Complete guide to value-based pricing for accountants and bookkeepers

New ideas, new practices and new technology are changing the way accountants and bookkeepers bill clients for their services. In this guide we'll look at how value pricing, sometimes called value-based pricing, can revolutionise the way you engage with your clients.

Overview of billing methods

The way your accounting or bookkeeping firm bills for its time has a direct effect on revenue. It also affects the morale of your people, your ability to grow and your relationship with your clients.

Here’s an overview of common pricing strategies:

• Hourly-based billing: The practice charges a set rate per hour for services. This is the traditional billing method for many accountants and bookkeepers.
• Cost plus pricing: The practice charges the cost of delivering a service, plus a markup or profit margin. This type of billing is often used when technology is involved. The firm will use the technology on the client’s behalf, and charge a fee for doing so.
• Fixed pricing: The practice charges a fixed cost for a specific service. The cost stays the same regardless of the amount of time taken to complete the task.
• Value-based billing: The practice charges for its perceived value of the service after the work has been completed.
• Value-based pricing: The practice provides a price before the work begins, based on the perceived value of the service.

The pitfalls of conventional billing methods

Technology and new business practices are making conventional billing methods less attractive. Take hourly billing as an example – many practices use this method because it’s the way things have always been done. But as accounting professionals embrace new software and become more efficient, they’ll be able to do more in a single hour.

Let’s look at some other drawbacks of conventional billing methods:

• The lowest rate wins: If your value isn’t clear to clients – perhaps you use fixed or hourly pricing to charge for individual services – they’ll simply search for the lowest rate. It makes sense for them to do this since they have no other information with which to make a decision. But it forces you to compete on price alone.
• Raising your rate is harder: If you’ve always charged the same hourly rate or fixed price for a service, clients may question a sudden change. If they believe they’re getting the same service or result, they may not see your rate rise as justifiable.
• Revenue is time-limited: No matter how hard you work, there are still 24 hours in a day. If you use an hourly rate, you can only ever charge for the time spent on something. It doesn’t matter how valuable your service has been for a client – if it takes an hour, it costs them your hourly rate.
• You don’t know your value: Charging based on time or costs makes it harder to see what your services are worth. One hour of advisory could catalyse your client’s growth – but you’re charging for the time, not the positive outcome.

Value-based pricing strategies reward your efficiency. But they also remind clients exactly why they chose you, based on the value you provide for their businesses. Let’s take a closer look at what value-based pricing is and how it can work for your practice.

What is value-based pricing?

Pricing based on value means setting your fees based on the perceived value or potential benefit for the client.

You need to know your clients well for effective value-based pricing because you’re setting a figure based on what services they find most valuable. The price can be set upfront, so clients know exactly what they’re paying for – and you know what you’ll be receiving in return for the work.

Although this is a relatively new idea for accounting firms, it's normal elsewhere. Value-based pricing is used by internet providers, smartphone subscriptions and online software companies. That's helping it become more acceptable in accounting too.

A value-based pricing strategy lets you decouple the cost of your services from the time taken to provide them. This means you have an incentive to improve the efficiency of your business and learn new skills. We share value-based pricing examples further on in this guide that can help inform your own.

The benefits of value-based pricing

Here are some further advantages:

• It helps you attract and retain talented employees: Employees are most engaged when they’re doing work that makes the client happy and earns money for the business. A value-based pricing strategy offers that – hourly billing usually doesn't.
• It reduces client shocks: Clients may be confused when they receive accounting bills if they don't understand the amount of work involved. That's especially true when businesses do their own books and only pass the ledger to their accountant once a year. Value-based pricing strategies give the client a fixed fee upfront, so there are no surprises.
• It improves collaboration: Clients who know how much they'll be charged in advance are more likely to communicate better with you. This improves collaboration and helps you do your job – which helps keep the client satisfied. As a result, they might be open to more services.

Disadvantages of value-based pricing

Money is a sensitive subject. Changes to your pricing can stir up all kinds of emotions for you and your clients, so it’s important to deal with these feelings upfront.

Here are some disadvantages of pricing based on value:

Resistance to change: As with any pricing change, your clients may struggle to adjust at first. It’s important to be transparent during conversations about pricing. Teams can also struggle with the adjustment, so it’s important to communicate the change openly.

Difficulty setting prices: There’s no value-based pricing formula – so you need to understand your customers and the value they get from your services. This might not be obvious, and value can differ from client to client. Getting a broad picture of customer needs, preferences and willingness to pay is key for setting feel-good prices.

Market competition: Value-based pricing is gaining momentum, but many practices still use other methods. So your pricing may not appear as competitive as that of practices who are sticking with an hourly rate or fixed pricing. Positioning is key here, so make sure you’re communicating the benefits of value-based pricing to your clients.

Five steps to implement a value-based pricing strategy

Now you understand more about value-based pricing advantages and disadvantages, you can make an informed decision about how to use them in your practice.

However, you can't simply switch your pricing model overnight. Value-based pricing isn't just a new way of charging your clients. It's a new way of thinking about the services you offer. You’re changing how your firm does business. Here are some ideas to get you started.

1. Manage client expectations

There will be changes in what you do for your clients – and in what they do for you. Have these discussions early and in detail. You will need to explain carefully how the relationship will change. For example, perhaps they'll have to do weekly bank reconciliation themselves. That way, you can deliver advisory services based on up-to-date and accurate information. The reward is they'll get a more useful service from you.

2. Change your firm's mindset

It's not enough for the people at the top to embrace change. As an owner or partner, you'll understand the need for value-based pricing strategies. Your employees may not, so you must educate them and explain the benefits. This is especially true for customer-facing employees. Show them an example of value-based pricing, and how it works in practice.

3. Overhaul your processes

From the conversations you have with new business prospects to the way you track work time, there will be a lot of changes. Research how other firms set their pricing based on value, both within the accounting industry and elsewhere. Start small – perhaps using this pricing method with just a few clients – and build up once the processes have been properly established.

4. Make use of new technology

Cloud accounting software, which you can access online, is a big driver of value-based pricing. This makes it easy to collaborate with clients remotely and access accounting data from anywhere and at any time.

It also reduces your overheads by automating repetitive tasks such as reconciliation. Plus, it cuts your IT costs since upgrades and backups are handled for you. To make the most of value-based pricing you'll need good, scalable cloud accounting software.

You may also benefit from integrating AI into your practice processes. Read our guide on the benefits of AI in accounting to learn how the technology can save you time and improve your services.

5. Be patient

The transition won't happen overnight. There will be setbacks along the way, but you'll learn from them. Make adjustments as your firm changes over time.

For a step-by-step on how to do it, check out our 10 steps to implement value-based pricing.

Example of value-based pricing

An accountant, Gemma, is speaking to a new prospective client, Piper.

Piper comes to Gemma with concerns about cash flow, expense management, and the amount of time she spends on admin for her bakery business.

Gemma looks through the accounts and discovers some opportunities to increase efficiency. Gemma can automate the data admin for Piper by setting up better accounting processes. And she can even help Piper claim certain tax reliefs.

Based on time saved and simplified processes, Emma estimates that she can save Piper’s bakery £20,000 a year. Emma decides that her value is equivalent to 20% of the total savings – so she charges Piper £4,000 to streamline her accounting processes and help Piper claim the reliefs she’s entitled to.

The result: Piper knows exactly what she’s paying for – better processes and claiming back the relief. And Emma feels confident with her price, knowing that she’s making a real difference for Piper while maintaining a healthy profit.

Value-based pricing liberates your firm – and your people

Value-based pricing lets you increase your revenue while maintaining transparency with clients who can clearly see the impact your services have on their business.

Just as importantly, it liberates your employees to work more productively. They'll know that they – and the firm – will be rewarded for this intelligent approach to pricing.

For more helpful guides, check out our guides and resources for accountants and bookkeepers.