Professional accountancy firms are subject to price pressures. The 2016 IFAC Global SMP Survey showed that pressure to lower fees is the third highest challenge facing SMPs (see Transforming Challenges into Opportunities: Fee Pressure). Clients always seek “better prices”, even when they could be deeply interested in the services offered.
For practitioners, this presents a great dilemma. To what extent should they adjust the price offered? Would it be better to keep the level of the proposed price, even if there is a risk of losing the engagement and client?
It is not easy to propose general suggestions, as every case is different and the best decision depends on specific circumstances. Here are key tips to use when setting fee levels and engaging in price discussions with clients.
- Base the arguments on service, not on price. The main support of the proposal should be about the value for the client, not the price. There is often someone willing to do things cheaper, so it is important to defend why the firm can offer the best service the client may need, and therefore justify the fee level. The service must cover the needs of the client, even if prices are very competitive.
There are times when what is needed is expensive. If the firm can present its solution as the best, it will be able to support the fee level.
- Prices should be "reasonable" and consistent with attributes of the service, including the expected high-quality and confidence in the firm. In the market place, it is not only low price products or services which are bought. "Reasonable" is the classic balance between quality and price. For the same perceived quality, clients may chose the lower price. However, if someone offers more, and this is valuable to the client, the accepted price will be as high as the value of the perception of this additional value.
- Be careful when bargaining with the client for free. When a firm applies a discount for nothing, it is easy to think that the initial price was unduly high. The price can be adjusted if something about the engagement changes. However, if the firm is confident that the price is “right”, offering discounts reduces the perceived value of its services.
- Time expenditure should not be used a basis for the price. Accounting professionals used to fix fees historically based on the amount of time spent on the engagement. It is very difficult in the competitive world to maintain this kind of approach. Generally speaking, clients only care about the solution to their problem, not about how many hours professionals have spent fulfilling the engagement.
It can be important to estimate the time and resources that will be spent on the engagement, but this calculation often serves as a baseline. In addition, of course, it is important to monitor the actual time spent to analyze profitability. There could be circumstances in which it may be very difficult to make an estimate of the time, and thus the price to perform the service. Again, the value of the overall service provided will need to be the main argument provided to support the price in any discussions with the client.
- Don't set prices too low. Fees received for the service should be enough to cover the firm’s ongoing costs. Setting prices too low can lead to insufficient resources to pay staff, and therefore lead to a risk of losing key individuals, which may impact the quality of the firm’s services. If this happens, it could result in a very dangerous cycle: less perceived value, so lower fees received, leading to poor rewards for staff and so on. This cycle could have long-term consequences for the firm’s viability.
Pricing policy should be part of any firm’s strategy. The firm’s perceived attributes in the market will determine the prices clients are willing to pay. There are a lot of influencing elements that will vary, but there is one constant for success. Set a fee level that reflects value for the client in their unique needs and circumstances.