What can accountants learn about pricing and cross-selling from retailers?
A common mistake among retailers is selling based on price rather than on value, a retail industry consultant wrote recently. When retailers focus on price, it results in customers “cherry-picking the best item while avoiding the profit-filled add ons,” says The Retail Doctor founder Bob Phibbs. “It’s like they go to the bargain matinee but never visit the concession stand.”
Accountants who yield to real or perceived pricing pressure would do well to remember his comparison during meetings in the coming months with tax or audit clients.
Granted, your accounting and consulting services probably aren’t overpriced the way movie popcorn is. Nevertheless, just like retailers, many accountants are frustrated by pricing pressure on compliance-driven services and the resulting hit to the bottom line. Indeed, a poll by Sageworks during a recent webinar found that many accountants don’t set fees at levels they want, primarily because they believe clients won’t pay up, or they worry that others will charge less and take the client.
Like retailers, however, accounting firms have important control over whether clients select only compliance-driven services, which are typically lower margin. And they can take steps to prevent prices for those services and others from being pressured even lower.
Phibbs advises retailers to resist using discounts as a first resort. Discounting attracts “dirt-scratchers who will only show up for the discount,” he says. Similarly, accountants may be tempted to jump into a price-cutting discussion when clients or prospects express concern about the cost of tax or audit services. Focusing on price devalues your services and sets you up for a race to the bottom. Gaining or retaining a customer only because your price was cheaper can set the tone for future upselling efforts, and falling prices generally create the need for more volume in order to cover expenses. With less time per client to provide quality services, your business with existing clients may suffer – or at least fail to flourish. And you’ll probably have less time to go after clients who need the services your firm would like to grow, such as business valuations, industry-specific strategic planning or litigation support.
Rely on value selling
When retailers sell the value of the product rather than the price, they shift buyer fixation away from the money coming out of their wallet, Phibbs notes. In order to sell the value, sales staff need skills and knowledge – not just an intimate knowledge of individual products, but also the ability to understand and listen for buyer motivations.
In the same way, accountants who embrace value selling can help clients clearly see how the services meet their unique needs and how the accountant is expertly positioned to assist. Accountants who understand what clients need even before the clients do and who listen for clues that clients may be ready to address the need can more easily illustrate how the firm’s services can help. If your firm is providing only compliance-driven services, consider adding a few type 2, or advisory services that will meet the growing needs of your clients.
Value selling, by the way, is different from value pricing, though they’re both based on the idea that the value provided to the customer is what matters most. Value pricing is an increasingly popular strategy of setting prices based on the overall perceived value to the customer instead of billing at the end of the engagement by tallying up the hours worked by partners, junior associates and administrative assistants. Value selling is a strategy for having a solid understanding of the firm’s menu of services and keeping client discussions focused on the long-term benefits of these services, as opposed to the cost of them.
Make valued services the star of the show
Another point to consider is whether your accounting firm’s emphasis on compliance-related services is preventing clients from recognizing and seeking the type 2, advisory services you might be trying to grow. Type 2 services, such as financial planning and business valuations, can deepen relationships with existing clients, provide opportunities to provide new services to them, and attract more of the clients most coveted: those who pay on time and can afford to pay more for valued services. But if all your clients and prospects hear about are your basic-level accounting services, those may be all they seek from you. Accountants can cross-sell more services this year by differentiating their services (such as through industry niches) and by pointedly educating tax and audit clients about additional, value-added assistance and how it meets their needs.
To use Phibbs’ analogy, you can’t expect a movie-goer to visit the concession stand if they can’t smell the popcorn or see people lining up for candy and drinks.
To learn more about how accountants can resist a focus on pricing, download a free worksheet with tips on making the most of your year-end engagements with clients, “Tax season prep: A worksheet for client meetings.” Or listen to a free webinar recording, “Upgrade Your Practice: Top ways to attract and retain higher paying clients in 2015.”