Many businesses around the United States turn to professional service firms for guidance. Time, or rather lack of it, is a major reason business owners turn to knowledge firms. Additionally, small business owners usually aren’t experts in all areas necessary to run and grow a business, and need outside experts to help.
Accounting and law firms still use hourly-based billing for the simple reason, “It’s always been done this way, so that’s why we do it.” The cycle is hard to break, especially for smaller accounting and law firms just following the lead of larger firms that use this type of pricing mode. As technology continues to change, it is making hourly bill less attractive to professional service providers and clients proving the numerous benefits of value-based pricing
The Problem with Hourly Billing
In business, nobody likes surprises. When it comes to professional service firms billing by the hour, there are far too many unpredictable and surprise bills that can cause issues between the service provider and the client. Unless client’s call to find out, they truly have no way of knowing how much time was spent on their project during the month. With the hourly bill, there are too many painful surprises lurking, causing unpredictable outcomes for small business owners over their monthly bills.
Additionally, when there’s no way to easily determine value, clients will just be shopping for the lowest rates. It makes sense why interested prospects search for the lowest price, because they have no other information on the value they will receive to make the decision. When billing by the hour, professional service providers are less likely to focus on results, since much concern is placed on the time taken to complete tasks.
Professional service providers can put more focus on knowledge and innovation when they aren’t watching the clock, and allows them to better collaborate and provide value to their clients. Fixed and value-based pricing are better solutions for small business owners focused on results.
What Is Value-Based Pricing?
Value-based pricing puts the focus on the customer. The strategy determines prices based on how much value a particular customer is likely to assign to a product or service. Unfortunately, the most common pricing strategies and methodologies forget about the customer
A successful value-based pricing system aligns with what the customer is willing to pay for a product that delivers the solution they need.
Benefits of a Value-Based Pricing Model
- Both the firm and client are focused on the same thing: the real business impact of the services. In a traditional hourly billing model firms focus on the cost of providing the service. How long will it take? Who will do the work? Client’s are focused on the value of the service. Will it be worth the expense? Will it really solve my problem? In a value pricing model, however, both client and provider are focused on the value received. Their interests are better aligned, which promotes better communications and outcomes.
- Predictability in Pricing: No one is happy when “surprise bills” come. With Value-based pricing, scope and price are agreed upon before the work is started. If the scope of the work is changed, this will be discussed and pricing can be adjusted.
- Reduces Billing Questions & Disputes: With a value-based pricing model, billing disputes are reduced as clients know exactly what they are being charged for.
What is Fixed-Cost Pricing?
A Fixed-cost pricing model guaranteed a fixed budget for the project, regardless of the time and expense. This serves as a huge advantage to clients as it allows them to plan and set an exact budget. There will be no surprises or unexpected bills, which is not uncommon in an agreement that is billed by the hour.
Benefits of a Fixed-Cost Pricing Model
- Predictability & Simplicity : When entering into a fixed-fee business contract, you can rest assured you will be paying the same amount every billing cycle. Although there may be some modifications, you will be aware of any pricing changes in advanced. The predictability of the agreement allows greater control over finances, giving businesses time to prepare and budget.
- Stability in Payments: A fixed-fee pricing professional service agreement contract is set in stone, opposed to hourly contract which can fluctuate. With a contract billed hourly, you could be hit last minute with an extra few hundred dollars in unforeseen circumstances, such as the project took more time than the professional service firm expected. Professional service firms offering a fixed-fee pricing model. Stability is something that is often craved in the business world, especially for startups and small businesses, which can be accomplished with fixed-fee pricing.
- Solid Requirements Outlined: A fixed-fee contract can greatly reduce stress for both parties involved. Clients know the expected results as the professional service firm will outline the scope of the project and costs ahead of time.
- Get Answers To Questions, Free of Charge: With billable hours, clients are hesitate to call their lawyer or accountant with questions, as they do not want to get charged. With fixed fee and value-based pricing, clients don’t have to stress about being charged to have questions answers, in fact, these type of contracts encourage open dialogue and discussion.
The Bottom Line
When your business partners with a professional service provider, you should feel like they are adding value to your business at a justified and predictable price. Fixed and value-based pricing ensures stability, expectations clearly defined in advanced, and the ability for genuine relationships to form. You won’t have to worry about your questions not being answered due to large hourly bill concerns, if you partner with a professional service provider that offers fixed or value-based pricing.
Exemplar Only Offers Fixed and Value-Based Pricing, and NO Hourly Bill.
At Exemplar, our priority is to create and maintain long-lasting relationships with our clients, and we don’t believe genuine relationships happen when we bill clients by the hour. We guarantee only fixed and value based pricing across our numerous divisions of Law, Capital, Tax & Accounting, Strategy, Compliance, and Insurance. No hourly bill, no hourly bull. Contact us today to learn more.