Understanding Pricing Strategies: Insights from My Experience
Yesterday, after receiving an unexpected amount of interest in a pricing model spreadsheet I use for my business, as well as engaging in discussions with individuals launching new firms, I realized it might be useful to share my thoughts on job pricing with a broader audience.
Background
To provide some context, I run a small Bookkeeping business in Central Texas. I’ve been operating for a decade, focusing solely on Bookkeeping and cleanup work. I don’t handle payroll or AP/AR, nor do I deal with niche Accounting areas like construction job costing or complex inventory management.
My experience has shown that discussions about pricing often arise, and typically, the conversation defaults to setting an hourly rate. Personally, I’m not a fan of hourly pricing, and here’s why:
-
Learning Curve Costs: When you charge hourly, the cost of your learning curve is passed on to the client. Every client presents a learning curve, and if you’re new, you also face the challenge of mastering the software and consistently delivering accurate results. In my opinion, charging clients while you learn seems unprofessional.
-
Client Assurance in Pricing: Clients prefer knowing their expenses upfront and appreciate consistency in billing. Deviating from this principle cost me my first client, a painful lesson at the time.
-
Clarity in Deliverables: Defining what services you’ll provide for a specific price enhances your sales pitch. This clarity is appealing during consultations and looks professional in a one-page proposal. Mastering this approach helps you sound confident and close deals more effectively.
-
Reduced Administrative Burden: Tracking time can be manageable with a few clients, but it becomes cumbersome as your client base grows. It’s also tedious for your staff when project time needs to be monitored.
My Preferred Approach
From the above, you might guess that I favor flat or flat monthly pricing models. Here’s how I apply it:
- Cleanup Jobs: Pricing is based on the total transaction volume.
- Monthly Work: The price is determined by the average monthly transactions.
Gathering Necessary Information
Securing information before finalizing a proposal depends on the trust established during consultations:
-
Existing QuickBooks or Xero Users: I request clients to invite me as an Accounting user to assess their project needs accurately. If they agree, it indicates trust, and I evaluate transactions and bank accounts before sending a proposal.
-
New Businesses Without Books: I ask
One response
Pricing strategies can be a critical aspect of running a successful business, especially for service-oriented firms like Bookkeeping. Your approach to pricing highlights a well-thought-out method to address common concerns associated with traditional hourly billing. Here’s a breakdown of your pricing philosophy and some additional considerations:
Why Avoid Hourly Pricing?
Learning Curve Burden: Charging by the hour transfers the cost of inefficiencies and the learning process to your clients, which may not be fair or professional, especially if you are new to the field. This can damage client trust and satisfaction.
Client Predictability: Clients appreciate knowing their costs upfront. Consistency in billing helps to build long-term relationships, as clients can budget more effectively without unexpected charges.
Clear Proposal Advantage: Fixed pricing allows for a cleaner, more attractive proposal. Clearly defining services and their associated costs can increase client trust and confidence in your services.
Administrative Ease: Tracking billable hours can become cumbersome, especially as your client base grows. Flat-rate pricing alleviates this administrative burden, allowing you to focus on delivering quality services rather than managing timesheets.
Preferred Pricing Model: Flat Monthly & Transaction-Based Rates
Clean-Up Jobs: Price these services based on total transaction volume. The more transactions, the higher the complexity and time required, warranting a higher fee.
Monthly Work: Utilize the average monthly transactions to set a flat monthly rate. This aligns with the ongoing nature of Bookkeeping and provides stability for both you and the client.
Building Trust to Set Prices
Existing Accounts: For clients with systems like QuickBooks or Xero, request access as an Accounting user to review their transaction volume and set an appropriate price. This interaction builds trust and shows your commitment to providing a tailored service.
New Books: If clients haven’t established their books, request two months of bank statements to understand their transaction patterns. This also serves as a trust-building exercise.
Trust and Transparency: If immediate detailed information isn’t available, trust cues and transparent communication about potential price adjustments are crucial. Always prioritize establishing trust to facilitate smoother sales and client onboarding processes.
Final Thoughts
Your approach encourages service providers to deeply understand their deliverables and set clear boundaries on their offerings. Crafting a pricing model suited to your specific services helps ensure that you provide value without underselling or overextending your resources.
To those interested in further exploring your detailed