My Journey from Hourly Billing to Value Pricing in a Top 100 Accounting Firm

Read Time: 4:39 minutes

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In the last issue, I discussed how to do tiered pricing in your accounting firm. This issue will examine how I went from hourly billing to value billing in a top 100 accounting firm. And how I am currently pricing in my firm.

Hourly billing

The first firm I started doing CAS for was billing by the hour, so I followed suit. I quickly realized that my clients hated being billed by the hour and would only focus on the bill afterward. Plus, I always felt guilty billing all my time, so I typically would write off whatever my realization goal was in hopes the client did not complain. 

I became good at selling CAS, so my capacity started filling up. However, I was not rewarded for bringing more work in the door. So, I became more aggressive with pricing.  

Fixed Fee

Based on clients not liking being billed by the hour and the lack of reward for bringing in new clients led me to fixed fees. I started by using a spreadsheet similar to the one in the image below to come up with a calculation for a fixed fee. I built some cushions, but I was essentially billing by the hour. 

I made a lot of mistakes along the way. On one of my larger clients, I had to explain to the managing partner why the realization was less than 50% 😱. That led me to build in parameters such as fees being evaluated and changed on a monthly basis upon approval. It sounds good on paper but is more challenging to execute.

Instead, I found it easier to increase prices to avoid another significant realization issue. Clients kept saying yes, so I kept increasing the prices.

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Tiered Pricing

Tiers allowed me to be more aggressive with pricing. I would put work I didn't want to do in my top packages at prices I thought would get no, but some still would say Yes.

I was making up prices on the fly, so I knew there had to be a better way. This led me to attach value to my proposals. My go-to back then was replacement costs since I did a lot of accounting automation and outsourcing. Now, I have a handful of ways to justify pricing👇. 

Value Pricing

When I first heard the term value pricing, I started consuming everything I could find on value pricing, which mainly consisted of everything Ron Baker and his book Implementing Value Pricing. 

I do recommend you read Ron's book. However, most of my learning came from listening to prospects and current clients on what they find valuable. I have also done Voice of Customers for clients to determine pricing. 

Use the items in the Tweet above as a starting guide. Then, develop your own value as you gain experience pricing more engagements. My default is the value calculation in the image below. 👇

Putting It All Together

I am constantly changing my approach. I have even made several unsuccessful attempts at involving equity in my deals. At the core, I am doing the following:

• Setting a minimum price 

• Asking a ton of questions and listening 

• Doing an assessment

• Calculating value - I am more aggressive when my team capacity fills ups

• Presenting a tiered package 

• Replaying the sales process 

The above approach took me years to develop, so do not feel like you need to implement it immediately. My approach was to change the piece that caused me the most pain each time. You cannot do that without starting now.  

Thanks for reading, Luke Templin!

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