The Consequence of Underpricing

As a profession, accountants and bookkeepers are chronically underpricing. Part of the reason for that is a lack of confidence in charging higher prices, and part of it is that you're using an outdated pricing method. So in this video, we're going to look at why the hourly billing method is forcing you to keep your prices low, and how charging a low price is actually unethical and is bordering on negligence. When you set up your accounting or bookkeeping firm, did you ever actually learn how to properly price your services? Most accounting professionals never actually take the time to learn this crucial skill, and it's something that is arguably one of the most important skills that you can have as a business owner. If you never learned, then perhaps you've defaulted to the traditional, simple, straightforward method of hourly billing because you don't know what else to do. Hourly billing is problematic for a few reasons. First of all, you can't give the bill until the end of the work, so your clients hate that because they can't budget, they can't prepare. Second, that bill could be bigger than you and the client initially thought, because once you actually get into the books and records, you find that there's more work than you initially thought, and you end up giving a bigger bill. So either you give them the big bill, which causes a complaint which you then have to deal with, or you take the hit and you write that time off meaning you aren't getting paid enough. Also, charging based on time actually penalizes you when you get better at your job and you get more efficient at the work that you're doing, because you're doing the work quicker and therefore you can't charge as much, which makes no sense. When you use a pricing system like this that forces you to undercharge, it leads you to working crazy hard for very little reward. You're stressed, you're exhausted, you're overwhelmed, and you think that you need to take on more clients to make more money. But again, if you're underpricing, you just create a cycle of bringing in more work for very little extra profit. Now, time is the one thing that you have a limited supply of. Money comes, comes and goes. Time is finite. So when you're overworking, where does all of that extra time come from? It comes from your evenings, your weekends. It eats into your sleep. It eats into your personal life. It's not something that's sustainable. It's not enjoyable. It's not why you started your business. When you're under such strain and you're battling a really heavy workload, you can't dedicate as much time as you want to, to each client. So you may miss an issue that comes up, you may have more errors, you may miss an opportunity for them, and you're not delivering as much value as you could. Ultimately, you're not delivering the value that you know you can deliver and the value that they deserve because you are stretched too thin. Now, if this happened in a different industry, for example, if a doctor missed a crucial symptom that led them to, uh, the wrong diagnosis, that would be grounds for negligence. You could sue somebody for that. So when you underprice and you force yourself to work crazy hard just to make ends meet, you may end up having to cut corners, sacrifice the quality of your work, and not deliver the value that that client deserves. And this is why underpricing your services it's not only doing yourself a huge injustice, but it's also doing your clients a massive injustice as well. So when you switch to a pricing method that is pricing based on value and results and outcomes rather than time, your focus is now not about making enough money to get by and getting through the workload. It's now about delivering value, which is what you should be doing. It's what you should be focusing on. In order to deliver more value, we need to work with less people so that we can dedicate more time to each person. And in order to be able to work with less people, we need to charge a higher fee. So knowing this should give you more confidence to price high because you know that you are doing the right thing when you price high. If you price low, you could be doing an injustice, you could miss things, you could be having to lower your standards, which is, which is not something you should be prepared to do. So if the pricing conversation makes you nervous, or you felt like you've ever had to defend or justify your pricing, then hopefully having this understanding that underpricing is borderline negligence should help you have more confidence in the moment to stand by your pricing and to price high. If you have any questions regarding today's video, you can leave them in the comments and we will get back to you on those as soon as we can. 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