Do you offer a service or a process?

 

Do your figures add up?

Old chestnut

I have been involved in an on-line debate covering the old chestnut of price versus value. This is a very important issue in most service businesses and particularly for smaller businesses., because we all need to think what market we are in and what our business model is. I come from an accounting background, but I see the same issues and problems arising in many different service industries.

However, let us talk about accountants in particular, because it will illustrate the wrong-headed notions persisting in other sectors too.

Most accountants and others in allied areas who are in business for themselves trained in larger practices. Most of the remainder have worked in traditional practices. As many of you will know, the traditional method of billing clients was to charge them by the hour, much as lawyers have tended to do.

Somewhere along the line there has been a shift away from this, although some owners and partners in accountancy do not like change or stepping out of their comfort zone. The rest have generally realised that clients like certainty in their annual bills, so there has been a big move towards fixed fees. Unfortunately at that point further confusion has arisen as to the basis of charge.

Cheap, cheap

I think we should all agree that the basis of charge should reflect what the client receives in the way of service. Some accountancy firms have a model which provides only basic compliance for the clients, which for the uninitiated means that they get their accounts prepared and their tax returns done, but that is pretty much it. The clients have complied with the requirements of the law, and all necessary filings are made. They don’t get much in the way of advice, they don’t get a regular chat with their accountant and they don’t look for anything more. That suits some people and the annual cost is pretty low.

Value

However, many business owners want rather more. They want their hands held through the complexities of their bookkeeping and to understand how their accounts are drawn up. They don’t just want to know how much tax they have to pay and when it is due. They want to know whether there is anything they can do to reduce their tax burden, and whether there are any particular reliefs they might be eligible for if they make certain purchases or invest in energy saving equipment.

Clients who want these extras expect to pay more for the additional value. They still want certainty so they will be prepared to pay a higher fixed fee than some who only want basic compliance. Often they will get back the extra fees they pay in cost or tax reduction by being advised to do things a different way.

Getting lost

Somehow though, some very able accountancy firms get confused and lost in the fees jungle. They hear that Pursuit LLP does company accounts and tax returns for (plucking a figure out of the air) £400. They don’t know Pursuit’s business model, or whether they just offer basic compliance, though that is all you would get for that figure. They hear of another firm who charges £1,500 for accounts and a tax return and they think that disgraceful because they themselves “could do the job for a lot less”, by which they mean that there is theoretically a good profit above their overheads and staff costs at the fee they would charge.

What they don’t know is what the client paying more is actually receiving, and so begins the rush to the bottom; the attempt to match Pursuit’s very low fees and to compete on price without knowing what they are actually competing with.

In reality, they don’t understand what might be involved for a client paying a higher fee. Of course there might be a lot more work. Most likely though the client is getting a lot of attention, has access to the managers, partners or directors of the accounting firm and is receiving not only good tax advice to help manage their liabilities, but long term planning as well.

I have no problem with sensible models for accounting practices who offer basic compliance only. Indeed I have great admiration for those who are successful in the market of processing accounts an a low cost. After all, I like a bargain myself, and if I get food basics at low cost in a supermarket I am bound to be happy. “Pile high and sell cheap” is a proven strategy.

Common sense comparisons

However we have to be sensible in looking at what we get for our money, and when we are selling a service we have to know what we are selling against. There is no comparison between a mass-produced sliced white loaf akin to polystyrene ceiling tiles (remember those?) and the hot sesame-seeded split-tin from the local baker. You wouldn’t expect to pay the same low price for each of those, yet both have their place in the market.

If you provide a service you have to think what your preferred market is, and therefore who is your ideal customer. Then you can design an offering which will suit that type of customer.

I prefer clients who appreciate what I do beyond providing a process, and are willing to pay suitably. Such clients are far more appreciative, far more likely to recommend and refer you, and far more likely to remain loyal to your business than those who look only at price. Loyalty is a two way street of course, which is why we must continue to appreciate them as clients and maintain the value in what they get.

If someone in your sector appears to offer something at a very low price, look at their business model. If you rush to the bottom, your profit will too, and perhaps disappear. If you wish to operate at the bottom end of your market you must cut your costs and cut your customer’s coat according to her or his cloth.

The price of everything

As Oscar Wilde’s Lord Darlington said, “a cynic is a man who knows the price of everything and the value of nothing”. You do not want to be in the market for cynical clients of either sex without the right business model.

I prefer clients who value me as I value them, but we are all different. What market are you in and is it working for you?

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