How do you gauge how much to charge for the services that your accountancy practice offers?
If you want to make a profit, then it’s no time to be modest in talking about money and what your worth is, or worry that raising fees might turn off new or existing clients.
Maybe you’ve just got started and have no idea how to set your prices, or perhaps you’ve charged the same fees for years and don’t know how to re-assess and recalculate your value.
Either way, besides market rates, inflation, and geography, there are many factors for you to consider.
And in this article, we’re here to give you a formula of sorts to make it easier.
Here’s what we cover:
What to consider when pricing your accountancy practice services
There are three considerations to make when creating or adjusting your pricing strategy.
- How your price compares with competitor services
- The value of your services to clients
- Your brand image
Your first move is to research what your competitors charge and gauge where you are in comparison. Everyone has a different strategy, and it will inspire yours.
Some practices market themselves as a more affordable option to undercut local and online competition.
Ask yourself—are accountancy practices local to you much cheaper than you want to charge? Can you compete with aggressive pricing, or would you prefer to project an image of cost equals quality?
If you find that practices are more expensive than you and cater for larger, more established businesses, it can give you the confidence to raise your prices to equal the market rate.
Alternatively, you could set your prices slightly below theirs and position your practice as more accessible—mopping up an untapped demographic of lower earners.
Another idea is to target self-employed individuals who don’t have the cash flow for pricey services, creating a fixed fee for a package of basic ones, making it clear that a lower price point doesn’t scrimp on quality.
Ultimately, this is about your practice and not worrying too much about what others are doing. It all leads you to think about your value—what do you offer to clients that no one else does?
So, what services do you offer?
Make a list and decide how these things affect your pricing model. You probably want to charge more if you offer exceptional customer service and go above and beyond.
Be transparent about why you are more costly.
If you’re brilliant at advising on how to scale up, then advertise that fact and use it to justify a fee that represents an investment in an entrepreneur’s future.
Sit back and get some perspective on your current client base, what they want, and what they currently pay for. If you’re just setting up, think about those you want to attract.
You could have a tiered service model, for example, charging a premium fee for more time-consuming analysis, forecasting and consultation, and a lesser fee to get up and running.
Finally, marketing success could influence your prices. Pricing is interlinked with your ability to persuade clients you can help them. Thanks to the internet, they have many options.
A comprehensive website professionally listing all your services, with informative testimonials and five-star ratings, gives the impression you’re worth more than if you had a website doing the bare minimum with no social media presence.
Your challenge is to stand out from the crowd.
Be creative and experiment to see what works. Once you know where you sit in the market, you can figure out your fee structure.
How to set up a fee structure
Look at how your market research and ideas about costing translate into an identifiable and easy-to-explain-to-clients fee structure.
Do you have to choose one type of pricing or mix them up? It’s up to you.
Time-based billing or fixed pricing?
Historically, it’s common for practices to charge by the hour, making it easy to calculate fees by tracking every 60 minutes spent on the work.
Today, clients generally expect a fixed fee for accountancy and bookkeeping tasks, and the model goes hand in hand with the now-widespread use of cloud accounting software.
The time it takes to automate a VAT return or Self Assessment tax return won’t change much between clients, so charging a fixed fee for this service makes sense.
Sending tax returns digitally due to the introduction of Making Tax Digital (MTD) will only increase this trend.
Here’s why fixed pricing tends to have the upper hand over hourly rates:
- A price confirmed up front is easy to manage
- You don’t have to race against the clock
- Fixed prices reward efficiency since clients pay for your actual service rather than the time it takes to produce it
- You can price your abilities based on your knowledge rather than just an hour of work
- It allows your client to plan their budget and be confident about the cost.
Of course, sometimes, you might want to charge an hourly fee for tasks like gathering information, writing a letter of engagement, or writing a proposal. You could also charge hourly for work that’s outside your agreed scope.
But in the end, having fixed fees allows you to develop a menu of pricing options, allowing clients to pick and choose depending on their needs and budgets, and allowing you to experiment with and analyse the most lucrative sources of revenue.
What about value pricing?
It doesn’t have to be all about tax returns. Consultative accounting services could be incredibly profitable for your business and primarily needs a value pricing model.
Value pricing involves setting special prices depending on the client’s needs and situation.
Deciding how much to charge takes more time than other set pricing methods, but there’s an opportunity for you to increase profit margins by bespoke tailoring your services.
Customising your service and charging more for deeper, specialised advisory work is creative, fulfilling and potentially a way to find a more long term and loyal client base.
It’s your choice what you charge, based on your specialism and experience, and the hours that the specific work represents. If you have experience in the client’s industry or have a specialism they need, it’s more likely that they’ll be happy to pay a premium.
Consider a hybrid approach: setting fixed prices for commoditised and largely automated services such as tax returns or basic bookkeeping, and keeping value pricing for advisory services such as cash flow forecasting, financial reports, or overall business guidance.
What is subscription-based billing?
With subscription billing, customers pay for ongoing services every month.
With this model, you agree with the client that you’ll do all or some of their required accounting tasks for a certain amount of money per month, such as bookkeeping, VAT returns, year-end accounts, company tax returns, Self Assessment tax returns, confirmation statements and payroll.
Sign the client up, and you have a consistent revenue stream from day one and guaranteed standing orders each month.
You get paid from the beginning and regularly afterwards, which is brilliant for cash flow, while the client is confident you’ll support them all year.
Price anchoring is another option and depends on you developing packages set at different price ranges from basic to premium, clearly explaining the differences and extras received at each level of service.
Be confident in your pricing—stick to your model and periodically analyse your strategy
Establishing your pricing model and standing firm protects you from working overtime for free. This way, everyone knows where they stand.
Stefan Barrett is the founder of Bee Motion Accounting, a Stockport-based practice he started in 2015. In Sage’s Entrepreneurial Accountant series, he tells presenter Mike Psaras that he wishes he had set a pricing structure from day one.
“I spent years learning how to do it properly,” Stefan says. “I would certainly have had the structure in place and stood my ground a little more because I think clients can—and they don’t mean to do it adversely—take the mickey a little bit.
“Before you know it, you’ve got two days every month where you’re working for free. You need to get away from that.”
Value your service and your clients, and your pricing will follow
Pricing is one of the building blocks to your success, so make sure you’re charging the right amount for your experience and the value you bring your clients.
If your clients are confident you’ll relieve their business aches and pains and save them time and money, they’ll be happy to pay you what you’re worth.