How can you articulate the true value of your services to clients – and charge them fairly for it? Count Practice Development Manager Paul Tsikopolous has some answers.
Accountants who are moving into the financial advice space for the first time all face the same burning question: how do I price my advice services? And while some have taken the pricing challenge in their stride, others are struggling to articulate the value of their revamped service offering and its associated fee structure.
According to Paul Tsikopolous, Practice Development Manager for Count, some advisers may be tempted to calculate their fees according to the value of each client’s investment portfolio. However, this approach may not be acceptable to some clients, particularly those who are trusting you with a larger asset base.
“If I have a $2 million client and a $4 million client, why should the client with the higher net worth be paying twice the fee for the same service?” Paul said.
Instead, Paul believes your pricing should reflect the value you provide to your clients. And when you’ve settled on an appropriate pricing model, be sure to apply it consistently across your client base.
Time-based versus value-based
Charging for your time is an approach most traditional accounting firms are familiar with. But while a time-based fee may be simpler to calculate than a value-based one, the risk is that the hours you spend may not accurately reflect the level of service you’re providing. And to keep your clients happy, you might even feel compelled to put in more time than you’re actually charging for.
“If you do time-based billing, you need to consider how much it costs you to deliver each service, and then impose limits on the amount of work you put in,” Paul said. That’s the only way you can recoup your time and ensure you can make a profit from delivering a particular service.”
A recommended option is to switch to a value-based pricing structure. That means looking at the value your services bring to the client – in other words, how you’re improving their overall financial position.
“You need to look at the frequency of business you’re getting from a client and the complexity of the advice you’re providing,” Paul explained. “For example, you might have a client who you only see once a year, whereas another client may need regular assistance with their SMSF, insurance and cash flow.”
Articulating value to clients
For many advisers, the major barrier to value-based billing is the ability to clearly demonstrate that value to clients.
“Getting clients to understand the value of your advice is critical,” Paul said. “You need to be able to articulate it clearly for the client to accept the fee, so the positioning is very important.”
Paul believes it comes down to having faith in the strength of the relationships you’ve already built up with your clients – and keeping those relationships at the centre of the advice process.
“At the end of the day, clients come to you because they trust you and connect with you,” he said. “So as long as your fee accurately reflects the service you’re providing, in most instances they’ll willingly accept the fee.”
Paul also emphasises the need for ongoing professional development, so you can keep delivering a quality service that adapts to changing client needs and preferences.
Paul commented: “The industry is constantly evolving, but are we equally evolving as individuals? It’s important to focus on regulation, but don’t neglect your own personal skills. We can always improve on our interactions with clients.”
Balancing consistency and flexibility
As every accountant and adviser knows, there are some clients who demand more of your time than others, even though they pay the same fee. So although the fairest approach is to apply your pricing structure consistently across your client base, it’s important that each client understands what they’re getting for their money.
This can also make the conversation easier if you ever need to raise your fee for a client who requires a higher level of service.
“You need to tell the client what their service package covers and what it doesn’t, so you have that flexibility to change the service package later if the client’s needs change,” Paul said.
But value-based pricing is a two-way street: if you don’t feel your client is gaining the most benefit from the agreed service package, you may need to revisit their service arrangement.
However, a consistent approach to pricing doesn’t have to mean flat-fee service packages. Although these may be attractive to clients, they can make life more difficult down the track if you have to increase every client’s fees simply because your internal costs have risen.
Instead, Paul advocates a flexible service offering based on each client’s individual needs, rather than following a one-size-fits-all approach.
“Because every client is different, there’s no magic bullet or secret answer,” he said. “But as long as you can clearly articulate your value and pricing model to the client, you’ll be able to arrive at a pricing solution you’re both comfortable with.”