Title: Pricing Options That Boost Profits: Firms Can Increase Client Satisfaction and Firm Profits Simultaneously by Offering Different Pricing Options, According to Consultant Ron Baker
Abstract: A growing number of industry pricing experts are urging CPA firms to jettison long-standing practice of hourly billing and replace it with a fixed-pricing model, or even more optimal model of pricing. Few public accounting topics spark as much controversy as this one. To give members additional insight into this topic, JofA sat down for a Q&A session with author and consultant Ron Baker, an unabashed value-pricing champion. This conversation provided an in-depth look at why firms should offer different pricing options. Why does value pricing include different pricing options? Baker: There are lots of reasons behind it from a research standpoint, but big one is consumers love choice. What we're willing to pay for something is insanely dependent upon what we compare it to. So if I say, Would you like to buy my unicorn? you have no idea what to pay because you've probably never bought a unicorn before. Offering three choices to customer puts your product in context. It's why most businesses offer three of everything: small, medium, large. This is a well-known strategy because it comports with how consumers make choices and buy things. How many options should CPAs offer clients? Is three best number? Baker: Yes. It seems to be optimal number of options. Two is not enough, and I can give you a specific example why. When you put two options in front of consumers, normally they pick lower-priced one. When you put three options in front of them, majority of time they'll pick one in middle. And it's because of a mental shortcut that we all use. It's a bias kind of built into our brain when we look at three of anything. You have to do at least three, and now once you get more sophisticated, then we've seen some firms do four options and sometimes even five, but that's very advanced. You can actually paralyze a customer by giving them too many choices. So would a lower-price option mean that a CPA would produce a lower-quality work product? Baker: No, not at all. Think about an airline. An airline offers first class, business class, coach, but they have to land that plane safely for everybody. As a CPA, you differentiate based on service options that you're providing client, things like turnaround time, payment terms, and how you are going to deliver your knowledge to your client. Can you talk a little bit more about some of service options CPAs can offer? Baker: We have a model called the six T's for helping firms do this. One way to do it--and a very popular way--is timing. How fast will work be turned around to customer? So theory here is like FedEx. You can send something FedEx same day, which is very expensive. But they can also give it to you overnight in morning, overnight in afternoon. They can do it second day, third day, and they can even go ground, where it's even cheaper. So consumers are used to paying for a certain turnaround time. The lower price, longer customer has to wait for their report or for product or whatever it might be. So that's a very popular one, and it's easiest one to implement. Another one is payment terms. If I go online and book a hotel room and I get cheapest rate, I may have to prepay for that room, but if I pay a higher rate, I may be able to cancel up to day of check-in time. So cheaper price, faster firm gets paid, higher price, maybe more payment terms. Maybe they do monthly for six months or even a year. I think there's a lot of creative things you can do with this as well because if you have business customers, which a lot of CPAs do, you can structure their payment terms around their cash flow. Not around CPA firm's work flow, like doing all work in tax season or something, but around customer's cash flow, which most small businesses love because cash flow is a big deal. …
Publication Year: 2015
Publication Date: 2015-09-01
Language: en
Type: article
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