{"id":8316,"date":"2017-05-24T08:00:32","date_gmt":"2017-05-24T13:00:32","guid":{"rendered":"http:\/\/taxprocenter.proconnect.intuit.com\/?p=8316"},"modified":"2018-09-14T09:39:47","modified_gmt":"2018-09-14T14:39:47","slug":"7-steps-to-transition-your-firm-to-value-pricing","status":"publish","type":"post","link":"https:\/\/accountants.intuit.com\/taxprocenter\/client-relationships\/7-steps-to-transition-your-firm-to-value-pricing\/","title":{"rendered":"7 Steps to Transition Your Firm to Value Pricing"},"content":{"rendered":"

In my first article<\/a> for the Intuit\u00ae ProConnect\u2122 Tax Pro Center, I discussed why killing the timesheet benefits a firm and its clients. I touched briefly on the Pereto Principle<\/a> and why it was important to pay attention to your firm\u2019s structure. Here, then, is more of a step-by-step method to help you transition to value pricing.<\/p>\n

Implementing value pricing today may be simpler than when I led my firm through the metamorphosis from hourly billing and timesheets to value pricing; however, the challenges aren\u2019t physical, but instead,\u00a0mental<\/em>.<\/p>\n

I spearheaded my firm\u2019s conversion nearly 20 years ago, shortly after meeting my VeraSage Institute<\/a> co-founder, Ron Baker. Why did I leap into the unknown of value pricing? I inherently knew it was better and understood how it aligned better with our clients. The timesheet had \u2013 and still has \u2013 multiple problems: lying, confusion of efforts over effectiveness, chest puffery, stupid compensation models, and most notably, a waste of time and firm resources. Doing away with timesheets also would be more attractive to experienced new team members who wanted to escape the six-minute measurement of their value to a firm.<\/p>\n

I was right. It worked. Period. Although I had one partner who for a short time maintained a secretive timesheet, even he gave it up with an awakening realization of how our conversations and services improved when we took the great wall of time-based billing out of the customer service equation.<\/p>\n

Here is how we converted from a firm of the past (historian-based pricing) to a firm of our future (pricing for, and with, purpose):<\/p>\n

Step One: Decide. <\/strong>Make the ultimate decision that you will leave behind something that is not working for your firm and clients. In the venerable words from Shawshank Redemption<\/em>, \u201cGet busy living or get busy dying.\u201d I wanted to live, so I made a commitment and stuck to my principles for the health and livelihood of my firm, and even more importantly, for me as a professional dedicated to helping others.<\/p>\n

Step Two: Analyze your firm\u2019s Pareto.<\/strong> Nearly all firms fall within this 80\/20 rule that recognizes how the minority of items influence the majority. In our case, 80 percent of our firm\u2019s revenue came from about 23 percent of our customer relationships. What this really means is that nearly all the files your firm touches drive little revenue and even less profit. You can effectively ignore them and survive well.<\/p>\n

Step Three: Split your customers based on your Pareto.<\/strong> We did this when we transitioned to value pricing and still do it today. Our demarcation line today is $6,000 per year. Below that line, we offer fixed pricing for their core services based on our firm\u2019s pricing matrix, the length of time of our relationship and the connections related to the relationship: other customers, referral sources, how they help our communities and other subjective matters. We offer a raw scope of services, with a couple of options and some payment terms to allow them to choose when, how and what services they receive.<\/p>\n

We do not spend a great deal of resources for this level of service pricing. These clients are below our Pareto line, and I want to always professionally take care of these customers, but not at the expense of over-allocating firm thought or manager\/partner time into discussions that do not influence our firm\u2019s future.<\/p>\n

However, I want to emphasize that people have great value. Customers are valuable and important. I may be cavalier with pricing, but never service. We dedicate significant firm resources on pro bono and deeply discounted services to allow those clients who need us but cannot afford to receive needed services. Value pricing isn\u2019t about money; it is about aligning our interests to serve our customers.<\/p>\n

Step Four: Focus on the upper Pareto.<\/strong> We initiated conversations with these clients after reviewing several items:<\/p>\n