Pricing Psychology

Are Your Pricing Methods Undermining Profitability?

A man looks through a microscope at a dollar sign.Determining how much to charge for services can be the most difficult challenge accountants and bookkeepers face. Most use a “reverse competition” method of pricing which sets an hourly rate based on what competitors charge and where business owners would like to fit into that spectrum. Many accountants and bookkeepers are drawn to mid-range prices; they don’t want to be the most expensive, nor do they want to be the least expensive. Unfortunately, they don’t realize that this mid-range approach does nothing to differentiate them from the competition. In fact, that mid-range position puts them in competition with everyone below, above, and equal to their price-range, a place most business owners wouldn’t want to be.

Quality, Service, Price

All businesses offer some combination of quality, service, and price. These days quality is a given. It’s the ante required to run a business. All accountants and bookkeepers offer quality service, or at least claim to. Can you imagine a marketing campaign that offered quality options? “Low quality bookkeeping for a low price?” Or perhaps, “When quality doesn’t matter, you can count on us to get your accounting done quick and cheap.” Anyone looking for an accountant expects quality work so it’s difficult to set yourself apart by the quality work you do.Service does set businesses apart. You can go to an accountant who does quality work but is poor at customer service. Customers value being treated well, and to many a higher price implies better service. Offer exemplary customer service and set the bar high, in many cases beating your competition.While some customers will always resist price, regardless of how high or low it may be, most people expect that paying more will get them a better product in the end. Most customers expect a reduction in quality and service when encountering discounted prices. So if you’re trying to offer the cheapest accounting prices around, chances are many expect your services to be “cheap” as well. This pricing method generally doesn’t get accountants the business they want and sets a low bar, making it difficult to raise rates and expectations.

Do You Really Want to Function Hourly?

As a business provider, you possess the most leverage before performing a service for a customer; the customer has the greatest leverage after the service has already been performed. This is the best time to present your customer with a price estimate. This is also the time when a customer will display price resistance. You can, at this point, explain the value of your services, generally dispelling the resistance. If a potential client continues to resist the price estimate, we suggest that rather than reduce your rate in order to eliminate the resistance you discontinue the relationship and eliminate the potential client. Chances are this client would also resist paying the bill later.Many accountants and bookkeepers charge hourly, which limits their earning potential and makes it difficult to raise that hourly rate once it’s set. Another option is to charge by job or project. This allows you to set the price when you have the most leverage. Many find that clients appreciate the work involved and see the bigger picture of accounting and how it benefits their business when approached this way.

Charge According to Value

As you set your prices based on the value you provide to a potential client, you’ll find that you’re attracting clients who appreciate the work you do and are willing to pay the respective fees. Avoid setting low prices in order to attract more customers; you may discover that this not only lowers your profitability but it attracts clients you would rather not work with. The true psychology of pricing often requires that the accountant and bookkeeper first recognize just how valuable their services are. Once that is established, setting prices becomes much easier.