By Nicola Muxworthy, Owner, Surf Coast Consulting, Victoria
Welcome to Partner Pages: a magazine made up of stories from the Xero Partner community, for the Xero partner community and shared as part of Roadshow Australia each year.
Should you be paid for your time, or for what your skills and experience are worth?
When it comes to billing, this is the question bookkeeper Nicola Muxworthy thinks you should be asking. Operating on the belief that hourly rates are the enemy of efficiency, she is an avowed champion of all things value pricing. And that value only grows with knowledge and experience – both of which Nicola has plenty of.
With a 25-year background in solving small business pain points, she also knows first-hand the challenges owners face, having managed her family’s software business for many years. Nicola is working to redefine the industry standard. Here are her top tips on making the transition to value pricing.
First, find your purpose
Having successfully managed our family business for a decade and worn every hat from marketer to customer service, I was in need of a sea change. But there was one aspect of my role that I wasn’t willing to part with: the bookkeeping. I moved down the coast to Lorne and was sitting at the local pub thinking how wonderful it would be to help the neighbouring cafes and restaurants to become more profitable and efficient. And so Surf Coast Consulting was born.
Embrace the cloud and boost performance
When I started out, everything was done by hand – from ledger books to typing up invoices. Years (and two economics degrees) later, when I discovered Xero, I actually shouted, “Hooray!” With the mundane, repetitive tasks now automated, bookkeepers can spend their time adding value. Thanks to cloud technology’s ability to streamline client accounts’ processes, we can provide detailed monthly reports on how they’re performing. Our job is to help them improve that performance.
Discover your worth with value pricing
Time-based pricing is the cost for a given scope of work, based on the number of hours it takes to produce. It can be a fixed price calculated through an estimate of the time required, or it can depend on the actual hours worked. The alternative, value pricing, is based on the value a service has to the client, regardless of the time it takes to complete. When you streamline processes and get more done faster, it doesn’t just benefit you – you’re streamlining your client’s business too. As a result, your time should be worth more because you’re adding greater value.
Break it down and bring your clients on board
As with anything new, value pricing takes some explaining. So I like to keep it simple. I tell my clients that my pricing is based on the value of the output that they’ll receive. If someone asks, “What’s your hourly rate?”, and I quote, say, $100, they might say, “Oh, gosh, you’re too expensive”, without knowing how long it would actually take me to get the work done. But if we reframe it as, “What will you charge to do my weekly bookkeeping?”, I can always offer a price that suits them.
Start with a trial to smooth the transition
Prospective clients usually ask for a rate, and it’s often easiest to give them one. The key here is to offer a rough weekly fee and suggest a three-month trial period. The time and effort required often depends more on the client than on the work itself, and I assess where I can make day-to-day tasks more efficient. After three months, I confirm a value price for the agreed tasks and suggest a review at the six-month mark.
Make sure you don’t forget to cover extra services
Most clients require extra services that are out of scope, such as adding a new employee or sorting out issues as they arise. It always pays to include a small budget for those hours so you can avoid constantly sending extra invoices their way.
Give your clients certainty about costs
A value price helps clients plan for the long term, while the trial gives them clarity and comfort about what they’ll receive in return. It’s a low-risk approach; once you’re familiar with each other, there are no surprises. I look at value pricing as a commitment to taking the client relationship to the next level. And as long as people feel that they’re getting good value for money, they’ll be happy.
Track your time against profit benchmarks
Tracking hours gives you the insights you need to determine profitability for each client. That’s where the six-month review comes into it. Set profit benchmarks up front, and if you find you’re putting in more hours for less profit, then it’s time to revise the fee. And if you’re doing less work because everything is so streamlined, you could connect with your client and offer to take on additional tasks without increasing your fee.
It’s all about efficiency
Once you get your head around the fact that offering a value price is about the results you’re delivering rather than the hours you’re putting in, you’ll be motivated to do things faster and more efficiently. That means trialling different systems, discovering the right add-on apps, and continually looking for ways to innovate and evolve the bookkeeping you do for your clients.