There’s a common chain of events that plagues struggling accounting firms. It looks something like this:
Worse, to stay competitive in this scenario there’s only one thing you can really do – lower your prices. But then your competition lowers their prices. So you lower yours again. And so on. And all the while you’re scrambling to grab up even more low-value clients which in itself costs more time, and of course it also means you’re continuously adding to your workload just to break even.
For this to work at all you need to have a massive marketing presence. You in essence have to become the McDonald’s of the accounting world. That’s not likely to happen if you’re a small or medium-sized firm.
If you find that your firm is crushed with hours per work but you’re still not getting to the point where you’re able to expand then chances are you’re simply not charging enough per service. Your goal shouldn’t be to become busier; it should be to make more money in the hours that you work.
Standing out and charging more
The first question you’re going to have to ask yourself is if low-value clients are worth carrying at all. They take up time for low-paying tasks. It’s time to come up with a minimum charge for your lowest-paying task, and that is a flat-rate, not charged per hour. You’re not doing this to insult those low-paying clients, you’re doing it to put a minimum value on your time.
Consider this – when you’re working on a low-paying client’s file you’re not just making very little money, you’re also giving up time which could be spent on a valuable client, so you could actually be losing money in an overall sense.
Stop charging per hour
Your clients are paying you for a service. They are not paying you for a percent of your day’s working hours. And people prefer to know in advance how much they’ll be expected to pay for that service. Which would you rather face at a mechanic? A) “That’ll be $75” or B) “It will be $25 an hour.” “How long will it take?” They shrug. You come back three hours later to not only find the work hasn’t been completed but they spent some of the time “fixing” things that weren’t a problem and they’re going to charge you for the parts you never asked for.
So, Job One – set fixed prices based, and make them worth your while.
Get paid up front
Somewhere along the way it became alright for the accounting world to allow people to buy their services on credit. What other service industries allow this? Some might do a partial up-front and the rest-down later approach (like roofers, for example), but how many give their whole service away in the hopes that they’ll be paid later?
You don’t owe it to anyone to let them slide. You’re running your own business here. And again, while you were working on Client A’s tax returns you could have been doing Client B’s monthly business analysis.
So if Client A keeps slipping out of paying you, promising over and over again that they’ll pay you next week, you’re not only not able to use Client A’s money to expand your firm, you’re also wasting time chasing them and you lost the paid hours you would have worked if you have been focused on Client B’s file.
Get paid up front. Turn what you’re owed into your asset as soon as possible. Get it working for you (isn’t that what you tell your clients?). Don’t waste time chasing delinquent dues.
Ignore market share
It’s a mistake to try to grab up as many people as possible. First of all, as stated earlier, this would require massively expensive marketing. Second, you’re simply not going to win if you’re a small or medium-sized firm – how would you ever get all the compliance work done required by 40% of the market, never mind higher numbers?
A focus on numbers is another way to get into the downward spiral of a price war. It’s much healthier to focus on quality over quantity – high-value A-list clients over low value high-volume D-list clients.
Increase the right prices
In order to maximize the value of a client you’re going to want to steer them towards packages of services that don’t require tons of extra work on your part but give a lot of value back to the clients.
If you’ve tried buying something online that has tiered sales packages chances are you’ve probably seen the equivalent of a bronze, silver, and gold selection of packages. Each increases the number of services and/or value-adds on offer.
Quite often one of them will be listed as the “best value”. Sometimes that best value is the gold (most expensive) option. But sometimes the silver option is listed as giving the best value – it offers more essential services and value-adds than the cheaper bronze option, but is far less expensive than the overpriced gold option which doesn’t add all that much for how much they’re charging you.
This isn’t a slip up, it’s deliberately steering you towards the silver package that turns you into a more valuable customer or client for that business. In other words, you’re paying more than the bronze, but you’re requiring less work than that demanded by the gold. The services in the silver tier are more valuable to that company.
As an experiment, try setting up the equivalent of a bronze, silver, and gold package of services for a niche set of clients. What package of your services could you put together as your ideal silver tier that would offer value to your clients while at the same time make you the most money without requiring heaps of extra work?
Be the first to set your price
The ability to set the first price for a specific kind of service, or a suite of services, is fairly rare in the accounting world due to the number of firms.
But if you’re positioning your firm to service an underserved niche industry or field then you have the chance to be the first one to set the price that the clients found in that niche will expect. You will create the norm. Others may come along and undercut you, but you will have staying power because you were the first, and being first grants you authority.
It’s a cliché for a reason – time is money. Stop undervaluing your time. Sell services, not a percent of your day. Make more while working less. Your firm deserves more.