CPA INSIDER

How implementing value pricing can help your staff get more done

Value pricing can keep your team happier and make your firm more profitable.
By Liz Farr, CPA

"Do you know anyone with accounting experience who could help us out?"

Every fall, partners at U.S. accounting firms ask this question of staff members, friends, and business colleagues as they scramble to assemble teams for busy season and beyond. The talent shortage was confirmed in the most recent AICPA Private Companies Practice Section CPA Firm Top Issues survey. Firms of all sizes, with the exception of solo practitioners, reported that finding qualified staff was one of their two top concerns.

Given this shortage, what can firms do to get the work done with fewer staff members? And what can firms do to retain staff once they find them? Some practitioners have found that value pricing—which has been pitched as an alternative to the billable hour for years—is an answer.

Before we explain why, here's a brief refresher on the concept: In contrast to hourly billing, a value-pricing model sets prices for services based on the value of the work product to the client, not on the labor required to do the work. Thus, the same work may be priced differently for different clients, based on the potential value to each client.

Some firms combine value pricing with monthly fixed-price agreements. Many businesses find that a monthly installment makes budgeting easier. As a bonus, an affordable monthly installment can also make it easier for clients to say "yes" to higher fees for additional services.

Rewards efficiency, not hours

So, how can value pricing help attract and retain staff? Billing by the hour can remove incentives to work efficiently. "When you bill by the hour, all the efficiencies go to the client," said Marty McCutchen, CPA, owner of Marty McCutchen, CPA, P.C., in Fort Worth, Texas. "You can't ever really win."

McCutchen started using value pricing in 2009. He said that the biggest surprise was that the time staff spent on the work went down. "And the quality of the work went up," he added. The change freed employees to take on more clients, be available for more client interaction, or have more time to spend with family.

Improves professional development

When staff have billable-hour goals to meet, higher-level staff members (and even some partners) may be reluctant to share their workload. Rather than delegating work to a less experienced staff member, they may do the work themselves to get credit for the hours. Jason Deshayes, CPA, CGMA, senior technical manager at the AICPA, noted that a lack of delegation results in fewer candidates with manager- or partner-level skills. Deshayes heard this complaint from fellow firm owners during his tenure as vice president of Butler and Company CPAs in Albuquerque, N.M.

The implementation of value pricing, however, can help delegation become the norm for managers. Pushing the client relationship down to staff helps them learn the skills needed to become managers and partners, he said. It also alleviates bottlenecks at the top.

Participation in the pricing process also teaches important skills, said Joe Carufe, president of Knoxville, Tenn., bookkeeping firm Two Roads. His firm has used value pricing since its inception in 2011. As participants in the pricing process, staff learn to accurately estimate the scope of a project and the hours it will take to complete it, he said.

Staff members also develop a keen understanding of the relationship between their effort and the impact of that effort on the firm's overall profit. With the usual write-ups and write-downs of an hourly billing model, this relationship can be an abstract concept.

Value pricing increases staff members' incentives to think of creative ways to get work done more efficiently and to help one another with best practices. Value pricing also can lead to happier clients who are easier for staff to work with: With upfront price agreements, clients know what they'll be paying for services, and the focus for both the clients and the staff is on the relationship, not the time spent doing the work.

Start with new clients, then expand

How can an existing firm begin implementing value pricing? McCutchen's firm first tried value pricing with new clients. "It was trial and error," McCutchen said. "Sometimes you'd get it right. And sometimes you'd get your nose bloodied a little."

As it grew in experience, the firm began offering value pricing to existing clients in conjunction with the additional service of tax planning. The additional services had a high perceived value but did not take much time to complete. After using value pricing for seven years, McCutchen's firm has developed a portfolio of service offerings with a range of prices. The price presented to the client is based on the potential return on investment for the client.

Looking forward

Talent is perennially a key concern for many accounting firms. While value pricing is often touted for its efficiency-boosting potential, it offers talent retention benefits as well. Firms looking for a competitive advantage should look closely at value pricing to see if it can help them attract and keep top-shelf talent.

Liz Farr, CPA, is a freelance writer based in New Mexico. To comment on this article, contact Chris Baysden, senior manager of newsletters at the AICPA.

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