How to price and sell business advisory services

12th January, 2017

So you’re an accountant who has moved beyond compliance and is now offering business advice – how do you go about pricing that service?

If you get it right, you will eliminate write-downs in your business; your average hour rate will increase significantly; and your profit margins will improve.

Unlocking more time though smart pricing

The first step is to unlock more time to offer business advisory services to clients, and the best way to do this is through smarter pricing of your existing services.

At the moment, the accounting profession is being held back by pricing in arrears.

Often you look at what’s on ‘work in progress’ at the end of the job, write some time off, and then bill what you believe the client will pay.

When you price in arrears, your team are incentivised to go slower — the slower you go, the greater the fee!

When you price upfront, the dynamic changes.

You will become very focused on a time budget for each job and – if you’re like most accounting firms we have worked with — you will run out of work.

You may find that you end up completing 12 months’ work in nine or 10 months.

Now it’s time to refill your new found capacity to grow the firm’s revenue and profit and to ensure your clients are fully serviced.

It’s time to start discussions with clients to uncover their yet unmet needs and identify opportunities for value-based fees.

What is value-based pricing?

Value pricing is the ultimate approach to breaking the nexus between hours and price.

Hours worked does not always equate to the value of advice.

For example, we heard recently from an accountant who had a client tell him that one piece of advice provided in a two-minute discussion had saved the client $100,000.

It was only two minutes, so the client received little compensation for his service.

The accountant had over 30 years’ experience during which time he learnt how to provide such advice which was not accounted for.

How to price advisory projects

To price based on value, you need to understand your client’s objectives and the value they perceive if they could achieve those objectives – and then be able to quantify them.

Sometimes this value will be in dollar terms; other times it will be qualitative.

Start by asking the following types of questions, in order, with the client:

Decision-making: Ensure all decision makers are there.

Background: Before you launch into determining client objectives, ensure you have some solid background on the client’s situation.

Motivation: What pleasure does the client wish to move towards, or what pain would they like to move away from?

Problems: What is stopping the client from achieving their goals right now?

Measurement: What would show the client that they are on track towards achieving their objectives?

Value: What would the client get out of achieving the goals outlined in this project? It can be monetary or emotional.

Consequence: What would happen if the client did not do something different?

Timing: Is this a later or a sooner project?

As an example, let’s imagine you engage a client in a quality conversation around their goals for the next three years. You might discover that:

  • They would like to increase profitability from $50,000 to $200,000.
  • They would like to generate sufficient cash from their business so they can pay down $100,000 from their mortgage.
  • They would like to take more time away from the business by hiring and training a general manager.
  • A great measure of success would be that they could take a three-week holiday without worrying about the business.

Then, it’s time to quantify what you can.

  1. Increase profitability by $150,000: Remember, they will get this every year, not just once off. I tend to work on two years of extra profit, so have $300,000 in mind here.
  2. Pay down mortgage by $100,000: The client has quantified some value here, so I am going to add another $100,000 to my value assessment.
  3. Take more time away from the business: This is a qualitative piece of value, and depending on how much emphasis the client places on this, I would allocate some more ‘value’. This is where it becomes art and science — let’s add another $50,000.

Taking the above into the account, the total value to the client becomes $450,000 ($300,000 + $100,000 + $50,000).

If the client gets a 20 to 1 return on their investment, that’s a great deal for them.

So, for my services I can arrive at a rough figure of $20-25,000.

If I put together a two-year program to help the client achieve these objectives, I can then bill about $1000 a month.

In some months, I might only take a quick phone call, so on a time basis, $1,000 might seem high, but here’s the thing:

Time does not equal value, value equals value.