RunningYourPractice
The price is right
A basic element of running a successful practice is getting your pricing structure right. But how do you know what to charge? Calum Fuller finds out
Ellis Harris-Boulter MAAT
Getting your approach to pricing right is a fundamental element of running your own accounting practice. Underprice yourself and you could end up attracting too many clients who may not appreciate the value of your work. Conversely, setting it too high could put you out of reach of your target market. As such, it’s important to have clarity on a variety of factors to help you gauge how to structure your pricing.
Know your worth
Understanding the value you provide through your services is vital to charging correctly. In turn, it’s extremely important that your clients value your work and see it as an investment, rather than a necessary evil or the cost of doing business.
“I have a terrible problem of looking at a price and feeling very guilty about it,” admits Ellis Harris-Boulter MAAT, co-founder of FieCo, a hybrid accounting and marketing firm based in Northamptonshire, recalling he made the “classic mistake” of undercharging “absolutely massively” early on.
“I just wanted clients, so I charged a really silly low rate that would not have sustained us,” he says. “Luckily, I had clients that actually said, ‘That’s too low. You need to charge me more.’ That was very kind of them. The more you charge, the more people appreciate what you do, and the less they take the mickey. When you undercharge, it tends to be the clients that would cause you the most headaches and give you the most work expect the most for free.”
Franco agrees: “The confidence of ‘I know what I’m doing, and actually I’m worth what I’m asking for’ goes a long way. Rather than treating it as ‘the price’, approaching it as value that you bring and what you add through looking at the strategy beforehand, and not simply doing commoditised, basic compliance but more strategic, advisory work.”
Client base is key
The make-up of your clients is a major driver in your approach to price. After all, if you charge tradespeople the sort of rates high net-worth people or major corporations would expect, you’ll soon find you have an issue retaining clients.
“You get what you pay for,” explains Catia Franco FMAAT, founder of CP Franco Accounts & Finance. “When you’re starting up, you may decide you’re going to be the cheapest and, as a result, you’re going to get the most clients. Sometimes, the outcome is totally the opposite, so the kind of clients you’re trying to attract is key.
There are four basic approaches you can take to pricing:
Hourly rates
This is the traditional method, charging for each hour of work performed.
Fixed fees
This assigns a set price for a defined scope of service, providing clarity and simplicity.
Value-based pricing
Value-based pricing is aligned with the perceived value of the service to the client rather than the accountant's time or effort, thus potentially yielding higher profitability.
Retainer-based pricing
Under this model, clients are required to pay a recurring fee for ongoing services, enabling accountants to forecast revenue and clients to manage costs.
I have a terrible problem of looking at a price and feeling very guilty about it.
Catia Franco FMAAT
Settle on a pricing model
“The way that I found best was to have set prices depending on turnover,” says Franco. “Rather than it’s just a set fee, regardless if you make £10,000, £100,000 or £500,000, I’m still able to provide expert services for the lower-end clients, which I’m looking to scale up, and they can eventually fall into the bigger brackets. I can support them getting there.”
Working in this way provides clarity to clients, while affording Franco flexibility where appropriate.
“I can speak to the clients and they say, ‘Okay, fine, I now fall into that bracket. But I’ve done all of my bookkeeping, I’ve done all of this’. In that situation, it may not make sense that I’m charging that much, so it’s a case of working with the clients as well, depending on how much work is going to be involved.”
FieCo has adopted a similar tiered model: £27.50 per hour for baseline services (bookkeeping and graphic design), £35 per hour for compliance services, and £45 per hour for advisory services, reflecting the increased risk of such work.
“We have an estimate for how long we think the work will take and, for three months, we stick to that timeline,” Harris-Boulter says. “So we’ll say ‘We think you’re going to take 10 hours of bookkeeping and three hours of compliance work a month’. We bill them for that for three months and, after that, we’ve got time-logging software where we’ve logged all the hours we’ve spent as a team. We pull a report and say, ‘Actually, did it match up?’ If it didn’t, we’ll give them a rebate on what they have paid, because we don't want them overpaying for what we’ve done.”
And why £27.50 as a base?
“We know that a member of staff for an hour costs £19 – taking into account pension, Living Wage, which we're signed up to, everything that we pay out in benefits,” he explains. “£19.72 is our price, so essentially what I did was took 50% of that and added it on as a margin.”
Show your working
Pricing, of course, can be sensitive. Clients may well be minded to seek cheaper alternatives or push back or ask for discounts if they don’t understand why you charge the rates you do.
Itemising your quotes and your bills is an effective way to combat that and demonstrate to clients and prospective customers that your prices are rooted in sound reasoning.
“I wanted a proper charge sheet so we could say, ‘Actually, every client pays this price’, and that means I’m less likely to give discounts because I feel a bit sorry for someone,” says Harris-Boulter. “It means I’m more regular and formalised with my pricing.”
For Franco, it’s a similar situation and she is very clear with clients from the beginning.
“The way that the prices are set, they are based on the turnover,” she says. “But I do have a disclaimer to say, ‘If you’ve got everything in a mess and you have just been dumping everything into one category, you haven’t been keeping up with your records, you don’t know where your receipts are and everything is very messy, then I need to do a bit of work on an hourly basis to get you back into a position where we can review and we’re happy with the account.”
Key factors in setting your prices
Benchmarking
Research competitors and gain an understanding of the rates they charge the clientele you are seeking to attract. Build up a full picture of the rates those clients expect to pay for the services you are planning to offer.
Clarity
Giving clients and prospective clients the full picture of what they can expect enables them to understand what they will pay you and when, what services they will receive and when, leaving little room for confusion or dispute.
Value
While it can be easy to be drawn into offering discounts to attract clients, it ultimately undervalues your skills and your offering. In turn, clients may not sufficiently value your work and may prove harder to manage as a result.
Your client profile
Knowing the make-up of your target client group(s), their spending power and the going rate for accounting and bookkeeping services among them will all help you arrive at the correct pricing structure.
Finding your market
Once you have made the basic arrangements for your firm, it’s time to think about who your clients will be and how you will find them.
Preparing your business plan
Working out how you’ll set up your practice and operate is central to your prospects of success.
Pitch perfect
Having put in place the basic structure of your business, it’s time to put yourself out there and begin communicating with your target clientele.
Managing early growth
Early decisions set the tone for your firm’s growth potential and capacity, but the process doesn’t have to feel daunting.
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Ellis Harris-Boulter MAAT
