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January 12, 2015

Four Tips to Hitting Your Perfect Price Point


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Four Tips to Hitting Your Perfect Price Point

Customer satisfaction.

Word of mouth.

Advertising.

They all play an important part in gaining your firm a wider customer base. But the single most important factor is understanding the purchasing habits of your potential future clients… a factor that is often overlooked.

And that’s where you price point comes in. Part intuition and part experimentation, pursuing the perfect price point is the best way to maximize the value of your services for both your clients and yourself. Following are four important points you should keep in mind when trying to hit that sweet spot on the price tag.

1. Follow the Dancing Dollar

There are two general pricing strategies:

  • Revenue Optimization: Boiled down to its essence, this means pricing as high as your clients will allow without losing their business.
  • Unit Sales Maximization. Getting your service out to as many people as possible, even if it means taking a hit on the sale price. Extended to an extreme, this is where we run into “predatory pricing,” where Firm A reduces its costs down, perhaps even to a deficit, in order to run Firm B out of business through loss of clients.

Your perfect price point lies somewhere between these two pricing methods. Seems pretty obvious, right?
However, what you might not be considering is that your perfect price point isn’t always static between the two. And that’s our first tip – always remember that your dollar sign is moving, dancing between the two methods, depending on outside factors like competition etc.

Study your position in the market. Consider your competition. Be fluid with your pricing when considering what state your firm is in right now.

For example, if you’re just starting out, then it may be of much more value to you to lower your prices for the potential gain of a much wider client base. While you may deserve more for sorting out a messy set of company accounts, you’re gaining a client that will stay with you when you do finally raise your prices, and they’ll tell their friends about you.

So consider – if you were to lower your prices by, say, 5% right now, would it be worth it for a gain of 5% in clients?

2. Perceived Value

Would you eat a 12-cent hamburger? Wear a $24 tuxedo to a wedding? Would you fly on a plane if you heard that the pilot was only getting $5 per hour?

This one’s quick and obvious – there is a downside to lowering your prices – it can scratch the perceived polish off of your services. There’s a line where potential clients will stop thinking of your services as being priced “reasonably” or even “at a steal” and they’ll just start thinking you are unprofessional, cut corners and lack knowledge to do a really good thorough job that will benefit the client.

And here’s where your dollar sign does the dance again – because in fact there can be a very healthy value to you if you price high. Very high. Think about lawyers – do you want the one who costs the price of a house just for showing up to defend you, or do you want the poor public defender who has worn out the elbows on his shirt? While that public defender may actually be the superior lawyer, the woman with the thousand dollar watch automatically reeks of resources and competence.

There can be a lot of value gained by pricing yourself as the Rolls Royce of the accounting world. Which pricing strategy would work best for you at this time?

3. Measure Your Value

Value Metrics. Metric – a means of measuring. Value – what you have to offer.

Your value metric defines not only what services you provide for a given fee but how you are charging.

E.g. A software company may sell different numbers of licenses at different prices. The price goes down as the volume of licenses goes up (the value becomes greater). They may also add-on specials such as 10 free support calls or unlimited support calls as part of a top tier package. (The value then is even greater).

With an accounting firm you could have a metric which is the frequency of management accounting reports you provide a business per year (e.g. monthly, quarterly, six monthly or annually). The increased value goes up in higher and higher tiers. Additional value based offerings could be bill payments, invoicing, budgeting, cash flow and strategic planning.

The most important facet of all of this is to remember to be clear as to what the increases in price revolve around. What service(s) do your clients value the most? Build your various price levels around the value(s) your clients want from you at the most basic level.

Once you have a pricing strategy in place with various increasing value propositions in exchange for rising prices, make sure your clients understand your pricing strategy without needing to have someone from your firm explain it to them. The last thing you want is for the waters to be muddy when it comes to what you’re charging for which services. Confusion or difficulties in purchasing your services will lead to a client’s lack of confidence, and that means missed conversions.

When done right, your firm will still be able to grow even when your acquisition of new clients occasionally fizzles a bit, because since your value metric revolves around services your clients will always need no matter how big they get, as they grow they’ll look to you as their trusted advisor for other valuable services.

4. Bundles, Tiers, and Packages

So we’ve already talked about tiers.

Let’s expand on that by including bundles and packages. What we’re looking at here is placing two or more services together, and then offering them at a price that’s lower than the sum of those individual services. While you’re now receiving less for one (or more) of the services, you’re still receiving income that you wouldn’t have otherwise received at all because the client had no initial interest in the extra service(s). You may even sell a service that isn’t even truly necessary.

Consider your home. Your local cable provider may have teamed up with an internet provider to give you the chance to buy a bundle for the both of them combined. That internet provider isn’t the best in the area, but since you get it at a discount… well, why not?

You’ve just purchased something you never would have bought if it was offered on its own. Added bonus – you haven’t sent any money to the internet provider’s competition.

Is there some additional service you can offer that requires little output from you, but will seem like a huge gain to your client?

An increasingly used tactic for selling packaged services is as follows. Not all packages are meant to sell. In this case, there’s a sweet spot in value for the seller, and the other packages around that sweet spot are purposely less attractive – some ridiculously high in price, others low in price but not giving enough in return. That means you can steer clients to the package that offers you the most income with the smallest amount of additional effort and/or offers just the services you want to focus on providing as a business.

So, for instance packages could be priced as follows:

Package 1 – Service A & B ….$2,000

Package 2 – Service A, B, C, D & E ….$2,500

Package 3 – Service A, B, C, D, E, F, G, H…. $10,000

In the above example you would expect most businesses to go for Package 2.

To be able to sell these packages, bundles or tiers, you must again be clear in what you’re selling, and understand what the buyer values the most. You can shift your tiers around, placing this greatest value into a slot that is also of the greatest value to you.

Last But Not Least… Discounts

There are two keys when it comes to using discounts to win new clients. The first is introducing urgency, and the second is offering value.

In creating urgency, you’re setting a due date and thereby nudging your potential client past the sense of this not being “the right time.” Suddenly there’s a very limited “right time” to get the services they were considering for a reduced price.

Price-wise, you have to go back to your overall strategy to decide if you’re going to offer a percentage discount, or a dollar discount. Percentages generally work better when dealing with lower dollar amounts – 50% is sexier than $50. But dollars are the better bet at higher prices, so you can show a big fat number behind that dollar sign.

The key here is that the two – urgency and offered value – must be used together. If you offer a huge discount but have no explicit end date, then that sense of urgency is wiped out. Conversely, if you have a one-week sale but only slice off a tiny amount from your price, the sale becomes meaningless when it comes to value.

Another way to discount is instead of purely slashing prices, you offer to knock off a percent from a certain service if your client brings in a new client. So you offer new Business A your “Advice For New Businesses” package… but you’ll give it to them for 10% less if they can get someone else to sign up with them (that second business also receiving 10% off). So they call up Business B who agrees, and they come to you together for that deal where each gets 10% off. Your “Advice For New Businesses” package is a pretty standard bundle of services, and it costs you little to no time or money to tailor it to both A and B. So for the one-time loss of 20%, you now have two new clients who will grow with you, steered onward to additional services as time goes on.

Like with the rest of our points, this is an experiment in getting to know your own business better – here you’re figuring out how to measure long-term gains (gained clients) versus short-term losses.

There is one great big caution sign here – charging too little too often will devalue the perception of your services. Don’t offer discounts for long periods of time or on a routine schedule. You want to keep your overall value up – offering a lot, for a little less, shouldn’t seem like something you have to do to stay in business. It’s generosity, not desperation.

In summary, it all comes down to getting to know yourself and your clients – what you offer, and what they value most.

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BOSS, BACK OFFICE SHARED SERVICES PTY LTD.
Suite 2, 345 Pacific Highway,
LINDFIELD, NSW 2070
1800 889 232
www.boz.com.au
@2020 ALL RIGHTS RESERVED.
Liability Limited By a Scheme Approved

January 7, 2015

Concerns About Accounting Outsourcing Work


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Concerns About Accounting Outsourcing Work

Venturing into accounting outsourcing any part of your business is a legitimate source of concern. Maybe you’ve heard some horror stories, or perhaps you’ve just dreamed up some nightmare scenarios on your own. We’re here to put your mind at ease about the five most common concerns when it comes to outsourcing.

1. Confidentiality.

Your clients’ privacy and security is of paramount importance to you. So the idea of handing those accounts over to an unknown entity is understandably off-putting. Because that security is so vitally important to you, it’s vitally important to us. That’s why BOSS puts a full range of security measures in place including:

  • If you desire we can set up a cloud-based system so no files actually leave your office.
  • We make sure every employee signs a Confidentiality Agreement.
  • Although your outsourced employees are located in India, BOSS is an Australian company and we are held to all of Australia’s privacy laws.

You can read about all of our security measures here.

2. Control.

You might think that because you’re sending a part of your business out from under your watchful eye that it’s no longer under your control. But it’s key to understand that by accounting outsourcing part of your business you’re not dismissing it, what you’re doing is streamlining those particular processes.

By working with BOSS in essence you are gaining employees just like you would if you went through a regular hiring process. They adhere to your particular business’ culture and rules. The only difference is that your new workers are in our offices. You’re able to communicate via Skype and email, and you’re able to monitor their work with BOSS’ online monitoring software.

3. Coaching.

Are these new workers going to be competent? Or are they just going to be a bunch of people hired not for their ability, but because they’re cheap?

We’re fully aware that handing your business to untrained labour could spell disaster. BOSS makes sure that all of its employees are as fully capable in Australian practices and laws as any accountant in your office today. In addition, they receive a one-month induction program when they join us concerning Australian issues, six months of on-the-job training, and they receive ongoing monthly tax training sessions. For more information on how we make sure BOSS employees are as up-to-date as any Australian with Australian tax laws jump on over to our Training and Supervision page.

4. Capacity.

There’s an idea floating around that accounting outsourcing is purely for big businesses that require gargantuan rooms full of people pounding away at keyboards. This idea holds that it costs a lot of money to realign or restart a section of your business overseas, a cost that only big businesses can possibly afford to fold into their operating expenses.

But here’s the truth of the matter – there’s actually two financial reasons to outsource. Yes, the first can be to cut costs. But the second is actually the opposite of “cutting” – expansion. Say you’re a small firm, and you’re now prepared to transition into a mid-sized business, but the cost of that step is holding you back – it’s not just the cost of the people you’re looking to add, it’s also the space and equipment that they’ll require. If you don’t have enough space in your current location, then you’ll have to acquire new real estate.

That’s what makes accounting outsourcing so ideal for small businesses. With outsourcing, you’re paying for only the people, not their computers, desks, phones, chairs, pens and pencils, space, the power they use, and so on. This huge bite out of your additional costs could very well be the difference between pulling the expansion lever now, or having to wait to collect more capital and getting left behind by your competition.

There’s an additional benefit for smaller businesses – outsourcing means flexibility. Come the income return rush, you’re able to hire on additional fully trained workers for only the period that they’re required. So you don’t have to go through your own hiring process, then training, finding space, et cetera, only to have to let them go at the end of your busy season.

5. Costs.

Price tags have of course dangled from everything in this post, but there’s one or two additional costs to consider.

The first is your initial outlay. We mentioned flexibility when it comes to hiring occasional or seasonal staff. Well, there can also be some flexibility to be found when it comes to the cost of first setting up your services overseas. If that first outlay is still looking a bit too pricey, accounting outsourcing partners can arrange for contracts where initial expenses can be reduced in exchange for, say, a multi-year contract.

Keeping this cost down has the added benefit to your clients in that they won’t see a possible jump in your prices required to cover this outlay.

The second and last cost we’ll turn your attention to is if your expansion attempt doesn’t work out this time, without outsourcing you’re stuck with extra personnel who have to be left go, as well as all the additional costs that came with them (their computers, furniture, a larger location, etc…) which you won’t be able to fully recoup. With outsourcing, once you finish out your contract, you’re done.

Here’s one last thing to consider if the idea of accounting outsourcing makes you nervous – you’re already outsourcing. You always have been, your whole life. Foreign cars, foreign food, foreign-owned airlines – even the everyday world around you has been outsourced. You didn’t make the chair you’re sitting on, or the monitor you’re reading this post on. It’s likely that you didn’t grow your own food or make your own clothing.

Outsourcing is a part of your world, be it from as close as the bakery around the corner, to half way around the world. BOSS is here to ensure that the application of accounting outsourcing to your business is as easy and risk-free as possible.

BOSS (Back Office Shared Services Pty Ltd) is Australia’s premium accounting outsourcing provider supplying well-trained high-quality accountants and bookkeepers. To discuss your needs and how we can help, Book a Consultation NOW!

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BOSS, BACK OFFICE SHARED SERVICES PTY LTD.
Suite 2, 345 Pacific Highway,
LINDFIELD, NSW 2070
1800 889 232
www.boz.com.au
@2020 ALL RIGHTS RESERVED.
Liability Limited By a Scheme Approved

November 19, 2014

Revealing Findings about Accounting Outsourcing in the Good Bad Ugly Report


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Revealing Findings about Accounting Outsourcing in the Good Bad Ugly Report

Business Fitness will be making the full 2014 Good Bad Ugly report available from Monday 24th November 2014.

What is interesting in the report is the use of accounting outsourcing providers.

Over 75% of firms that use outsourcing providers state that outsourcing is profitable. The number of firms using outsourcing providers is set to grow from 30% to almost 39% in the next 12 months. The drivers for many are to enable their firm to transition into providing more advisory services and also to maintain a competitive advantage as compliance fees are under pressure.

In the Good Bad Ugly report it is stated that there are two types of accounting outsourcing model:

  • Staff leasing
  • Full outsourcing

Typically staff leasing is where the outsourcing provider just provides a desk, computer and a raw accountant, usually with no training in Australian tax laws or software. (Some providers do provide some training but it is at a basic level). Staff leasing does allow for the outsourced accountant to follow your procedures and working papers.

Full outsourcing is where the accounting outsourcing firm takes care of the complete HR and recruitment aspects, continuous training on Australian tax law, work papers and procedures (if required), and provides continuous support to get work done with the minimum of fuss; allowing the Australian accounting practice to just load up jobs.

BOSS is fairly unique in that we actually provide the best of both worlds: all the training and support of full outsourcing and the flexibility of having a dedicated accountant that can follow your procedures and working papers. (We even provide the option of having jobs reviewed so that they are ready for Partner level review and sign-off.)

BOSS notes that:

With the staff leasing model there may be the perception of cost savings but the reality can be that the savings become negligible with the added burden and problems with this arrangement.

Trying to recruit personnel, train staff on an ongoing basis to a high standard, monitor them and comply with APESB and TPB guidelines on outsourcing is no easy feat. In addition you may need to provide software licenses or have connectivity issues if you are not using cloud software.

There are firms who have tried the staff leasing model and are now moving to the full outsourcing model to make outsourcing work better for them.

The Good Bad Ugly Executive Summary and full report can be downloaded from the Business Fitness website here

BOSS (Back Office Shared Services Pty Ltd) is Australia’s premium accounting outsourcing provider supplying well-trained high-quality accountants and bookkeepers. To discuss your needs and how we can help, Book a Consultation NOW!

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  • And More!

BOSS, BACK OFFICE SHARED SERVICES PTY LTD.
Suite 2, 345 Pacific Highway,
LINDFIELD, NSW 2070
1800 889 232
www.boz.com.au
@2020 ALL RIGHTS RESERVED.
Liability Limited By a Scheme Approved

October 15, 2014

Warning about Use of Dropbox and similar providers


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Warning about Use of Dropbox and similar providers

Dropbox is in the news again about security issues (see the links at the bottom). The takeaway is: don’t use the same password for more than one website.

You may be interested to know that BOSS has a secure web server with an Intruder Detection System which includes blocking access from an IP address that is not your office IP address. We also have a lockout system that will lock someone out after 5 failed attempts – preventing robots from hacking too!

So the question is, if you use another outsourcing provider how good is their security and do they have Professional Indemnity Insurance to cover a worst case scenario?

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  • And More!

BOSS, BACK OFFICE SHARED SERVICES PTY LTD.
Suite 2, 345 Pacific Highway,
LINDFIELD, NSW 2070
1800 889 232
www.boz.com.au
@2020 ALL RIGHTS RESERVED.
Liability Limited By a Scheme Approved

June 13, 2014

Outsource Accounting to Achieve Forty Two Per Cent Profit


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Outsource Accounting to Achieve Forty Two Per Cent Profit

What happens when you outsource accounting to BOSS and follow the Best Practice Program?

42%* profit and 30% year-on-year growth!

If you are still not outsourcing accounting work you are wasting the opportunity of the decade!

*A profit increase to 42% was reported by one of our clients - your results may differ.

John Peterson of the coaching firm Best Practice Program interviews one of his clients that uses BOSS to outsource accounting work. Watch the video below:

If you want to increase your profit immediately, practically eliminate staffing problems and set yourself up for massive growth, call BOSS on 1800 88 92 32 or fill out our Contact Request Form NOW!

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  • And More!

BOSS, BACK OFFICE SHARED SERVICES PTY LTD.
Suite 2, 345 Pacific Highway,
LINDFIELD, NSW 2070
1800 889 232
www.boz.com.au
@2020 ALL RIGHTS RESERVED.
Liability Limited By a Scheme Approved

June 9, 2014

How to Get Staff to Embrace Outsourced Accounting


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How to Get Staff to Embrace Outsourced Accounting

The accountancy profession is going through a massive change as technology and the move to outsourced accounting is enabling firms to provide a better advisory service, control costs better and have a flexible core compliance workforce. The change is inevitable for all firms but managing the change well is of the upmost importance.

Keeping Your Staff Happy

It is only natural that some staff will be concerned about how the use of an outsourced accounting firm will affect their jobs.

Your staff will always be important as the intermediary between the clients and the BOSS accountants and you will always need them. There may be an odd person who just loves compliance and has no aspirations to grow at all. You may choose to have one or more accountants remain in a pure compliance role.

For many accounting staff this is now a great opportunity for them to do more client facing and business advisory work. Having recruited for six years in the accounting market I know this is something a lot of accountants look to achieve in their career because it is more varied and interesting. It is seen as a progression from straight compliance. If you are looking to increase the amount of value-add work that you do, then this is definitely something worth communicating to all your staff. The change is likely to be gradual, so in-house accountants will have the opportunity to adapt.

There is an eight step change process that change management guru John Kotter advocates in his book “Leading Change”. A distilled version of this is below. (Note: The size of your firm will dictate just how far you take each step).

Step 1: Create Urgency

You need to set the stage and create urgency. Open a conversation about the firm, changes in the accounting industry and what your competition is doing.

You need to:

  • Identify threats and envisage scenarios about what could happen in the future.
  • Evaluate opportunities that could be exploited.

Kotter says for change to be successful 75% of the stakeholders need to buy into change. Creating awareness about the changing times should build the conversation and thus promote the urgency.

Step 2: Form a Coalition.

You need a team of influencers that will work together that come from different departments. Their influence may come from their position, expertise, natural leadership qualities or political importance.

You need to:

  • Ask for commitment from these people.
  • Work on team building within your coalition so they support you in your need for change.

Step 3: Create a Vision for Change

A clear vision is imperative so people understand why you are making changes.

You need to:

  • Develop a summary that encapsulates what you see as the company’s future.
  • Create the strategy to execute the vision.
  • Ensure your coalition have the same clarity as you about the summary and vision.

Step 4: Communicate the Vision

You need to:

  • Address peoples’ concerns. Understand there may be some resistance and you need to dig deep for problems. I’d recommend asking all staff the open question (in private if necessary): “What concerns do you have about outsourced accounting work?” – Look to illicit all anxieties so that you can handle them.
  • Talk often about the vision and link it to all aspects of operations.

Step 5: Remove Obstacles

Arrange everything ready for outsourcing and at the same time look for any obstacles: processes or reluctant people.

You need to:

  • Recognize and reward people (praise may be good enough) for making change happen.
  • Help any reluctant staff see what’s needed and why.
  • Adjust internal systems as necessary to facilitate outsourcing.
  • Act quickly.

Step 6: Create Short-Term Wins

You need some quick wins that your staff can see. This will help negate any critics of your vision.

You need to:

  • Look for easy projects that can be implemented without too much input from any “negative staff”. E.g. Outsource easy compliance jobs initially to iron out teething problems internally with the minimum of fuss, yet show the concept works.
  • Reward the people who fulfil the goals.

Step 7: Build on the Change

Small projects are just a stepping stone. So scale up as soon as you can but still commit to the level of care required to ensure success.

You need to:

  • Analyse what is going right and what is going wrong for each project.
  • Set goals to continue building momentum.

Step 8: Anchor the Changes in the Firm’s Culture

Make sure the positive changes are recognized. Ensure your coalition are still supportive of the changes.

You need to:

  • Talk about progress as much as possible.
  • Ensure new hires understand your firm’s changes and benefits.
  • Publicly recognize key members for their contribution.
  • Plan for the long-term, ongoing roll-out.

BOSS (Back Office Shared Services Pty Ltd) is Australia’s premium outsourced accounting provider - helping you maintain quality and control while outsourcing accounting work. To discuss your needs and how we can help, Book a Consultation NOW!

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  • Tips to Market Your Business
  • How to Increase Your Profit
  • And More!

BOSS, BACK OFFICE SHARED SERVICES PTY LTD.
Suite 2, 345 Pacific Highway,
LINDFIELD, NSW 2070
1800 889 232
www.boz.com.au
@2020 ALL RIGHTS RESERVED.
Liability Limited By a Scheme Approved

March 26, 2014

How to Improve Your Cash Flow


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How to Improve Your Cash Flow

Managing cash flow is a widespread problem for accounting firms. There are a number of simple changes that you can make to help deal with your cash flow more effectively, which will help keep your business running smoothly.

To improve cash flow, you need to change the pace of cash coming into the business, and spread the rate of outgoing cash evenly across the month. There are a number of ways to help achieve this. One of the best ways is to implement a value-based pricing system in tandem with using upfront payment methods. Value based pricing is looked at in depth in our article How Value-Based Pricing Works For You.

Upfront Billing

Value-based billing goes hand-in-hand with upfront billing. Upfront billing is one of the surest ways to improve your cash flow, because you receive all, or the major part of the bill before you start work. While value-based billing works best with an upfront payment policy, if you use hourly billing systems you can still implement upfront payments by charging a portion of the estimated time of a project upfront, and the remainder upon completion. Some of the most effective ways to encourage upfront payment include:

  • Offering clients credit card payment options
  • Offering incentives for full upfront payment (such as a 5% discount)
  • Offering the option of partial upfront payment, or payment upon agreed upon milestones throughout the life of a project.

Why Your Training Impedes Your Cash Flow

Most accountants are trained to bill hourly; we’ve already discussed how this can be detrimental to your cash flow in our article How Value-Based Pricing Works For You: a job takes longer than expected; you need to bill your client more…..the client resists the fee and the negotiation wastes time and thus your cash flow suffers.

In addition your training may be damaging your cash flow in another way too. Ask yourself, when do you pay your bills? If the answer is, we pay our bills “when we do our check run” then this may be creating a problem for your cash flow as well. The issue is with timing. The key is to pay all invoices on the date they are due, once they are approved, rather than paying them all at a once. What it does is slows down the rate at which money leaves the bank, or your cash outflow, which will in turn help to improve your overall cash flow.

Another aspect of standard billing practice that could be stifling your incoming cash is the time allowed for payments if you haven’t already switched to an upfront payment method. Offering 60 or 90 days to pay an invoice may seem like a way to keep a client happy, but it’s most assuredly going to give you cash flow problems and doesn’t really bring that much value for your client either. Consider reducing your payment terms to 14 days or even 7 days.

Other Ways to Improve Cash Flow without Dramatically Changing Your Billing Style

Charge Interest on Overdue Payments

Charge a nominal 1% per month interest for money owing past the due date. This has worked well for some businesses in the past.

Factoring

Factoring is a method of securing your cash flow by selling the invoices of your clients to ‘factors’ or businesses that buy invoices of customers that have good creditworthiness. The factors will advance most of the invoice amount to you (typically 70% or 90%) then when the client pays the factor, they remit the balance to you, withholding their factoring fee. This works out great if you have a couple of large invoices that are choking up your cash flow, because you will have most of the money within a day or a couple of days, and the factoring fee will not eat away at the principle amount of the invoice. If however, you have multiple small invoices, factoring them is probably not in your best interest as a way to create cash flow, because the factoring fee may become costly.

Fee Funding

Fee funders are similar to factors in that they pay you the value of an invoice. They differ however, on how the client repays them. Clients can repay a fee funder over a select term period, which means a client that has a large invoice has the option to repay in instalments to the fee funder, while you have already received the full payment upfront from the fee funder.

Take QuickFee as an example. They specialise in fee funding for accounting and law firms, and it costs the firm an initial joining fee to access their services, after which there are no more fees for using the fee funding service. You can then offer their services to select clients, creating a repayment agreement that suits your client’s needs, i.e. a monthly repayment over 6 months. Upon approval, QuickFee credits your account with the full invoice amount, and will direct debit the agreed amount from your clients’ nominated bank account until the invoice is paid in full to them. It’s a cash flow solution for you and your client.

Cash flow problems have potentially huge knock-on effects; growth can be impeded and revenue opportunities lost. Time is wasted chasing late payments and it causes a lot of stress. For some companies cash flow issues can simply mean the business goes under. So if your cash flow could be better, do yourself a favour and do something about it now!

Subscribe to BOSS - Receive monthly articles and special white papers

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  • Tips to Market Your Business
  • How to Increase Your Profit
  • And More!

BOSS, BACK OFFICE SHARED SERVICES PTY LTD.
Suite 2, 345 Pacific Highway,
LINDFIELD, NSW 2070
1800 889 232
www.boz.com.au
@2020 ALL RIGHTS RESERVED.
Liability Limited By a Scheme Approved

March 10, 2014

How Value-Based Pricing Works For You


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How Value-Based Pricing Works For You

Value-based pricing is rapidly becoming the pricing method of choice for professional service firms from law firms to chartered accountancies.

The premise of value-based pricing is that you set prices based on the value the client perceives they are receiving. “Value is in the eye of the beholder. For any transaction to take place, both the buyer and the seller must profit from the exchange and receive more value – in their subjective perception – than what they are giving up,” says Ron Baker, author of Pricing On Purpose: How To Implement Value Pricing in Your Firm.

For example, a client calls with an urgent problem that you, with all your experience, can fix in a half hour. Do you charge the client for half an hour, or do you charge based on the value you are creating for your client? This concept is difficult for many accounting firms to come to terms with…charge the client for a value perception? Isn’t this deceptive? Isn’t it unfair? Won’t charging the client less make them happier?

In fact, pricing for the value you are creating for a client has farther-reaching benefits than just increasing of the worth of your work. This is primarily because to establish a value-based price, you need to involve the client in working out that price. You need complete information from the client, which necessitates greater interaction with the client, which in turn builds a stronger relationship with the client.

Here is a scenario that most of you will have come across. Its tax time and you have a returning client from the previous year. They are expecting the tax return will cost the same as it did last year, but the work has taken much longer than it did last year, and so the client gets a shock at the bill. They call, upset, trying to negotiate their invoice. You are under pressure to keep the client for repeat business, so you cave, losing money. During the negotiation there is no cash coming in for the work done, so your cash flow suffers; worst of all, your client relationship suffers.

Now consider this. Its tax time and you have a return client from the previous year. You arrange a meeting to discuss their tax return, giving them a list of all the documents you will need to complete the tax return and ask them to bring it to the meeting. You spend a little time going through this with them, and then provide them with a value-based quote for the job. They might say that this is more than last year, at which point you can explain that there is more work in this year’s tax return, and can show them where. You might request upfront payment, or maybe bill for half upfront, half upon completion. You and the client are on the same page at the beginning, you have everything you need to complete the job quickly, and your cash flow is not impinged and your relationship is stronger.

Benefits of Value Based Pricing at a Glance

  • The end-client has a clear idea of exactly what they get for their money for a clearly defined job. The client gets peace of mind.
  • It improves the relationship with the end-client – fees do not creep up due to more time being taken on a specific job.
  • It allows other services to be “packaged up” and sold as clear definable “add-ons” a client can choose to buy. This simplifying and clarity helps the client identify, from a complex set of services, what is useful to them. Thus it is easier to attract clients to additional services and then sell to them.
  • Establishing a value-based fee requires accurate knowledge of the client needs, which mandates a pre-project meeting with a client. This collaborative approach helps build a positive relationship with a client, giving you a chance to take on the role of ‘trusted advisor’ rather than mere service provider.

Obstacles to Value-Based Pricing

Value-based pricing methods are not traditional pricing methods, and they take some getting used to, both as a firm, and for your clients. When attempting to implement this method of pricing, some of the obstacles you may face include:

  • Internal resistance: Firm-wide adoption of this pricing method is necessary in order for it to be a success. Training and ‘reprogramming’ staff is an initial investment needed and can meet with resistance, particularly as cost-based pricing (hourly rates) are the pricing method taught at university and the established norm.
  • Client discomfort: Despite the premise of value-based pricing being
    to set a rate that meet’s the customer’s value perception, some aspects of value-based pricing may seem unfair to a client, particularly as you change from one method to another. The best ways to assuage this discomfort is to prove to the customer they are getting their money’s value: increase communication with them, improve your availability, your responsiveness and ensure the quality of your work and improve visibility of senior partners.
  • Finding the value price: Price setting can be difficult if the proper information is not available. This is where engagement letters must be specific; then anything outside the scope of the initial engagement letter becomes an add-on and can be priced as such, without a project running at a loss. In a case where information is scarce, an engagement letter should cover what the project will encompass, as well as what it will not.

While many firms resist using a value pricing method, many still are embracing it, and feeling the rewards of not only increased value from their work, but a stronger and more open relationship with clients. What is stopping you from using value-based pricing in your firm?

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