Accounting Today is offering a superb article on the intersection of talent shortages, capacity constraints, and pricing in
the accounting industry. The conclusion of this article is one that all professional services providers, not ju
st accountants and CPAs, should consider.
You must register to read the entire article, so I’m liberally quoting to save you if you prefer not to do that:
“When talking to a firm recently about an M&A opportunity, the conversation turned to price. They told us about their pricing plan, which we told them to revisit because it was too low. They told me they received a call from a business whose accountant "let them go." The owner called 15 firms that did not answer or told her they were not accepting clients. Our client was stunned that 15 firms told her no. I was stunned that she found 15 other firms to call first, but that is an article for a different day.
“If you took that call, knowing 15 firms would not take her work, what would you do? You should price the work extremely high. There are two main considerations to review. First, if she accepts a high price, it tells you your perception of a high price is too low. Second, if you can acquire a new client that adds two or more times the profit of existing clients, you need to review if you should continue supporting those existing clients moving forward.”
[I need to add a third and vitally important consideration of my own: what if that accountant who let that client go did so because they weren’t a great fit, or worse, a toxic client? You must consider the possibility that the former accountant may have “let them go” for a reason you don’t want to find out about the hard way.]
“. . . .In our labor market, demand combined with the client's perceived value is what you should use to set fees. If you are delivering tremendous value and the client does not see that, then either you have the wrong client, or your perception of tremendous value is incorrect. In either situation, you need to adapt, but a lower price is not the solution.”
Taking your capacity into account is one that all professional services providers, not just accountants, and CPAs, need to think about in setting prices. At any point in time, your practice is an airplane with limited capacity. Sure, you can change capacity with additional technology or staff, but those changes are long-term and unpredictable.
Price relative to the client’s perception of value, but factor in your capacity constraints.
(Here's the link to the full article: https://lnkd.in/eyQN_zcJ)
Image created using Craiyon (Formerly DALL-E Mini)
(This blog post was also posted on LinkedIn.)
©Ray Business Advisors, LLC and John Ray
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About me: I help solo or small professional services firm owners with the confidence and positioning necessary to improve their pricing and change the trajectory of not only their business but their life.
I have a podcast called The Price and Value Journey, which features interviews with industry leaders and audio versions of my blog posts. You can find the podcast on your favorite podcast app.
I also have a book coming out in 2023: The Price and Value Journey: Raise Your Confidence, Your Value, and Your Prices to Grow Your Business Using The Generosity Mindset.
For more information, go to PriceValueJourney.com