Pricing to Win

I was reading a white paper on activity-based pricing models and it got me thinking about a seasoned CPA who was delivering a tax seminar. He was so committed to the success of his fellow CPAs that he went off topic and started talking about the merits of a flat rate over hourly.

Entire industries shift the way they charge their customers. It’s about the ability of a business to keep making available its products and services…and about the way the pricing is perceived by customers, which is impermanent.

Be careful of a “grass is always greener” approach with pricing. It’s not better because it’s different. If it’s better, it’s because there’s a greater match for how the value is perceived by the customers and the model can sustain and grow the business.

CPAs usually charge an hourly fee for their services. However, a customer’s greatest concern is that costs will get out of control in order for a project to be completed. A client shared this concern with me recently as we discussed a suite of services, so we explored alternatives:

  • A fixed fee for the project

Upside for the client: Peace of mind
Upside for the vendor: Peace of mind is valuable, so the price can be set somewhat higher than an estimate based on an hourly rate.

  • An hourly rate with a cap

Upside for the client: Peace of mind and the possibility of paying lower than a fixed fee.
Upside for the vendor: Charge the full hourly rate with no discounts. If the project comes in lower than the cap, rate realization will be high.

  • Success fee

Upside for the client: Guaranteed to come out breakeven or ahead.
Upside for the vendor: Upon realization of the additional cash flows due to cost savings or greater opportunities capitalized upon, the project fee will be greater than either a fixed fee or an hourly rate.

  • Others: Success fee with a low guaranteed minimum; subscription; freemium; premium; hybrids of any of these.

Owners of product-based businesses and owners of service-based businesses have a lot to learn from each other.

I have welcomed aboard more than one good client by being creative with pricing, with no sacrifice to the health of my business.

What area of your business would you like to grow? Consider an alternative pricing model and monitor and measure the impact on your business.

 

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