Pricing: Your Profitability Lever

Early in my career, I saw the benefits of technology in public accounting and its impact on the business model. I knew changing the “hours times dollars” business model would be difficult, so I proposed adding a technology surcharge to each charge hour.

Of course, there was resistance but today, we face a more powerful and transformative technology: artificial intelligence (AI). Faster, better, easier and cheaper.

My prediction for the future is that firms that embrace AI and transform their business model will survive and thrive. Those that resist will either be out of business or operating at very low margins and rapidly lose relevance.

In a profession driven by relationships, trust and expertise, how we price is one of the most overlooked and under-leverage elements of profitability. Too often, pricing is treated as a downstream activity, a necessary evil after discussing scope, deliverables and staffing. But what if pricing became a strategic, intentional and centralized lever to drive profitability and purpose?

As Ron Baker outlines in his book, Pricing on Purpose, the future of professional services isn’t billing by the hour or benchmarking against competitors, but pricing based on the value to the client. Dan Sullivan, founder of Strategic Coach, states, “all value is created by leadership, relationships and creativity.” This shift challenges deep-rooted norms in most firms, especially where autonomy reigns and partners set their own pricing. But autonomy without alignment leads to suboptimal outcomes.

I’ve learned a lot about value and pricing from Ron Baker, Dan Sullivan, and Casey Brown. Megan Schottler, the Pricing Strategist at Pinion, has successfully implemented these strategies with a pragmatic approach. Execution trumps strategy! All will admit the greatest obstacles are internal. Why can’t we get out of our own way and focus on our unique abilities?

The problem: Value is personal, but pricing shouldn’t be

All progress starts with the truth! All partners are not equal when it comes to pricing and creating value. Their personal value systems vary. Some are uncomfortable with higher prices, fearing damage to long-standing relationships. Others may conflate their personal worth with their price quotes. Some simply don’t have the training, confidence or time to consider value-based pricing models, defaulting instead to hourly rates or gut instinct.

The opportunity: Take partners out of pricing

It may sound counterintuitive, even threatening to traditionalists, but removing partners from pricing can dramatically improve margins. Why?

Centralized pricing drives consistency

With a dedicated pricing strategy and team, you ensure a consistent methodology rooted in value and firm economics, not individual discretion. This reflects a shared vision versus a shared services firm/culture.

Better client conversations

Professionals trained in value conversations can lead more effective discovery calls, exploring outcomes and ROI with clients instead of just deliverables. AI and improved processes can assist with historical data and help with penetrating questions.

Pricing teams are faster and more strategic

Specialized roles can iterate, tier and adjust pricing models much faster, freeing partners to focus on high-value relationships and strategic services.

You can price for purpose

Just as Ron Baker argues, purpose-driven pricing lets you align your firm’s vision with the kinds of clients you want to serve and the outcomes you want to deliver. A common problem among firms is that too many clients don’t meet their criteria. Focusing on meeting the wants and needs of your best clients will keep your service lines relevant.

Action steps for firm leaders and managers

Here’s how to get started:

Define your value proposition. What outcomes do you help clients achieve? What is your Massively Transformative Purpose (MTP)? What are your unique abilities? What problems do you solve that others don’t? These often incorporate non-technical skills. Leadership, relationships and creativity create value.
Build a pricing team. This cross-functional team includes client service, marketing, sales and operations leaders. It oversees pricing models and strategies. Who is more important than How. Who knows how or will seek resources that do know how? Accountability is key to execution.
Standardize your pricing tools. Whether it’s a value pricing calculator or scenario-based proposal builder, give your team the tools and mindset to transform. Standardize your billing and collection processes, align them with strategies and automate.
Remove or limit ad hoc pricing authority. Establish boundaries for partner discretion to reduce leakage and margin erosion. Partner compensation models can enable bad behavior.

Pricing is too important to be an afterthought

The firm of the future won’t be defined by its hourly rates or technical knowledge alone. It will be defined by how well it identifies, communicates and captures value. This time around, recommending an AI surcharge is not the answer. That was an evolutionary strategy for its time.

Reclaim pricing as a leadership function, not an individual habit. It’s time to move pricing upstream, make it a strategic discipline and take the guesswork and personal bias out of the equation. Your margins, mission, and future depend upon it. Think-Plan-Grow!

Could you benefit from a peer network of other advisory service leaders?

The Boomer CAAS Circle is a peer group of advisory service leaders from top accounting firms who benefit from sharing knowledge, best practices and lessons learned. Apply now to get plugged into the Circle and start transforming your firm.

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L. Gary Boomer, Shareholder, Visionary & Strategist

L. Gary Boomer, Visionary & Strategist of Boomer Consulting, Inc., is recognized in the accounting profession as the leading authority on technology and firm management. He consults and speaks around the globe on several topics including strategic and technology planning; mindset, skillsets and toolsets for the future; change management and developing a training and learning culture. He also acts as a planning facilitator and coach to some of the accounting profession's top firms.