If you’re an accountant or bookkeeper who provides client services, you’ve probably heard of fixed pricing. Perhaps you’ve already taken steps to roll out fixed fees to your clients as you’ve adopted cloud accounting technology.
Regardless of what stage your firm is at with fixed fees and value-based pricing, the fact is that more and more accounting practices are rolling out this type of pricing model, and you and your clients likely have some lingering questions.
Without further ado, here are some basic questions and answers to help you navigate the realm of fixed pricing like a pro.
What is fixed pricing?
A fixed pricing model is one in which a client pays a set amount for their accounting or bookkeeping services. Prices are determined by the accountant based on a number of factors, one of which is the perceived value of the service.
Fixed pricing is best understood when compared to hourly billing, which has long been the reigning best practice for how accountants and bookkeepers charge their clients. However, thanks to developments in cloud technology, billing best practices have shifted to better reflect the increased efficiency and value that accountants can provide with their services.
What are the advantages of fixed pricing over hourly billing?
Hourly billing is quickly becoming a thing of the past. This is happening for a few reasons:
Cloud accounting applications are enabling accountants and bookkeepers to generate financial data in near real-time. The shift to the cloud is enabling accountants and bookkeepers to work faster and generate more insights anytime, all year round.
Hourly billing incentivizes the amount of time you put into your clients’ work, as opposed to the quality and value of the work.
In turn, your clients are focused on the cost of your time instead of the value-add of your work.
Clients don’t like being surprised by unexpected billed hours – they’d prefer to know what the cost of your service is upfront.
A recent survey by The Sleeter Group found that 85% of SMBs want strategic advice from their accountant, but only 24% say they actually receive strategic advice. Clients want their accountant to be more than a number cruncher – they want them to be a strategic advisor.
Think of the switch to fixed pricing as a step in the direction to forging a strategic partnership. With less of a focus on issues such as, “How much time is this hourlong meeting costing me?”, your relationship with your clients (and their business results) will vastly improve.
What are the benefits of fixed pricing?
Both accountants/bookkeepers and their clients benefit from fixed fee pricing. As indicated above, fixed pricing shifts the focus of your relationship from the number of hours spent on your services to the progress that’s made and the value that’s added.
Some of the fixed pricing benefits that clients will experience include:
- Better service at a similar cost
- Recurring services delivered at a higher standard
- Increased confidence in their accountant as a trusted advisor
Some of the benefits that accountants and bookkeepers will experience include:
- The ability to provide more efficient services with higher profits
- More opportunities for value-priced projects
- Decreased concern for billable hours
- The ability to scale their practice
As a result, fixed pricing helps to transform the client-vendor relationship from transactional to strategic.
What does a fixed fee pricing model actually look like?
Building a fixed pricing model involves bundling recurring and nonrecurring services, and determining a time/cost baseline for each service.
At a very high level, this process will involve:
- Performing a cohort analysis and determining the commonalities in the services you provide to your clients (e.g., the basics – financial statements, tax returns, etc.).
- Using cohort data to determine your core services and calculate baseline pricing.
- Researching your competitors to ensure you’re not overpricing your services.
- Developing a standard tech stack and workflow.
- Regularly reviewing your service packages and systems to ensure that everything is working optimally.
Of course, there are a number of other factors to take into consideration (including the types of clients you service, tiered pricing options, and so on). It’s up to you to decide what will work best for your firm and your clients.
For an in-depth look at this process, watch our webinar: How to Successfully Build & Implement a Fixed Fee Pricing Plan at Your Practice.
What’s the difference between fixed pricing and value-based pricing?
Value-based pricing is often referred to in conjunction with fixed fee pricing. Like fixed pricing, value-based pricing is a pricing model that sets the cost of a service based on the perceived benefits it will provide to clients.
As such, there isn’t a huge difference between fixed pricing and value-based pricing. Value-based pricing is often thought to be less scalable than fixed pricing since it’s often implemented for particular services or unique client needs, resulting in higher pricing variability. It’s not uncommon for accounting and bookkeeping firms to implement a hybrid pricing model that utilizes both fixed fees and value pricing.
When should I implement fixed fee pricing?
Yesterday! Kidding. (Sort of.) The truth is, there’s no perfect time or “stage” that your firm must reach to justify the implementation of fixed fees.
However, there are a few steps you should take before introducing fixed pricing to your clients:
Conduct regular check-ins with your clients. Ensure your clients are happy with the value you’re providing – regularly evaluate your working relationship to understand where value can be added.
Understand your clients' pain points. You must gain a thorough understanding of each of your clients' business problems before introducing a pricing change.
Proactively provide advice and direction to your clients. Doing so will help demonstrate the value you provide to your client’s business.
Build trust, show you deeply care, and demonstrate your value to them as a partner before springing the change on them.
What should I tell my clients when transitioning to a fixed pricing model?
Unfortunately, there’s no avoiding the tough conversations you’ll have to have with some of your clients when updating your pricing. It’s important to prepare for these conversations and be aware of the tactics you can use to create a comfortable environment and defuse tension.
For these conversations about pricing, it’s also important to be prepared to handle objections from your clients, such as, “This solution is more expensive”, or maybe, “The current hourly plan is working for me, why do I need to change?”.
Take a look at our blog post, How to Have Tough Conversations with Clients About the Switch from Hourly Billing to Fixed Fees, for tips on how to speak to these types of objections
What’s the best way to transition clients to a fixed fee pricing model?
We would recommend rolling out your new pricing on a client-by-client basis, or with groups of clients (as opposed to all at once).
Jelena Arkula of Books LA found that her transition to value-based pricing was a learning experience:
The transition was a learning curve. Although we wanted to switch all of our clients to value-based pricing right away, the reality was that our first value-based client was actually a brand new client. At the beginning, we offered two choices – value-based and hourly – but very soon we revoked the hourly and offered only value-based pricing.
Before you officially make the switch, qualify clients for your value-based pricing model. Consider their attitude toward fixed pricing, new technology, and change. Most importantly, consider their business needs and understand their most pressing business issues.
Fixed pricing will likely be a better solution for meeting both your firm's and your clients’ business needs; however, it’s important to stress once again that this transition cannot happen successfully without cultivating your business partnership first.
Any other tips for switching from hourly billing to fixed pricing?
Of course! Check out the following helpful resources:
- 3 Strategies for Raising Prices and Creating More Value for Clients
- Advice from Cloud Accounting Leaders: How to Transition from Hourly Billing to Value + Fixed Pricing
- 3 Steps That Will Make Your Transition from Hourly Billing to Fixed Fees a Success
Learn how to implement a fixed fee pricing plan – watch our webinar with Practice Ignition's Trent McLaren, How to Successfully Build & Implement a Fixed Fee Pricing Plan at Your Practice.
About the Author
Victoria is the Content Marketing Manager at Hubdoc. She is a graduate of the University of Toronto's Semiotics and Communication Theory program and has 5+ years of experience in digital marketing. She appreciates a fun pun and is always looking for a good book to read.Follow on Twitter More Content by Victoria Hoffman