This media page offers reviewers a quick and exciting look at our newly-released Fees and Pricing Benchmark Report: Accounting & Financial Services Industry 2008. We’ve highlighted a few story ideas for you that we think are interesting and have provided materials to support these. Feel free to use whatever information you find to be interesting and thought-provoking.
You should find this information helpful in learning more about the report and the contents:
View the report landing page and order information here: Fees and Pricing Benchmark Report: Accounting & Financial Services Industry 2008.
Email Kelly Kerr – kkerr@raintoday.com to arrange an interview with one of the report authors.
Read on for story ideas from the report, including–
1. Does Brand Make a Difference
2. Discounting: Highly Criticized Yet Highly Used
3. Client Value (and communicating it) is the Biggest Challenge to Overcome
4. Prices on the Rise Despite Threats of a Recession
5. Brand, Market Conditions, and Overhead Costs are Driving the Price Increases
After the story ideas, you’ll find analyst comments from the report authors Mike Schultz and John Doerr and verbatim comments from survey respondents.
Story Ideas
1. Does Brand Make a Difference?
Firm marketers are always touting the value of establishing a brand…and now they have the hard data to back it up.
In Fees and Pricing Benchmark Report: Accounting and Financial Services Industry 2008, RainToday.com found that firms that are well-known in their target markets receive higher fees and have higher revenue than firms that are not as well-known in their target markets.
Making the financial case for branding – our research shows:
Brand leaders not only price their fees higher than their lesser-known counterparts, they actually get higher fees (realized fees) - up to 49%
Brand leaders are more likely than lesser-known firms to be premium-priced, charging fees that are higher than other firms providing similar services
16% of the brand leaders have revenue of more than $100 million annually, versus only 4% of the lesser-known firms
According to the data, brand leaders have a better chance of generating higher revenue and charging premium fees.
2. Discounting: Highly Criticized, Yet Highly Used
While many accounting and financial services firms criticize the use of discounting, nearly 60% of them discount their fees-for-services versus the published rates or rates they might have mentioned in an initial conversation with clients.
The average level of discount: 11%
Even the most profitable firms discount their fee - 45% of firms with 30% or more profit report that they do indeed discount.
3. Client Value (and communicating it) is the Biggest Challenge to Overcome
The top 3 challenges of accounting and financial services firms when it comes to pricing are:
Uncertainty about price client will accept (35% finding this "extremely/very challenging).
Pressure not to leave money on the table (32% finding this "extremely/very challenging).
Pressure to compete on price - competition (30% finding this extremely/very challenging).
Challenges in Pricing Decisions (% Finding Each Factor "Extremely / Very Challenging")
Comment from report authors, Mike Schultz and John Doerr:
When a firm is able to increase its perceived and real value to clients, it will find that:
Clients will likely be willing to accept higher fees (though, granted, with each client you may never know the exact fees they will actually be willing to accept.)
The firm will be less concerned with leaving money on the table because it will be more confident in the fees it is charging.
Clients will pressure the firm less because they will have confidence in that firm's ability to deliver additional value.
Focusing on the value provided for clients and strengthening the overall value proposition of the firm can decrease some of the major challenges found in pricing services.
4. Prices on the Rise Despite Threats of a Recession
The majority (71%) of accounting and financial services firms have seen their fees for services increase at least some in the past two years and another 73% expect to increase their fees at lease somewhat in the next one to two years.
Predictions of How fees will Change in Next 1-2 Years
Comment from report authors, Mike Schultz and John Doerr:
"The United States economy is uncertain, at best. Still, 73% of firms expect their prices to increase. Even if the economy is slowing, this data suggests most accounting and financial services firms have either not yet felt an economy-induced pinch or are not adversely affected by downturns. It will be interesting to see how the next several quarters of U.S. economic growth (or lack thereof) actually affect fees for accounting services."
5. Costs, Market Conditions, and Brand are Driving the Price Increases
We asked accounting and financial services firms to write-in the top three factors that influenced their fee increase.
The top factors influencing the firms whose prices increased 1% to 10% were:
Competition/Market Conditions
Costs/Overhead
Company Improvement/Experience/Reputation (also known as brand)
Those firms with the highest price - increasing greater than 10% and greater cited:
Company Experience/Improvement/Reputation (also known as brand)
Competitive/Market Conditions
Costs/Overhead
The respondents themselves said:
“(1) Our growth. The busier we are, the less we need new work, thus the higher our fees are for new work. ‘Here's the price, take it or leave it.’ (2) Competition for top talent. In the CPA world, hiring experienced staff is very difficult. Those employees are very valuable. Thus, we charge high prices for their services. (3) Increase in sophistication of our client base leads to higher fees for our services.”
“Aggressively and successfully marketing the firm to bring in new business, higher rate of efficiency, competition, need for recurring business, increase overall market share.”
“Cost of everything has skyrocketed! Gas, utilities, paper, toner cartridges have tripled in less than a year.”
"Higher cost of new accounting graduates.”
“Increase in our knowledge and skill, the market, and general economy.”
“Increased rules and regulations, increase in wages required to keep or add staff, analysis of comparable firms.”
“Market niche. Expertise within industry. Rising costs.”
Analysis & Commentary Excerpts from Mike Schultz and John Doerr:
Break out of the Going Rates Spiral
While many see using the going rates strategy as a necessary evil of getting new clients in a competitive marketplace, it also feeds into the lament “We are becoming a commodity.” If you cannot articulate the distinctness of what you offer, of course you are forced to charge what everyone else is charging.
Accounting firms are caught in this spiral more often than other professional services firms due to the heavy competition around commoditized tax and compliance services. Globalization and increased competition keep pushing the price of these types of services down. Accounting firms that offer only these services fall into the no distinction, commodity, going rates spiral.
If you can be innovative and offer additional high-value services, such as business consultancy, you can then use your tax and compliance services as an entry point into the client company. You now have an inside track to build the relationship and trust necessary to up-sell your client on your value-add services, breaking your free-fall through the going rates spiral.
It's All About Relationship
Seemingly subtle but very important differences can be found in the data. One of the least important factors was whether a client has worked with the firm in the past (24% “very” or “extremely” important), whereas the firm’s relationship with the prospective client was more important to more than twice as many firms (61% “very” or “extremely” important). While these two factors may seem similar on their face, they’re not.
For most firms, it’s less important that it worked with a client in the past, and it’s more important how well it went and where the firm is now in the relationship. Perhaps the prospect has never worked with the firm in the past, but has been an amazing referral source for years. This may be essential to how the firm wants to deal with them going forward as a client. In another instance, a client has worked with you in the past, but since then the firm has evolved and is no longer focused on that particular type of company or need.
Whether the firm has worked with the client in the past doesn’t have as much bearing as the current relationship and ability to deliver value on the next engagement.
Most-Profitable Firms Have Least Price Pressure
Less-profitable firms (particularly those making less than 10% profit) are more likely to be challenged by price pressure from competitors’ aggressive pricing. This pressure often comes:
During times of economic distress
When a client does not see value in a particular solution or firm
When clients are open to or are entertaining discussions from other providers in the market
According to How Clients Buy: The Benchmark Report on Professional Services
Marketing and Selling from the Client Perspective, clients that are the most satisfied with their service providers are much less likely to even consider switching to other providers. And, of course, repeat business is often the most profitable.
While it might not be new or novel to say so, focusing on client satisfaction and client delivery will help your firm to become a profit leader, as well as a price leader.
Verbatim Comments From Survey Respondents:
Why Do They Use Value-Based Pricing? Respondents Say:
“All the time. It works and clients love it.”
“Our work is helping technology firms to claim tax benefits on their R&D work, so the fruits of the engagement are very tangible.”
“Tasks that need to be done but do not add the real value (e.g., gathering research) are billed by the hour. However, value-based pricing is used for the interpretation of the research into strategy. We find clients take ‘comfort’ from seeing some work as billable hours.”
“Value pricing is without surprises, an agreed service for an agreed price before the assignment is commenced.”
“We challenge all the time the hourly rate approach, preferring a value-added one, where we are able to challenge the ability of the competitors to demonstrate the value they are intending to provide.”
“We feel the value of our work to the client is the most important factor in the price and we try to determine that as accurately as possible.”
What Respondents Say About Hourly Fees and Realization Rates:
“We do not publish our fee structure, but have determined that these fee levels will allow us to deliver a project and meet profitability requirements. Key is proper scoping.”
“We don't publish fees or think in terms of hourly rates. The only time we'll ever do so is if forced to put some schedule in a statement of work for a project we've already won. Then, we'll take the full project fee and back into hourly rates that make sense.”
“We won't engage a client unless we can get over 80% realization, but for the last two years we are better than 90% across the board.”
What Respondents Say About Service Guarantees:
“A satisfaction guarantee should be offered.”
“Always offer them. They're rarely taken up.”
“Include time limits in the guarantee. Allow for the firm to ‘make it right’ before the client can collect on the guarantee.”
“I tell my clients that I stand behind my work. If ever any questions from the IRS or other tax regulatory authority to please let me know.”
“I think 100% written guarantees in engagement letters are a sign of assurance to the client.”
Feel free to use any data, charts, or analysis laid out on this page for your own publication. If you would like to schedule an interview with one of the report authors, contact Kelly Kerr - kkerr@raintoday.com.