Record all chargeable time to ensure pricing
accuracy.
Chargeable time measures the cost of serving
clients. It’s how long you spend working for them,
regardless of whether you plan to send a bill. To
determine whether time is chargeable, ask yourself,
“If I did not have this client, would I have spent
this time doing something else?” If you answer
“yes,” the time is chargeable. Nonchargeable
time is time worked but not chargeable to a
client. Examples of nonchargeable tasks include
practice development, recruiting, training and
attending meetings and conferences. Authorized
leaves of absence during business hours, civic
activities, holidays and vacations also count as
nonchargeable time. Some CPAs think that if
they don’t plan to send an invoice for a certain
service, they need not record the time. This can
cause a loss of profitability in firms because
failing to record all chargeable time distorts the
cost records for particular clients. If you don’t
know how much a job cost last year in materials and
time spent, your decisions are not going to be
accurate the next time you need to set a price for a
service or create a budget. The chargeable time you
spend on a client (whether or not you write it off)
still is a cost to serve that person and should be
recorded in your time-keeping system in order to
better manage your business.
Learn how to use value pricing.
With value pricing you charge
for services based on their value to the client
rather than on how much it costs you to provide
them. You can—and should—price many engagements
based on what the client thinks they’re worth
instead of the actual time you spend doing the work.
For example, when you show a client a return on
investment substantially greater than the amount he
or she invested or get someone a bigger tax refund
than he or she expected, that is a good time to
consider value pricing. Keep in mind a simple truth:
Most clients value your services higher than you do.
Value pricing is particularly appropriate for
value-added services or when monetary savings or the
extra revenues you produce for clients are visible
to them and measurable. If the value of your
services is above standard, you should charge
above-standard rates. Remember, clients will accept
value pricing if you discuss it with them before
performing services: If you have a long history of
charging clients based on chargeable hours, you
don’t want to surprise them. Also become
familiar with the value gap —the amount
clients are willing to pay in excess of the amount
the practitioner feels comfortable charging. Aside
from objective elements, such as time at standard
rates and other direct chargeable expenses, you
should consider subjective factors that merit a
price either higher or lower than the standard. Some
such factors include the acceptability of the price
to both you and your client, the amounts involved,
the degree of risk and responsibility you assume,
the priority and importance of the work to the
client, the results you obtain, seasonal factors and
your special capabilities. The primary criterion,
however, is the value of the services to your
clients.
Know what results pricing is and isn’t.
Results pricing is the practice of agreeing
with the client in advance to charge based on the
results you obtain, regardless of the amount of time
involved. It is not a gratuity you add on for extra
special service after an engagement has been
completed.
Consider the use of fixed-price
agreements. These pacts transfer
the risk of cost overruns from the client to the
CPA. In return for assuming such risk, you can
charge a premium to the client. Given a choice, many
clients prefer to pay more in return for having a
ceiling on their price. Fixed-price agreements
communicate competence, confidence and experience on
your part. However, when using them, be careful of
scope creep, a phenomenon in which a
project expands beyond its original conception
because the client keeps asking for additional
services and the accountant provides them because he
or she hasn’t set clear boundaries on the
engagement.
Know the right way to raise prices.
Most clients have no problem with
increases of less than 25 to 30 percent; therefore
there’s no need to announce such routine hikes. If
you decide to raise prices more than 25 to 30
percent, make sure you discuss this with
clients—using the word adjust instead of
raise —before you do any client’s work.
If someone has a problem with your new prices, it is
better for you to find out beforehand. This gives
him or her the opportunity to go elsewhere for
services and you the opportunity to stop working for
less than you are worth.
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