How to create a great pricing strategy

Tell me, what's your pricing strategy? Oh, you haven't got one. Oh, well, neither did I when I started my accounting firm way back in May 1996, I made every mistake under the sun, one of which was I didn't have a pricing strategy. The way I priced was crazy. I was way too cheap because I wanted to grow my business. And I thought, naively, that the way to grow an accounting firm is to be the cheapest. And so what I would do is I'd go and see prospective clients. I would add loads of value in the meeting. I came from a tax background. I'd give them tax ideas. At the end of the meeting, they'd ask me what it would cost. I would tell them that I would send them something through the mail, and so I create my proposals. But what I did in the meeting is I would do everything I possibly could to get a copy of their last set of accounts. And I would give the reason. I'm going to look for some tax planning opportunities, which I would do. I came from a tax background, but really what I want to do is go to the back page, find the profit loss account, look for the line that says audit and accountancy fees, and see what the number was. And that was always the basis of my fees, the price. My price was based on what the last accountant was charging. Usually I went in 10% less. Now, it's a crazy thing to do. It's crazy because one of the things I've known since I've done many benchmarking studies of how the accounting profession prices and how much money they make, and what I found is that average being the same as everybody else being average is actually not a nice place to be. In fact, in the uk, one of the things I found was that the average profit of an accounting firm was less than £70,000, which is interesting, because in a sole trader, for example, you don't put your market salary, you live off drawings. And yet, studies by the Professional Institute said that the average salary for a chartered accountant was more than that number. In other words, if the average firm was to properly account for the value of their own time, if the business owner put a salary and a market salary in, they were actually making a true economic loss. Put it this way, in the uk, over half of accounting firms are making a loss, which is not a nice place to be. And that's largely because the way we price is very average. We copy everybody else. Hourly rates are based on the same hourly rates as everybody else, the same formula three to four times of salary costs. When we give a fixed price, we tend to look at what the last person was charging and we base it based on that. That is not a pricing strategy. It's not a pricing strategy. So what should we do? Well, actually, when we understand pricing and strategy, other than being average, there's only two other options. One's called low cost leadership. That means we build a business where we purposely go in cheap, but we are successful because we build it in such a way where we have a unique cost structure that's lower than anybody else and nobody else can copy it can be a great strategy. There are some businesses that pursue this and do it extremely well. If you think about EasyJet in the low budget airline industry, Aldi in the supermarket industry, however.

To win at being a low cost leader is very difficult. There are many different criteria that have to be in place that are critical, including the fact that in any market, whether it's the supermarket industry, whether it's the airline industry, whether it's the accounting industry, there's only ever enough space for two or three players at the most who can play that game and be successful. And I would argue that in our space it's not possible. The only people in our industry that can pull off low cost leadership will be the large software companies. And we're seeing this already with software companies developing, for example, low priced automated bookkeeping services.

So if low cost leadership is not possible for us to achieve, the only other strategy that's viable is what I call high value, high differentiation. That means instead of being the cheapest, we focus on being the best. We add more value than anybody else. We give the best possible service, the best results to our clients. We're different to everybody else and we charge a premium price. And what you will find in any industry you look at is most of the profitable. The most profitable companies very often are at that end of the scale. You think Apple, you think Starbucks. When you are better than anybody else, you charge higher prices. That's how you make more money. So what's your pricing strategy going to be? Are you going to be cheap and work crazy long hours or are you going to switch and start becoming premium? If you found this valuable, please like the video and below the video I've got some resources for you as well. Some free resources. Click on the links and grab those resources.