Virtual bookkeeping technology is one of the most popular topics on this blog. Most of us want to use it to become more efficient and serve clients from almost anywhere. But there is a dangerous side to using online solutions to run your freelance bookkeeping business.
As with most technological advancements, it’s often a package deal of both advantages and disadvantage. There is definitely a dark side to working in the cloud. On the positive side, we can provide services from anywhere there’s a high-speed Internet connection using cloud-based software, making it super convenient for both our clients and ourselves. We also reap significant gains in efficiency due to automation, and therefore have the capacity to take on more clients.
In theory, this sounds like a fantastic way to easily grow your practice. But actual results from the trenches are proving otherwise. I’ve seen this to some extent in my own practice as well. And it’s not just affecting us virtual bookkeepers either. Accounting firms worldwide are facing the same challenge of doing more, but somehow making less as they embrace cloud technology.
In New Zealand where around 40% of small businesses have their accounting system online, leading the world for cloud accounting services, accountants are, as a result, seeing significant business growth. But this is not adding up to greater profits. In fact, their profits are decreasing!
How is this possible?
Part of the problem is the way we typically price our services. The most common way that bookkeeping services are provided is by the hour. you’d expect that if we’re able to provide client services more efficiently, then increasing the volume of clients we can serve is the best road to take. But it’s apparently not working out that way. If we bill by the hour and increase efficiency with automation, your billable time is decreasing. The clients are getting smaller invoices. Yet, much of the administrative or incidental work we typically do is falling through the cracks and not getting billed. Take on more and more clients, and that amount of non-billable time grows exponentially, while the billable time continues to decrease. (By the way, there are other ways to take advantage of the efficiencies of technology without increasing the number of clients you serve.)
In this volume-based scenario, the real problem is that we’ve changed the model for how we get bookkeeping work done, but have not changed the model for how we’re charging for those services. Clients aren’t really buying our hours anyway. They want results, and that’s the model we should be using to price our services in a win-win way.
Packaging the whole of what we do, including the admin time involved, is one solution. There are a variety of ways for coming up with packaged bookkeeping services. And supposedly one of the most profitable trends in our industry is to move toward Value Pricing.
If you’ve looked into the idea of basing your fees on the value to the client, you may find yourself scratching your head. I know I sure did when I first heard about it. And while it has received a lot of lip service at accounting conferences, most bookkeepers, in actuality, are still use the hourly fee model because at least they can understand it. Most clients follow suit and understand hourly rates, albeit feeling risky to them, since they don’t understand how long it “should” take to get their books done.
If you’re determined to find a better way and dig into value pricing (which isn’t quite the same as fixed fees) you discover the problem. The concepts involved use a very subjective premise: “price the client, not the service.” This of course also begs the question, ‘How do you know what value a client places on your bookkeeping services?’ And is it really a fair way to price what we do?
But falling back and implementing simple flat fees and cookie-cutter packages are also scary for bookkeepers. How can we quote a fee up front before we start working for a client? Every business situation is different after all. There’s a very real danger of losing your shirt by quoting too low. But if you quote too high, you’ll lose the client! It’s a real dilemma that can make your head spin.
How to Break Out of the Pricing Maze
As bookkeepers (and accountants) we’re used to following formulas and standardized methods to produce results. Hey, following the rules is what we do! Setting our rates seems like it should follow that same kind of protocol. Until now, hourly felt like the only reliable way to get paid fairly for the actual work involved. But technology has thrown a wrench in that with automation and online efficiencies. Charing by the hour now means we’re getting paid less to provide high quality service. So what’s the new approach to a win-win pricing model?
A two-step approach:
- Package your services for high value – this should be focused on what you do best and gets clients the results that they want most
- Customizing your service packages with each client using a collaborative method that is standardized – this is about using a system that is reliable and easy to understand, removing the risk to both you and the client in a totally transparent way (this is what I’ve seen lacking in most value pricing models)
Until just a couple months ago, I’ve found the implementation of value pricing difficult and highly subjective. But there’s a way to do it that actually serves the client (instead of fleecing them) and serves you at the same time. Yes, I’m always looking for true win-win solutions. And I honestly believe that Mark Wickersham has invented it.
Mark is an accountant from the UK who has developed a method where you can build service packages and work with your clients collaboratively to offer customized fees that they will gratefully pay. I heard Mark explain his methods at QuickBooks Connect 2015, and he has agreed to share it with us on a live webinar I’m hosting this coming Tuesday, January 26.
If you’d like to learn the elegantly understandable way to actually implement value pricing and drastically improve your bottom line and serve your clients at the same time, please join us. The live webinar is free. Click Here to Register