What Is Your Pricing Strategy?

Hi there, it's Mark Wickersham here and in this video I want to talk a bit about strategy. If you want to build a successful, profitable business, whether it's a bookkeeping business, an accounting business, a tax professional business, then one of the things you have to figure out right at the start is your strategy. Your strategy is the foundation of the business. It's the bedrock. Without a strategy, you're just relying on luck. And when we think about strategy, one of the key components of strategy is pricing. What's your pricing strategy? There's essentially three different strategies that you could follow with your pricing. So let me describe those three strategies and then you can choose which one's right for you. So the first one is what's often referred to as low cost leadership. What that means is essentially it's about being the cheapest, but more specifically, it's about being the cheapest because we create something within our structure of our business that's unique, a different cost structure that nobody else can copy, which enables us to be cheap and nobody else can compete with us. Now that's something that can be achieved. There is a wonderful business in the UK called Richer Sounds. It was created by Julian Richer many years ago. It's been the Guinness Book of Records many times for the highest volume of retail sales per square foot of space. Incredible business. And they sell TVs and hi fi equipment much, much less than the high street chains. How they do that? They have something very unique about their cost structure that nobody else can copy and they're extremely successful. However, I would argue that in the accounting profession, I have never come across a business that's managed to pull this off. I'm not sure how you can create a cost structure that nobody can compete with. Sometimes people say to me, mark, I can. I'm going to create an online virtual accounting business.

Well, why can't anybody else do that? As soon as somebody else copies your model, they can then compete on price and you're in a price war. So I don't think that's a viable option. Now, at the other end of the spectrum, option two is to create a highly valuable and differentiated business. Focus on adding value and charging a premium price. I've been fortunate over the last 16 years to work with accounting firms in the UK and what I found is when I look at the most successful accounting firms, the most profitable accounting firms, they all follow option two. They focus on being more valuable and also on being more expensive. So I would argue that option two will always beat option one in, in the accounting, tax and bookkeeping professions.

And so if you agree with that, my question for you is, what are you going to do to be different and better than everybody else? What are you going to do to add more value to clients? Now, there is a third option, and it's what I call the default strategy. It's actually the one that most people follow. Let me share with you a story from my own experience way back when I started my firm. It's a mistake that many accountants make. What we do is we look at our competitors and we try to be competitive compared with the bookkeeper or the accountant down the road, which basically means being cheap. This is what I did. I would go in the early years of my accounting firm, I'd go and see a prospective client. In the meeting, I'd impress them with all my knowledge of tax planning and so on. They very often wanted me to act for them, subject to the price. So I had to come up with a price. This is what I did. I would do everything I possibly could in the meeting to get a copy of their last set of annual financial statements. And during the course of the meeting, I would flick to the back page which listed the detailed profit and loss account and pretending to comment on some of the things like the margins. But what I was really looking for was that line that said annual accounting fees. And I'd make a note of the number, the number that the previous accountant was charging when it came to giving my price. Magically, somehow my price was 10% less than the previous accountant. I did that for two and a half years. In two and a half years, I didn't make any money at all. My practice became a complete mess because one of the things I've learned, it's a crazy strategy. One thing I know is that most accountants are too cheap. They don't know how to price. So the worst thing we can possibly do is try to copy or even worse, beat the firm down the road because they're already too cheap. And so we're creating a recipe for complete disaster. So we have to focus on being different, being better, and not copying the firm down the road. If you want some more help, I've created a video training program with Jane Aylwin, who's an extraordinary bookkeeper, called how to Build a Successful Bookkeeping Business. The training program is actually just as relevant for accountants and tax advisors. In that program, we talk much more about strategy, amongst other things. To find out more, there's a link somewhere, perhaps below this video. Go and click on that link now. To find out more about that training program. I'd look forward to working with you through that. And also, if you found this video helpful, then please feel free to share it with friends and colleagues. There'll be a share button somewhere. I'll see you very soon on another video.