Note: This year’s CCH Connections: User Conference 2016 features 75 sessions in 7 different tracks. With so much great content, it can be hard to choose which sessions you want to attend. That’s why we’ve invited several presenters to preview some of their ideas in a series of guest posts. This post is by Jay Tompkins, Office Managing Partner at MiddletonRaines+Zapata, LLP in Spring, Texas. He is facilitating the “Fixed/Value Pricing – What it Means” discussion pod, available in the Management track.
First, what is Fixed/Value Pricing?
Fixed (or value) pricing is a model where you charge a set amount for a scope of work. For example, you might charge $750 for a basic tax return rather than bill at an hourly rate. Though this type of pricing doesn’t come without it’s pitfalls (which we’ll touch on further down), it can allow you to charge for your expertise, value, and knowledge rather than your time. (If you regularly get something done in an hour, but the value is more like 2 to 3 hours of work, you might want to strongly consider fixed pricing.)
Why Don’t More Businesses Use It?
The concept of fixed, or value pricing, in professional services has been around for a number of years, but the mainstream has been hesitant to embrace what is considered a (far) out-there concept. This may be due to the way it is presented to a service provider (e.g., there’s the risk of losing money when the scope of work isn’t carefully communicated). Despite the fears, I would argue that in many or most cases, fixed, or value pricing, can be accepted into ANY professional services firm.
In reality, many businesses already operate on a fixed price system, but do not administratively treat it as such, or communicate it to the client in that manner. Then there are some businesses that use a combination of both the billable hour and fixed pricing depending upon the nature of the services desired.
How Clients Perceive Value
A chief issue that fixed pricing mitigates is that many clients think like they are on a fixed price system, meaning they have an idea of what they think your services should cost. (“A tax return for $750?!”, you may hear. “It shouldn’t cost more than $500.”) Anytime fees or price is higher than what the client perceives, it generally takes a significant amount of time and effort for you as the service provider to quantify the value – and likely results in write downs. If the price were set as fixed from the beginning, with a clear scope of work, this issue would be moot.
Is Fixed Pricing Right for Your Business? Ask Yourself these Questions.
To determine if fixed pricing might be beneficial to your business, consider these questions:
• How much time is spent by Managers and Partners on billing/collections and client-related issues with billing?
• How much time is spent chasing down collections, especially from clients who had a different perception about what the services should cost?
• How are you actually billing? Look at last year and compare it to current year work-in process.
• Do you think you can or should get rid of tracking billable time? (Teaser – I have done it both ways! It can be done, but the key is not using work-in process to bill. Chew on that and come to my seminar for a deeper dive.)
Wrapping it Up
Again, I find that a lot of professional service firms already implement some elements of fixed pricing, but they operate internally and externally as if they are still under a billable hour method. They waste time and create adverse relationships with their clients by doing it the way it’s always been done and expecting different results. I leave you with one final question, does your business want to be known for selling time or creating value and getting paid for your expertise and intellectual talent? Get a deeper look at fixed pricing by attending my seminar “Fixed/Value Pricing: What Does It Mean?” at the CCH Connections User Conference.
CCH Connections 2016 will features seven different tracks, with more than 75 sessions that have been developed exclusively for CPAs to help take you and your firm to the next level. Register Today!