Business Plan for Startup Bookkeeping Service - The Book-keepers Forum (UK)

ilsm · Senior Member

Business Plan for Startup Bookkeeping Service

ilsm · Senior Member

Hi

I am intending to start a bookkeeping service towards the end of this year/beginning of next. While I don't want to ask questions that might be too intrusive, I do need some help with my business plan and would welcome the observations of people who have already been through this process.

I have been informed that no bookkeeping service will be viable with less than 30 clients. Assuming 30 clients produce 2 hour's work per month each @ £20 per hour (say), that's an annual turnover of £14,400. I would guess that someone who pays for two hours' bookkeeping would expect up to 100 transactions to be processed in that time.

Needless to say, I am aiming for a significantly higher turnover than that.

My first question is, is it reasonable to expect that level of work from 30 or so small businesses? Or, to put it another way, if you selected 30 of your clients at random, would they produce that level of work/income?

Secondly, please think back to when you started. How quickly did you build up your client base? Did you have thirty/sixty or more at the end of your first year?

Thirdly, at what point did your acquisition of clients cease to be "intensive" and settle down to a slower but steady level of recruitment? How many new clients do you get these days?

Lastly, does anyone care to comment about losing unsuccessful or fickle clients - should this be provided for in my forecasts.

Last question plus one: How big a geographical area does your business cover. I am focusing on the East Midlands. Too big or too small? (I'm prepared to recruit where necessary.)

Shamus · Forum Moderator & Expert

Hi Iain,

welcome to the forum,

what sort of background do you have in the industry? are you with any professional body?

Couple of points in relation to your questions.

Firstly, I think that mostly we tend to quote for the job rather than purely based on a number of transactions. We do make an estimate for the client of the average number of hours per month that we will spend on their work but there is much more to the work than the data entry and monthly charges tend to reflect the whole package including end of period processing rather than billing by the hour per se (although the charges are still mostly built around the number of hours that we expect to work).

For East Midlands I would say that you should be looking at around £15 to £18 per hour. I'm West Midlands and that's about my rate for bookkeeping work but I also charge £35 per hour for accounts work. For most clients there is a mix of the two rates.

The issue with straight bookkeeping is that there really isn't a great deal of call for it. Clients tend to want cheap accountants so unless you are offering accounts filing and tax work you may struggle to find the clients at the level you are suggesting.

I say at the level you are suggesting as to indicate 2 hours per month means that you are chasing micro businesses who are the one's who want the full service. Larger businesses will require more time per month than two hours but will also have a seperate accountant for end of year and tax work.

So, basically, for straight bookkeeping work it will be around £15 per hour and you should be looking at a minimum of 4 to 8 hours per month (or half a day to a day as I try to avoid letting clients start counting minutes) per client.

For smaller businesses you need to factor in the whole service which is why I asked about experience and professional bodies at the start of the post.

Finding clients is difficult and there is a lot of competition in this business so thirty clients in your first year is an aspirational target unless you have leads before you start.

Many people use networking and social media to find clients but do not expect to find anyone for six months but after that it's very much a snowball rolling down a hill... Provided that you do a good job for your clients as you will find that word of mouth is your best marketing.

First year you will be very lucky to achieve £14,400 and really you need to aim for expecting little if any income in the first year but it should get better from there forwards.

East Midlands incorporates some pretty major cities (Leicester, Coventry, Derby, Nottingham, etc) and generally people would concentrate on a city and surrounding areas but still accept work from outside their focus area.

hope that helps for starters.

kind regards,

Shaun.

Shamus · Forum Moderator & Expert

Hi Iain,

well, bookkeeping hasn't changed that much since the times of Luca Paciola so if your training was ingrained then it shouldn't have any major difficulties getting back up to speed.

As for rates you get whatever the market will bear for your area. Around by me just before the new Government got in the rates for qualified bookkeepers were down as low as £8 but some training companies and software vendors were still advertising this business as having unlimited earning potential and a safe market with lots of work.

Note that training link, Ideal Schools and Premier training were not amongst the training providers to make such wild claims.

Thankfully now a lot of people read this site and get the truth of the market place which is still much better in some area's than others. There are area's down South for instance where one can achieve £25 per hour and get work at that. Although, it might be worth reading pDm's blog which he publishes on Saturdays to see how long it has taken him to ge to 3 clients.

I would not say that the Midlands, East or West falls into the £25 per hour catatory and at times it does seem as though there are more bookkeepers than there are businesses to chase.

In my case I actually re-evaluated my own business model back in 2011 and decided that it was not viable to only offer bookkeeping services a it became clear that such was not what small business wanted or needed.

When determining prices rather than looking at National Websites you really need to look at the local market and then match but don't try to beat their prices otherwise you just end up working for the fun of it rather than making a profit.

If you have any value added services price those seperately to the bookkeeping work.

Fingers crossed you will get to where you want to be well within the two years but planning to that timeframe does seem to make more sense as always better to er on the side of caution.

As for post office box addresses, I have no view on that but regardless of your address clients expect a personal servic and to basically be able to contact you pretty much 24/7. If they cannot come to you then you have to be prepared to travel to them.

The eastiest businesses to get are often the most trouble and require more of your time which they really don't appreciate that you are needing to spend.

For instance, a client will see that you just have to enter the information that they give you on a computer. How long can that take? What they don't see is you having to sort a black binliner of their receipts and invoices and bank statements before you can even think about starting to enter the data.

kind regards,

Shaun.

kjmcculloch83 · Expert

Hi Iain,

I think Shauns covered most of the bookkeeping stuff. I personally focus on micro businesses, and agree with Shaun that the average time taken is 2-4 hours a month. I don't price hourly but rather offer fixed prices for jobs. My average hourly equivalent is £35 for bookkeeping work, and £50 for self assessments. I work part time and have taken 2 years to get to a reasonable income level. Having said that I never intended to grow the business quickly, I have spent very little on marketing other than my time really.

Regarding PO Box addresses, I have an inbuilt distrust of anyone using them. My first thought is always, what are they trying to hide, and why? Given that our business is built on trust, I can't see them being a good thing. I use my home address at the moment and have never had anyone come to my door at odd times etc. In fact no one has ever come to the door without an appointment, and I generally meet clients at local hotels.

Kris

ilsm · Senior Member

Shamus wrote:
... bookkeeping hasn't changed that much since the times of Luca Paciola so if your training was ingrained then it shouldn't have any major difficulties getting back up to speed.
Ah! I remember Luke! Y'know, the Florentines still talk of the parties he and Leonardo used to throw every week! You had to be there.
As for the bookkeeping, the only change I've noticed so far is that the balance sheet has been turned on its side.

ilsm · Senior Member

kjmcculloch83 wrote:
Regarding PO Box addresses, I have an inbuilt distrust of anyone using them. My first thought is always, what are they trying to hide, and why?

Kris

My home address!

Because I don't want to receive unexpected callers (my wife doesn't, either). Also because I don't want to give an impression that my clients' records will be returned with fresh soup-stains or dog toothmarks, or that the work is done in between Emerdale and Corrie.

Nor do I want clients fretting about security in my household and wondering if private and personal information is being mishandled.

So, are these reasonable concerns or nonsense?

Incidentally, I've visited your website - my compliments on it by the way - and I noticed your handy fee estimator: it asks about the number of expected transactions a prospective client will have.

Referring back to Shamus's comment, "Quote for the job, not the number of transactions," I take it, you don't agree?

Iain

Shamus · Forum Moderator & Expert

Hi Iain,

whilst there are dozens of different pricing models there are three commonly spoken about on this site.

Bob Harper of Crunchers swears by value pricing which I don't quite understand so assume it to be a management consultant type name given to the approach that many of us take anyway without actually giving it a name.

There's charging by the hour (often based on an assumed number of transactions per hour).

And there's charging by the job.

My approach is based on charging by the job but based roughly on the number of hours that I expect a job to take. Its very much a win some lose some approach.

Charging by the hour it's more difficult to give the client an up front figure for what your work will cost them, however, many clients realise that they can't get an exact figure when each month the work is different.

All in all charging is really based on a charge that we think is fair and the client is able to pay. If the charge doesn't match those two criteria then pass up the client and move onto one that will turn a profit.

I actually think that mine and Kris' approaches are quite similar in that our methods both have their roots in how long that we feel that the job will take us and then try to charge based on the opportunity cost of that time.

With myself I hope that it will eventually get to the stage where I have employee's for data entry work so that I get to charge accountant rates for all of my time (with the bookkeepers time charged seperately). Only difficult part about that from my perspective is relinquishing some of the control... Weird. I've had up to 160 people reporting to me with my other hat on but the thought of giving up control over some element of a clients books sends shivers down my spine.... Guess I've just seen too many examples of shoddy bookkeeping (#1) which is making me a little wary.

Shaun.

#1 today alone I've spent best part of three hours trying to unravel a hotch potch of journals by someone (qualified!!!) who seemed to have absolutely no idea when something was an accrual and when it was a prepayment.
They had done a great job of the rest of the books but when it got to period end the bookkeeper just lost the plot... Maybe that's how I should approach things. Allow others to do data entry but rap their knuckles with a ruler if they go anywhere near a journal.

BobHarper · Guru

@Shaun - Value Pricing is a price agreed "with" the client in advance of doing the work based on the value. This is very different to a price "offered" based on time costs with a notional profit uplift.

If you priced using Value Pricing you would price the client, not the job. And, you would use accounting services to draw up the value of the bookkeeping because that's what we are doing with Crunchers.

kjmcculloch83 · Expert

Every time I think I get value pricing, Bob, you say something and confuse me again.

Personally I wouldn't use a bookkeeper or accountant or any other service based on trust if they hide behind a PO Box. I have a similar fear of people who use only a mobile number. For all your concerns about working from home I am yet to experience one.

Thanks for your compliments, Iain. I use the number of transactions as one of the ways to weigh up the workload, and the client. I don't agree with hourly rates for a number of reasons, and never use services without an up front price. Even when buying and selling houses I get a fixed fee from solicitors and have saved a fortune in the process. I wonder if thats what Shaun was getting at when he said price the job not the transactions.

Kris

Don Tax · Expert

Hi Iain and welcome to the forum.

Don't think we have too many chartered secretaries here - have you considered that the worshipful company could be a unique selling point when offering non-accounting services?

I side with Kris on the matter of a PO Box. I've never heard of that being used and if clients trust you they will trust you're careful with the soup! A slightly better alternative would be a virtual office.

Best wishes on your venture.

Regards,
Tim

Shamus · Forum Moderator & Expert

kjmcculloch83 wrote:
I wonder if thats what Shaun was getting at when he said price the job not the transactions.

It was Kris,

like yourself I wouldn't dream of assuming that a client would sign up without having at least a rough idea of what my services will cost them (there are I have found always add ons that they want after they've signed).

Generally I make a ball park guess based on the clients past performance as to how long it will take to keep them on the straight and narrow each month.

I avoid saying things such as it will take me x hours but rather say that I will be charging x amount which is basically based on experience of similar clients, transaction volumes, etc.

As I say, sometimes I get it wrong in both directions.

If I've got it very wrong then there was something that the client was hiding and in the past I've successfully renegotiated on the basis of improved information.

However, where I am only a little out then I suffer the hit.

Thinking about the p.o. box from the perspective of an end user viewpoint I'm with you in that I would not use a p.o. box service for anything as important as looking after my books.

What happens if the bookkeeper disappeared? You wouldn't even have a start point to try and track down your books and reords.

On the mobile number front how would you know that it was a mobile? I have internet redirects from a pseudo landline that has no physical presentce to four different numbers.

The clients only have one number, the number that I pick up with has no bearing on the number they call.

Shaun.

p.s. clients only pay for a landline call, if I pick up with a mobile I suffer the additional charge.

gillyfleur · Senior Member

I quote based on anticipated time plus a bit having had a look at what the client does with their paperwork. I tell them it will no more than that price for 3 months, and if takes me less then they pay only for what I do. After 3 months I can give them a better idea of cost and what they can do to keep the cost down and make my life easier. I take the hit if it takes longer. But it rarely does

kjmcculloch83 · Expert

Shamus wrote:

On the mobile number front how would you know that it was a mobile? I have internet redirects from a pseudo landline that has no physical presentce to four different numbers.

I agree Shaun, and in fact use voip myself so often redirect it to a mobile. I would expect a gardener or builder to show a mobile number as I expect them to be out and about, but for a professional service mobile says fly by night and landline number says permanant. As you say now with voip etc this isn't actually the case, but we deal with and make decisions based on perceptions, not always fact.

Kris

kjmcculloch83 · Expert

Shamus wrote:
On the mobile number front how would you know that it was a mobile? I have internet redirects from a pseudo landline that has no physical presentce to four different numbers.

I agree Shaun, and in fact use voip myself so often redirect it to a mobile. I would expect a gardener or builder to show a mobile number as I expect them to be out and about, but for a professional service mobile says fly by night and landline number says permanant. As you say now with voip etc this isn't actually the case, but we deal with and make decisions based on perceptions, not always fact.

Kris

BobHarper · Guru

@Kris - what did I say that confused you?

kjmcculloch83 · Expert

@bob - If you priced using Value Pricing you would price the client, not the job

Kris

ilsm · Senior Member

On Kris's website is an item discussing how to claim the cost of using a room in your house as an office against your taxable profits: there are two ways, it says, the lazy way and the more precise way, which involves a calculation together with a bit of approximation. The difference can be significant, as Kris demonstrates.

I wonder if a parallel can be drawn with how fees are estimated/jobs are priced: there's the assessment of what the customer will stand - value-pricing, and there's the assessment of what the job will involve. I equate these with Kris's "lazy way" (without at all intending to suggest that a lazy approach has been adopted to pricing by firms using this method), and the assessments are based upon negotiaion skills, past experience and subjective opinion.

(There has to be a level below which this method will not work, presumably. How is this level determined?)

Then there's the more precise method. This method is based on a precise recording of time spent multiplied by an hourly rate (which might of course have been plucked from the air).

Both methods seem to me to be approximations: under the first, the client pays more, but for a service he values, and the bookkeeper must bear the cost of any underestimate; under the second, the client gets exactly what he pays for, and the bookkeeper has to be satisfied with that.

I don't know which is the better, but I incline towards the "lazy" method, and to value-pricing in particular. However, in developing a buisiness plan, I have to show a realistic level of income and I cannot say, "This is what I will negotiate/assess" without an idea of what jobs I will be offered or what the market will bear. So I told myself, "I will assume that customers will pay so much per hour and will require my services for so many hours." I then decided I will acquire 1 customer a month for so long, then two customers, and so on. I think that is a valid way of forecasting income in a start-up situation. My OP was to find out what practitioners thought was a reasonable rate of acquisition.

@ Don Tax. Yes, I do intend to offer a Co Sec service, and it will be priced separately or bundled in a package.

Re the PO Box address, I have read some (American) advice that supports the use of PO Boxes for the reasons I suggested (I am open minded about this, really), and I was struck by Shamus's thought that, if the bookkeeper disappeared, the clients wouldn't know where to begin to recover their files. I'm sure I could be found some other way, but it's a valid point.

Finally, what's voip, please?

BobHarper · Guru

@Kris - value is like beauty, it's in the eye of the beholder.

With Value Pricing, you'd price the value of the client's time, not the cost of yours.

Does that help?

kjmcculloch83 · Expert

So in simple terms client A and B have the same workload. Client A makes more money and when you meet them looks like he has a few bob, client B is struggling to keep his head above water. A gets charged more than B?

Kris

BobHarper · Guru

@Iain - we use "Effective Recovery Rates"as the basis of the financial forecasts.

BobHarper · Guru

@Kris - perhaps, but if client A is very comfortable they may just want basic bookkeeping. Client B may engage you to do more than the basics and even though you may invest more time with them you could end up charging more and making more.

kjmcculloch83 · Expert

Voip is Voice Over Internet Protocol, simply it's a way to use broadband to get more cost effective telephone lines and calls. I use a service called voipfone, do a google search for them and have a read. It's especially good for monitoring marketing materials by getting allocating numbers to specific campaigns.

Kris

kjmcculloch83 · Expert

Ah, ok Bob. So if I had a client who was trading as a sole trader with his wife working for free, making a big profit and I said we can lower your tax by employing your wife who doesn't work and using her personal allowance. This would save just shy of £4k and I'll charge £400 for it. The value to the client is saving the £4k and I can charge silly money for a simple payroll service.

Or am I really not getting it?

Kris

Shamus · Forum Moderator & Expert

Hi Kris, Iain,

on advice from Bill (wella) I use Vonage for my VOIP.

Got to choose a very good, easy to remember number in the area of my choice.

Had it for a few months now and no compaints at all about the service or cost.

As with the discovery of VT for accounts and using Namesco for web hosting this site has definitely saved me a lot of the anguish of making bad choices.

Shamus · Forum Moderator & Expert

On the other point about value pricing I think that I give away information that others might sell as it's more important to me to have a happy sales force... Sorry clients... Nope, was right first time.

If a client feels that they are paying for every little peice of advice then surely that acts as a barrier to a close working relationship and harps back to the bad old days where clients were afraid to talk to their accountants for fear that somewhere in the background there was a timer counting every second (plus some) at some ridiculous rate.

My charges are fair and so I don't begrudge clients value added information as whilst profesional respect isn't something that in the short term can be spent, in the long term money, and more clients, flow to those that clients trust and respect. And neither trust nor respect is not born from chasing every penny.

BobHarper · Guru

@Kris - the value is in the knowledge/advice, not the payroll service.

Value Pricing is not just a new pricing system but a new business mode. It changes how you approach practice strategy, development and management.

@Shamus - the client pays a fixed price for a fixed service.

The agreement sets expectations and includes responsibilties. It can also include service levels and guarantees.

Agreements are developed WITH the client and signed off BY in the client. Different options are offered at different price points.

If something comes up outside the agreement it can trigger an extra fee. Seems fair to me.

-- Edited by BobHarper on Wednesday 4th of July 2012 08:18:27 AM

kjmcculloch83 · Expert

Well Bob, it all sounds a bit airy fairy to me. I've yet to find anyone who can explain simply what value pricing is in practical terms. I'll continue to beat my own path with pricing I think.

Kris

Don Tax · Expert

One mans meat is another mans poison.

Another guy intends to pay his wife as he already knows to use up all her personal allowances. The value to him is less than the guy who had his wife working for free. He might find £400 a silly price to pay and a strict hourly rate would deter such customers.

The first guy thinks he's getting a great deal.

I suppose there's more to it than that that for non-repetitive tasks and if someone phones up with a new problem or business idea every couple of months then that would be subject to negotiation.

Tim

BobHarper · Guru

@Kris - Value Pricing is a simple concept (the price is linked to the value the client perceives) but I agree it is not easy.

BobHarper · Guru

@Kris - OK, but you got to understand discussions can be multiple meetings and go into great depth. It's a bit like asking me to explian the process of getting a women to marry you.

I suggest we use a budgeting service as an example because I've just put together an example spreadsheet to use with Xero based on this video http://blog.xero.com/2012/05/budgets-and-checks/.

Now, you've got to start from the position that the marketing has been done, in that the client is interested.

So, for example, they could have attended a seminar/Webinar or read something like a guide to effective budgeting and we've booked a meeting.

In the meeting I would be asking lots of questions:

Why they are interested in budgeting?
How do they think it will help them?
What they expect from a service?
How will they know it is successful?
What impact could it have on profits and cashflow?
What would this mean personally?

Now, let's assume the business owner feels the business lacks focus and the employees are not as motivated.

I would be positioning a budgeting service as a way of working on the strategy and developing the team.

I would then work with the business owner to try and work out what this could be worth. Let's say the client believe there is potential for £30,000 extra profit and a lot less hassle for themselves.

I would then ask about what other issues and initiatives the business has going on. When we have everything out on the table I would explore if developing a budget is the right thing to do now.

If it was I would ask the client what they felt seemed sensible to put into the service.

Then I would work up some ideas on how I could be involved. And, I would give 3-5 options. One or two options could be below the figure and some over.

What do you think someone would invest to get £30,000 every year for the next 10 years plus say £100,000 extra capital value and a lot less hassle.

Just the extra profit and capital value is £400,000. The less stress could be living longer and more energy to do what the business owner loves doing.

Keep in mind this is a quick example and is just intended to highlight the general approach.

At no time have I considered the time involved or what I want to make.

-- Edited by BobHarper on Wednesday 4th of July 2012 08:11:19 PM

Shamus · Forum Moderator & Expert

kjmcculloch83 wrote:
If you had to recommend one book on value pricing that shows the practical implementation what would it be?

Kaplan, ACCA paper P5 Advanced performance management complete text.

Basically all of the information on risk and uncertainty, expected values, Maximin, Maximax, Minimax regret.

Also the free opentuition lectures for ACCA paper P5.

It's not refered to as value pricing it's called the price of perfect information but it's the same concept.

Keep finding that in this business.

Johnson, scholes and whittington are a perfect example of theorists who stand on the shoulders of better men such as Porter, Ansoff, Hopwood, etc.

-- Edited by Shamus on Wednesday 4th of July 2012 09:30:31 PM

Shamus · Forum Moderator & Expert

To quote Albert Einstein :

"If you can't explain it to a six year old then you don't truly understand it yourself".

Consider us as a bunch of six year olds Bob (sure that shouldn't be too difficult, lol) and try to explain how we could come up with a quote for a client based upon the bounded rationality nof not knowing at the time of quoting for a job informtion important to pricing based upon value.

I do understand what you are saying but I don't understand how one could apply such idea's in the real world so I'm figuring that I must be missing something key here.

kjmcculloch83 · Expert

Maybe the 6 year old explanation is saved for franchisees?

Kris

Marky65 · Guru

kjmcculloch83 wrote:
So in simple terms client A and B have the same workload. Client A makes more money and when you meet them looks like he has a few bob, client B is struggling to keep his head above water. A gets charged more than B?

Kris

Hi

I have been reading this thread with interest and seeing your post from yesterday Kris reminded me of an accountant that I used to know who used the exact same method for charging, which to me is wrong, and he struggled to keep his business going.

I charge, rightly or not, one price per task (1 cost for bookkeeping, 1 for VAT returns, etc) so in your example client A might think it is a bargain and B might think it is too expensive. I may or may not sign either client but my charge is my charge for the work that I do.

And as Shaun said earlier, the value added comes from giving clients advice and not charging for every second that you spend on the phone with them or replying to their emails & I make this point during our free initial consultation.

BobHarper · Guru

@Shamus - with Value Pricing you don't come up with a quote for the client, you do it with the client. This means that you need to ask questions and search for value.

@Kris - one of the best ways to understand Value Pricing is to work through some proposals and yes, I do that with franchisees.

kjmcculloch83 · Expert

Would you give us a worked example Bob?

BobHarper · Guru

@Kris - it's not a calculation, it's a discussion.

kjmcculloch83 · Expert

Maybe an example of how that may go then? You said that you work through proposals with franchisees, can you make one up to give us an idea of how it would go?

Kris

Shamus · Forum Moderator & Expert

I think that's what peoples issue is with the idea Bob.

Its not the principle of value pricing but rather if you can't turn it into a flowchart and quantify / cost the elements of the chart then it's difficult to comprehend as a model and feels more like a fill in the gaps as you go along which is at odds with the mentality of everything able to be defined and everything needing to quantifiable which is the mental state that you need to have to be successful at bookkeeping.

I can see why Kris was asking for a demonstration as perhaps seeing it being implemented would clarify the soft elements of the idea (that's soft elements as in McKinseys 7's model, not any intended belittlement of the methodology).

kind regards,

Shaun.

kjmcculloch83 · Expert

Hi Bob, thanks for that. It makes a lot of sense now. I assume there is a level of return for the client where it is too low to make it worthwhile carrying out the work?

Interestingly at the beginning of the post I thought about a marketing 'expert' I spoke to the other week who 5 minutes into the conversation asked me what my budget was. Quite often I don't have a budget in mind, if the proposition sounds good enough I'll pay what it costs and if it doesn't I wont. I sometimes think when people ask you this they just want to come up with ways to make you give them the whole thing.

I'm interested that this doesn't seem to be quite like that. It's certainly interesting. If you had to recommend one book on value pricing that shows the practical implementation what would it be?

Kris

BobHarper · Guru

@Kris - sounds like your marketing expert needs some sales training; the value needs to be on the table before you ask for the budget.

Book http://www.amazon.co.uk/Implementing-Value-Pricing-Business-Professional/dp/0470584610

Shamus · Forum Moderator & Expert

Now I understand what value pricing is.... And I can now say that I sort of disagree with it as quoted but can see how it can be priced if applied as the price of perfect information.

The problem is that this is a complex area (as evidenced by ACCA paper P5 (#1) 29% pass rate) and as the accountant you should be the one telling the client how much perfect information should cost.

I appreciate that the above has been kept simple and I assume things like ROI, RI, EVA, NPV, MIRR, etc would be supplied for all given scenario's in a report for the client.

The idea of value pricing seems to be positioned around involving the client in making decisions that they are unqualified to make and where they are unlikely to understand the complexities of probabilities, risk and uncertainty approaches, expected values etc. and fall in line with the most profitable option even where they do not understand the side effects of the route they take.

To my mind the idea of value pricing is really a different pricing strategy. The price of perfect information. Which is actually a more of a marketing rather than accounting pricing strategy.

As I say though I now understand where you are coming from and can see the merit of the approach if based on perfect information rather than purely on the overall saving to the client.

Whilst the perfect information figure will be lower than the value pricing figure you can basically justify charging anything up to all of the price of the information.... But of course that would be a one off excercise rather than an ongoing process for which more traditional pricing models would make more sense.

This however creates another issue in that producing the initial report with sufficient detail for the client to make decisions will be expensive of your time so really the client needs to have requested the information and offered a price before work commences. (bit of a chicken and egg scenario).

kind regards,

Shaun.

#1 The above scenario is ACCA paper P5 advanced performance management stuff. (value of perfect information, etc.)

BobHarper · Guru

Shamus - yes, getting to the price can take time and slows down the sale. This positions the service provider as a trusted advisor.

When done well, Value Pricing is a service in its own right and I would consider charging for a proposal.

Shamus · Forum Moderator & Expert

Your not going to believe this Bob but...

Agreed.

Bet you just fell off your chair didn't you!

yes there are definitely times to charge for the proposal. If the client knows that they have issues then they've contacted a professional for a reason and it takes time and money to get to the right answer.

Bet you knew that you would get there in the end with me didn't you.

Have a good evening,

Shaun.

BobHarper · Guru

@Shamus - I am not surprised because you are intelligent man and the argument for value being linked to costs is stupid.

By the way, charging for the price enables a proper diagnosis. Free meetings can miss/overlook critical issues.

I will look at this http://en.wikipedia.org/wiki/Expected_value_of_perfect_information

-- Edited by BobHarper on Thursday 5th of July 2012 09:20:03 AM