In 2006, Dominique Molina, CPA, was desperate for a change.
Long hours and the challenges of running her small tax practice were taking a toll on her health, relationships, and family.
Molina took a hard look at how her clients perceived the value of her work for them. She realized her pricing and business model were out of sync. She was charging clients by the tax form but also providing high-level advisory services at no extra fee. It was those high-level advisory services that her clients found most valuable.
With that insight, she began experimenting with value pricing by creating packages that showcased the high-value advisory work. By connecting her tax planning work to potential tax savings, she was able to increase prices while providing more in-depth and tailored services to clients.
For example, a tax plan that she would previously have billed out at $600 for two or three hours of work now may cost as much as $20,000 or more, depending on the size of the client and the value of the tax savings to the client. Clients who previously complained about being charged for every phone call saw the value of her services in a new light and sent her referrals like "crazy," she said, even when their fees increased tenfold.
She cut her client list by 83%, and while her top line took a significant hit, her bottom line doubled. With fewer than 30 clients, she can give each of them the attention they deserve and work only about 250 hours a year on her tax practice. Fewer hours at work meant she lost weight, reconnected with friends, and "except for one playoffs game, I've never missed a game or performance" for her son in almost 13 years.
Molina was so excited about the impact her tax planning services had on her clients and the additional revenue that value-pricing those services brought to her firm that she co-founded the American Institute of Certified Tax Planners (AICTP) in San Diego in 2009, where she now devotes the bulk of her time. The AICTP is a not-for-profit membership organization that teaches tax professionals how to provide high-value tax planning services using a value-pricing model.
Value pricing isn't just a method for pricing your services; it entails a whole new business model and is the "the maximum amount a given customer is willing to pay for a particular service before the work begins," said Ron Baker, CPA, a well-known value-pricing expert and founder of the professional services-focused VeraSage Institute.
It reflects the client's perception of the value he or she receives from the services that a firm provides, Baker explains in his book Implementing Value Pricing: A Radical Business Model for Professional Firms. This value to the client may be in the form of tax savings, increased profits, having a trusted adviser to call upon, or simply having a professional do the work. The scope of services, price, and payment terms are defined before the work begins and may be set by project or for a range of services to be provided over a period of time. A sample package of services might include a tax return, accounting services, monthly or quarterly meetings with a partner, and unlimited phone calls during a calendar year, all to be provided for one price that is agreed to upfront.
"Value pricing is really about setting a price commensurate with the value created, not the time it takes to do the work," Baker added.
As an example, Baker compared it to hiring a landscaper. A homeowner who wants to sell a house may be willing to pay a premium above the cost for routine maintenance if a landscaper promises that the home will have a high curb appeal. "I'm going to invest in that for the next three months because I'm trying to sell my house and it's going to probably pay off big time," Baker said.
For many advisers, moving to value pricing may mean providing additional advisory or consulting services.
Charging by the hour means your income will always be limited by the number of hours in a day, a ceiling that doesn't exist with value pricing, said Hector Garcia, CPA/CITP, CGMA, founder of Quick Bookkeeping of Miami, who has used a value-pricing model for five years. Plus, he added, "no one else cares about how long it takes you. It's all about results."
Here are tips for firms that want to explore value pricing:
Adjust your mindset. Changing to value pricing first requires a mindset shift. "You will never get paid more than you think you're worth. So, if you only think you're worth $150 an hour, whatever your rate is, then that's all anybody's ever going to pay you," Baker said.
Study the pricing model. Adrian Simmons, CPA, chief creative designer of Elements CPA in Laurel, Md., recommends spending time reading books and articles and attending seminars on value pricing. "You're changing the way you think, so it takes a little bit to understand how to think differently" about pricing, he said.
Connect with others who have implemented value pricing. By learning from others, a practitioner can gain enough competence to get started, according to Simmons, who has been using value pricing since 2012. Attending conferences on value pricing or joining online communities dedicated to value pricing can be a good way to meet people at various stages of the value-pricing journey. Once you have a basic understanding of value pricing, asking others for advice is the best way to learn, he said.
Create value for your clients. When you provide relevant and useful insights or advice to your clients in addition to services such as their tax return or financials, you're providing additional value to the client, which makes your services worth more. "A lot of folks struggle with value pricing because they're trying to price without adding value first," Garcia said. Simmons noted some of his clients agree to paying his firm two or three times what they paid previous accountants.
Developing a specialty, such as tax planning, as Molina has, or working with creative entrepreneurs as Simmons's firm does, is another way to create value for clients. Garcia, who shares his QuickBooks expertise on a popular YouTube channel, said, "You want people to be dying to work with you because you're the absolute expert."
Begin with a conversation about goals and value. Baker's first step in the process is having an in-depth value conversation between the practitioner and the client. "You're really asking the client, not what do they need, but what are they trying to achieve. What is the desired end goal?" Baker said. By asking probing questions, a CPA can understand the client's situation and develop a proposal with tiered packages of services.
Simmons suggested walking clients through the possible financial outcomes of the proposed services and using those answers to develop prices.
Roll out in stages. To transition his practice, Garcia began with his new clients first, then moved on to his most labor-intensive current clients. Simmons also began with his new clients. He recommended then applying value pricing to a subset of existing clients.
Brace for losing some clients. Be prepared for the possibility of losing long-term clients, Molina said. But realize "if someone leaves, you'll have the space to take on somebody that's going to be a better fit," she said.
Review, refine, and repeat. To get better at value pricing, Simmons recommends using after-action reviews as a way to "capture the learning each time." After-action reviews are a technique borrowed from the military to review whether the objectives of a mission were met, consider what worked and what didn't work, and refine processes going forward. Using these reviews, practitioners can quickly learn how to have better value conversations, how to price their services better, and how to provide a better overall experience for clients, Simmons said. Baker agreed that value pricing is a skill that can be improved with practice.
Commit to the process. Changing to a new business model won't be easy and may take more than a year to fully implement, said Molina, who spent 18 months transitioning her practice to value pricing.
"I really had to dig deep and put in extra time where I thought I had no extra to give," Molina said. "But it was so worth it."
The biggest benefit may be focusing on the client's needs instead of on the hours required. "When you engage in value pricing, the focus ends up on what's most important, which is what you deliver to the client and taking absolute best care of the client," she said.
Liz Farr, CPA, is a freelance writer based in New Mexico. To comment on this article or suggest an idea for another article, contact Chris Baysden,a JofA associate director, at Chris.Baysden@aicpa-cima.com.