Score one for value based pricing

A post on CPA Trendlines has really hit the nail on the head with regards to some of the most compelling arguments to abandon an hourly billing rate in favor of a value pricing model.  The key to maximizing your take from what the market place will bear for your services is to walk away from the cost plus model of hourly billing and decide what work you are willing to do at what price.  After that decision is made, you just need to find the clients who see the same value in your services that you do and have the willingness and capacity to pay for those services.

One of the comments on this article outlined several client ‘reactions’ to bills.  The only time reactions to bills are even an issue is when hourly billing is used and the amount of time required is a bit ambiguous, at least to the client.  The professional may have had a good estimate as to total cost up front, or at least sometime in the middle of the engagement (especially if special problems have arisen that cause more work on the project). 

Had cost been discussed in total up front and been set so long as all goes as planned, these reactions would never take place, because the client and the professional would be on the same page in the beginning, instead of finding out there are differences at the end.  Value based, fixed up front pricing can save a lot of headaches, heartaches, and wallet aches for both the client and the professional as engagements with clients who don’t understand your value will not begin in the first place.

Comments

  1. says

    What you have said is very true in Dubai as well. I never start work with any client without assesing the work and agreeing the fees upfront. If the work more complicated and difficult to assess I brek it up into phases and will agree the fees for phase I only.

  2. says

    I am glad to see these issues of relevance to others and now with Ron Baker’s article out in the Journal of Accountancy, I feel validated as well.

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