Pricing is a big challenge for many bookkeepers. I’ve certainly had my share of pricing challenges, especially in the early years of my business. One major lesson learned, is that the wrong pricing model can really hold you back. In working with thousands of bookkeepers, and learning through my own ‘pricing journey’, I have compiled a list of five of the biggest pricing mistakes bookkeepers make, and how you can overcome them.
Click on the link below to watch my video: The biggest pricing mistakes bookkeepers make
#1 – Charging by the hour
Charging by the hour seems to be the default option for most bookkeepers, especially when you’re first starting out. Often, it’s because it’s what we have the most control over. We think, “Okay, I’ll work ‘X’ many hours and I’ll charge ‘Y’ dollar amount per hour.”
There are a few problems with this pricing mindset. First of all, it initially takes you much longer to do something because of the learning curve and getting used to how the client does things. As you become more efficient at what you do, hourly pricing sort of punishes you because you’ll actually be working fewer hours for the client and making less money. You’ll end up having to find more clients just to keep making the same amount of money that you’re currently making. There is no incentive for you to be efficient when you charge by the hour, so it’s not good for the client either.
Charging by the hour also turns your work into a commodity where you get paid for time and effort instead of the outcome you create. This tends to devalue your services with the client. They may wonder why it takes more time one month than it does in another and start to question how you’re spending your time (and their money). Most clients also don’t like their bookkeeping fees changing each month because they never know what to expect or budget for.
Remember, you are a professional. You are in control, and the client is hiring you to deliver the desired outcome. Don’t position yourself as someone doing the grunt work and being paid for how long it takes.
#2 – Under/Overcharging
The next mistake I see bookkeepers make is giving in to the fear of overcharging or undercharging. Believe it or not, pricing still makes me nervous because of the emotions involved. Am I doing it right? Am I doing it wrong? Am I charging too much? Am I charging not enough? What if I lose this prospective client because I’m charging too much? Or what if I take on a ton of work and I didn’t charge enough?
You need to understand that you will make pricing mistakes. It will happen, and that’s okay. That’s how we learn and how we refine our pricing skills. If you didn’t charge enough, then charge more the next time. I usually know when I didn’t charge enough (under-valued my services) because the client will just say, “Okay, yes, let’s move on,” and not protest at all about my pricing. What do I mean by that? Well, when you start charging what you’re worth, you’ll be right on that line so you’ll get some questions and some pushback from the right people. Adjust up and down until you find that spot.
Just remember, we’re talking about the right clients, here. The wrong clients might push back on your price even if you cut it in half. Let them walk away. They’re not who you’re looking to work with.
When you think about your pricing, I want you to think about what I call the buffet analogy. A buffet restaurant generally charges a fixed price. Some people go to the buffet restaurant and they eat very little. Maybe that restaurant owner says, “That’s great, I’m making a lot of money on those people.” Then there are other people who go to the buffet restaurant and they eat a ton of food, and the buffet restaurant owner begins to worry about his profit margin.
In reality, the reason the buffet restaurant has a fixed price is that they’re going to average it at a desired profit. Some people will eat a lot, and some people a little, and they’ll be profitable at that average consumption. Likewise, when you’re looking at your pricing, you may, perhaps, realize you’re not charge enough in working with one client. However, you need to look at how you’re averaging overall, for all of your clients, and not necessarily how you’re doing on each one.
#3 – Projecting your feelings onto the client
As bookkeeping professionals, we tend to be conservative. Okay, let’s be honest, some of us are just plain cheap. Because of our tendency, we are tempted to think all our prospective clients are also conservative. We start questioning our pricing based on what we think that client will think about our pricing. But that’s often not the case.
In fact, when we think that all our clients must be price-sensitive, what we’re actually doing is attracting those kinds of clients because we market ourselves as affordable, cheap. What you need to understand is that 25% of people want a premium experience and they’re willing to pay higher prices for it. They don’t want cheap, and they don’t want affordable. They want a premium experience.
Have you ever wondered how these very high-end retailers and sellers like Nordstrom don’t go out of business in the middle of a recession? They don’t because there are still people who are willing to pay a premium to shop at their store. I had to learn that I’m going after a specific client who is not price-sensitive. Of course, some people ARE price-sensitive but that’s not who you’re looking for.
#4 – Being unclear on your ideal client
That brings us to the next big pricing mistake. One of the biggest and most frustrating mistakes is going after the wrong prospects. What do I mean by ‘the wrong prospects’?They don’t value your services, they want cheap and fast, they want to control how you work, and all this makes it nearly impossible to succeed. However, once you’re 100% clear on who your ideal client is (and understand it’s not everybody, it’s a subset of the potential clients that you can go after), you need to go after that kind of person only.
Let’s go back to the Nordstrom example. Nordstrom has a very different ideal customer than Walmart does. Nordstrom can sell a T-shirt for up to $103. That’s right, I found a T-shirt priced at $103. Walmart, on the other hand, sells T-shirts anywhere from $4.58 to $27.47. Understand that Nordstrom is not worried about the fact that Walmart can sell a T-shirt for $4.58 because they know who their ideal customer is, and their ideal customer is not someone who shops at Walmart for a $4.58 T-shirt.
#5 – Not understanding your value
Which brings us to the final mistake bookkeepers make with pricing, which is not understanding your value.
Continuing with our T-shirt example, how is it that Nordstrom can sell a T-shirt for $103 and Walmart sells a T-shirt for $4.58? It’s a T-shirt, right? Or is it? Well, you need to understand that the Walmart customer who purchases that $4 T-shirt values something completely different from the Nordstrom customer.
The Walmart customer values low prices and convenience most of all. They don’t care if they tear up the T-shirt or if it gets dirty. They’ll throw it away and buy another $4 T-shirt. The Nordstrom customer, on the other hand, values well-fitting clothing. They value wearing the highest quality Peruvian cotton. They value paying a premium so that whatever they’re buying makes them feel good about themselves. They ultimately value receiving an exceptional customer service experience. So again, although it’s a T-shirt, the Walmart customer and the Nordstrom customer value something completely different from one another.
How does that apply to you? Your value isn’t dictated by the number of transactions that you process for a client, by the number of bank accounts you reconcile, or by the hours that you spend on their services. In fact, your value doesn’t even come from the fact that you provide virtual bookkeeping services. Your value is determined by what the client perceives as valuable.
It’s a big shift, a big difference. Let me repeat that. Your value is determined by what the client perceives as valuable. So if you keep going after the clients who value cheap and fast, that’s all they’re ever going to be willing to pay for, because that’s all that they value.
How do you fix it? What you need to do is to go after clients who value how much time you can save them, how much money you can help them to make or save, how your services can help them reduce negative emotions or increase positive emotions. Let me give you an example. A client came to me with messy books. They had been trying to fix the problem internally, within their company. After much time and effort, they weren’t able to fix it. They tried hiring a bookkeeper who couldn’t fix it, and neither could their accountant. Then they found me. I did a paid diagnostic review of their books, identified exactly what was wrong, and charged them $2500 to fix the problem that no one else could fix.
Now, I charged $2500 and I estimated that it would take me three to five hours to fix their books. It took about four. So, if you’re looking at it thinking I charged by the hour, I didn’t. I charged by what the client perceived as valuable. So what was valuable about the service, which, by the way, the client gladly paid $2500 for? Well, they knew that no one else could fix their problem and they were confident that I could fix it. The client valued the fact that I could resolve this problem for them and, in fact, my services also eliminated all the negative feelings and consequences they were dealing with as a result of having this mess in their books. So my value didn’t come from how many hours I spent, or what I did. The value came from me being able to eliminate a problem for them.
Closing
Now that I’ve shared with you the biggest pricing mistakes bookkeepers make, let me know in the comments if you have also made any of these or other pricing mistakes, and what you learned in the process. (Just as a reminder, I have made all of these mistakes myself). Pricing is a journey and we’re going to make mistakes along the way. The goal is to continually refine your pricing so that you can develop those pricing skills. You’ve got this!