Three Ways to Price Your Accounting Services

The most popular ways to price your accounting services are:

  1. Hourly Pricing.
  2. Fixed Fee.
  3. Value Pricing.

The definitions of these three methods vary because accounting vendors and consultants don’t always agree on what they are. The key difference among the three methods is the basis or starting point of the price: time-based for hourly, cost-based for fixed, and client-based for value pricing. Here’s my take:

Hourly Pricing

Hourly pricing is based on time spent working. Your hourly rate should take into account your (or your staff’s) experience level, the market price for the type of job, and your desired profit. Most people start too low and have trouble raising their rates. Others are priced fairly but don’t know how to communicate their value.

When you are first starting out with little experience, it’s probably not a bad idea to price by the hour. Large firms do this to the new recruits and end up reducing the client fees due to employee inexperience. Small firms do not have this problem.

Hourly pricing is one step away from being an independent contractor. Expect clients to compare your hourly rate to your competitors regardless of how fast you work. Move to another pricing method as soon as you have some history under your belt. As an exaggerated example, if you can fix a million-dollar problem in an hour, you might not want to use this pricing method!

Fixed Fee

Most clients want you to quote a fixed fee price so they can plan their budget and know their limits. If you know how long a job will take based on your history and include all of the costs accurately plus a healthy profit margin, you can do well pricing by fixed fee. Package pricing is a form of fixed fee pricing.

Fixed fee pricing requires you to develop estimating skills. You must let the client know up front what it’s going to cost. If you are wrong, you eat your profit and maybe some costs if you miss your estimate by a lot. Some people are afraid of fixed fee pricing, but it can be learned like anything else.

Many people feel that they are value-pricing if they are pricing by fixed fee and adding a hefty profit. This is not true. If it’s cost-based, no matter how large the profit, it’s still fixed fee pricing.

Value Pricing

Value pricing is based on what the client values and is best done when there is a high return on investment for the client. To price a job using value pricing, an interview with the client must be conducted to determine what the client values.

During the proposal cycle, you determine through diagnostic questions the outcomes of the work that the client values and what the dollar amount of that value is. The sum of the value of these outcomes is what makes up the price of the work. Each client will value different things, so each value-based price will be unique to each client.

Cost does not factor into value-based pricing. It’s purely determined by what the client values. I’ve found that many accountants think they are value pricing but they are not. I just don’t want you to miss out on true value pricing if you have the definition wrong.

If It’s Working

Despite what other consultants say, you can make a good profit using any of the three methods.

If your pricing is working for you, then it’s not all that important to label it. If you’re not happy with your pricing or you get negative feedback from your clients, then developing your pricing skills might be a good next step for your practice.

Which pricing method do you use?