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Hourly billing vs value pricing: Which do you prefer?

Today, clients have the power to be selective in choosing an accountant and most prefer to determine their budgets upfront, giving firms that have embraced a value pricing model a significant competitive advantage.

Hourly billing vs value pricing: Which do you prefer?

by QuickBooks Australia

Billing

Today, clients have the power to be selective in choosing an accountant and most prefer to determine their budgets upfront, giving firms that have embraced a value pricing model a significant competitive advantage.

Aside from dictating cash flow, pricing methods can influence a company’s reputation. And given Australia’s volatile economy, it’s important to explore the natural shift accountants are making from the more traditional hourly billing model to the less-travelled route of value pricing.

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Value pricing focuses on the value an accountant or bookkeeper adds to their client. It means setting up a price in advance of providing the service based on the value it will create for the client, with a clear outline of what is included in the price.

Conversely, hourly billing emphasises the number of hours an accountant has spent on a job. Essentially, it sees accountants bill their clients by the hour.

As new technology changes the accounting and bookkeeping market, a majority of firms are interchanging between the two pricing models, says Meagan Wood, Head of Advisor Marketing at Intuit.

According to industry stats, around 15 per cent of Australian firms have taken the leap and now rely solely on the value billing model.

“It is important to remember that clients are paying accountants for their knowledge and experience, and not for their hours,” says Ms Wood.

But for accountants who have always billed by the hour, pricing value requires a complete paradigm shift. It means transitioning away from viewing their work as an exact science, to reflecting on the worth of the services they provide.  

Ms Wood reveals the three key ways the value pricing model has impacted accounting and bookkeeping firms that have embraced it.  

  1. Increased profit margins – When value pricing is coupled with the adoption of technology, firms typically make (and expect) a greater profit margin on a client job simply from the efficiencies they gain.
    For example, moving to a cloud accounting solution that has a direct bank feed and automated transaction coding dramatically reduces manual data entry and presents a more accurate set of books for the firm to work on.
  1. Improved cash flow – With the price and service agreed up front, some firms take this to the next step and spread their agreed fee across several payments.Some could debate this is a fixed fee agreement but it’s a logical way for the firm and client to manage their respective cash flows.
  1. Stronger client relationships – With the fee and scope of work agreed, the client and their adviser can get to work on completing the job. If the scope includes regular check ins and reports, the relationship and trust develop beyond the typical end-of-job conversation.
    Further, with an agreed fee, there’s no ‘sticker shock’ by the client when the fee arrives, which removes any awkward relationship-straining conversations – or frustrating practice write offs.

 

Boosting confidence

The value pricing model infuses more confidence in customers, says Ms Wood. 

It puts the client in the driver’s seat, allowing them to take part in the pricing and scoping discussions up front.

“We all love to know what we’re getting for what we’re paying,” explains Ms Wood.

“And when executed effectively, value pricing provides clarity and transparency – so assuming the firm delivers on the work, it’s sure to provide increased confidence.”

And, although hourly billing is an acceptable pricing method, digital disruption is improving automation, meaning that firms are now completing their work faster and more efficiently. 

This means that accountants relying heavily on the hourly pricing method risk losing their clientele to their more flexible competitors.

“It no longer makes sense to bill by the hour. Technically, under this model the more efficient the firm, the less they would charge,” says Ms Wood.

“Of course, firms can still write up a job and bill what they think is fair, but they risk sparking an awkward conversation if the client isn’t satisfied with the price they are being charged.”

But as someone who has spent years completing daily timesheets, Ms Wood admits that “only the bravest of firms do away with timesheets completely, even when they embrace value pricing”.

Transitioning to value pricing

Changing your pricing model is not something that can be done overnight.

Experts say that value pricing is a lot more than just a pricing model, it is a business model.

“It’s like wanting to get healthier, you need to change your lifestyle for sustained success”, says Ms Wood. “This means that the transition needs to be carefully considered, planned and well executed.”

To implement value pricing, this often means meeting with clients to gain a stronger understanding of the value you provide them, evaluating the services you offer, as well as marketing the new approach to clients, so that your new way of billing is clear. That is the fee is agreed up front with a clear understanding of the scope of work and support provided,” advises Ms Wood.

In most instances, she admits, firms adopt a ‘crawl before you walk’ approach by introducing value billing to a subset of clients or only for a certain range of services initially.

Who can help?

Ms Wood explains that accountants and bookkeepers can turn to their trusted software providers for support when transitioning to a value pricing model.

“Intuit, for example, brings value pricing experts to our events to educate our advisers on the benefits of value pricing and how to start the process,” Ms Wood says.

Some software companies, including Intuit, offer free tools that can effectively help accountants and bookkeepers manage their workflows and the different components of each value pricing project.

Lastly, Ms Wood advises firms to treat their clients uniquely.

“Each one is different, with individual needs thereby may require a different service. Talk to your clients about their needs, establish how you can help them and map out the steps you need to take to achieve this,” concludes Ms Wood.

 

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Hourly billing vs value pricing: Which do you prefer?
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