The way you set your fees directly dictates the profitability of your firm. So why is the fee strategy of many firms not really considered? What should you consider when trying to increase your average fees, or set a pricing strategy for your firm?
A recent survey
On a recent webinar we conducted a survey about how Accountants set their fees. Nealry 90% of them said that their pricing strategy is linked to the local market (price in line with or below). Interestingly 60% of them use ‘gut feel’ as a way of doing that! How could you improve your pricing strategy?
Considerations for a pricing strategy
There are some scientific and some emotional elements to price setting, the combination of both determines how successful your fee strategy is.
- Price elasticity: How responsive are your clients to price changes?
- Confidence: Do you have the confidence to increase your fees, and to carry off the new pricing strategy? Less obviously, what’s your staff confidence like? They often have more client interaction that the partner, albeit at a different level.
- Marketing: What is your marketing message, and does it align with the pricing strategy?
- Target clients: Who are you trying to attract, what services are you selling them and does this align with your planned fee structure?
- Reputation: We all like to think we have a great reputation, how do you leverage yours?,
All these factors need to be considered, or you can end up with problems, ranging from not setting high enough fees (common) to losing clients from overcharging (less common, but biggest fear). How have you decided on your fee strategy, and do your team understand it?
The most discussed pricing strategy, ever?
You have been affected by the price change that gets people moaning in the pub, gives the national papers something to talk about for days, hits “News at 10” and changes profitability by 25% in a swoop. How often have people you know moaned about the price of petrol?
For many years I was responsible for pricing 6 billion litres of petrol each year, for a major oil company. It’s a product, not a service, but you might learn some lessons to improve your firm. The simplest might be to think about it more (read trying to avoid pricing whilst on holiday).
My advantage was that I had was a mass of data; our prices, our sales, competitors prices (they’re pretty easy to check). I also knew cost prices (fluctuated daily), could calculate price elasticity and ‘the optimum price’.
Except it didn’t work out like that all the time.
Competitor prices were advertised on 6 metre signs, but not always accurate, and exactly who did one compete against (where did people drive to anyway)? How do you check what your competitors are up to, and who are you competing against?
Confidence and client service often affected price elasticity more than some of the more obvious factors. New management in a site, changed standards and customers were less happy to accept a price change. What’s your client service like… no what’s it really like? Did you read “Client service – what is it worth?”
What’s pricing strategy got to do with confidence? If the staff started telling customers it was too expensive, or acting differently, sales dropped. Sounds daft, but it happened even in a price sensitive product market. Now consider what it would be like in a professional service firm, where the way people get treated is even more important.
Then there’s your confidence. My experience with service firms shows that many owners don’t have the confidence to increase fees. The result, fees don’t reflect your qualities. Read – what would it take for you to increase your confidence?
- Marketing: Just as you thought you had worked out the price elasticity for a given site, something changed in the market. We now wanted to be perceived differently (our marketing, or strategy changed, and so the data wasn’t all as relevant as it could be.
- Reputation. Then there was an ongoing debate about how to leverage additional fuel quality and reputation, faced with complaints from sites about falling sales (although the numbers didn’t always back this up). Growing your reputation is something that will help you withstand a price differential, but you need work on confidence and being resilient too.
You will also enjoy reading “add on pricing” a look at the issues around how you build up your fees schedule
Your fee strategy – a conclusion
Most business owners think about setting higher prices, but often worry about implementing this as a pricing strategy. The emotional factors are normally the cause of the problem, rather than the actual numbers. What would it take for you to look at increasing your fees? (read 10 ideas to help you increase prices)