovering means understanding the client's goals, wishes, and pain points. In this phase, you start formulating the solution and positioning it with respect to the client's needs.
Building your value is when you quantify what you provide to the client. This is a particularly challenging step, as it's subjective and relies on your judgment.
Finally, capturing value comes after you've got a clear idea of what your value is worth in terms of pricing.
The point of this process is to come to terms with the client regarding your service and get them to understand how essential your work is for their business.
Price Your Work the Right Way
If you've thought that changing your pricing model looks daunting or that it won't work for you, there's one thing you should remember:
Switching to value-based pricing isn't something to just consider working on. It's the only thing you should be thinking about in your business right now. So, invest the time and effort to figure out your pricing. It will lead to a more profitable business, and you'll start getting better clients.
Charging by value is the one decision you'll make that will completely change your life.
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