My CPA firm client needed a CTO–chief technology officer. They’d grown to 45 accountants by adding a lot of technology to serve their clients. The CTO would further build the firm’s technology capabilities, ensure security of all client records and transactions, and deter cyber security threats.
These are critical issues for their clients.
Yet, how would they cover his compensation package?
Unlike the CPAs and accounting associates who worked directly with clients and billed by the hour, the CTO would not be billing clients.
The firm’s Founder and CEO, James, asked me for help. He felt their hourly rates were “competitive” and was uncomfortable about raising them. And even if they did, everyone in the firm would have more pressure on them to bill more hours.
“Have you ever considered a non-time based approach to billing?” I asked.
“Tell me more” he said.
I explained the philosophy of ensuring that fees or revenue are related to the differences a firm delivers to their clients.
I call this IMPACT Based Pricing and for years I’ve been advising firms how to adopt it.
In a nutshell, the idea is that a firm uses its knowledge and expertise to deliver life changing impacts or differences to its clients.
And in return the firm’s compensation is proportional to that IMPACT.
James wasn’t sold on IMPACT Based pricing right away.
He had years of practice with hourly billing. Everyone he knew in the accounting industry and other professions charged by the hour. How could he possibly take the chance and ruin the relationships and practices he had carefully built over the years?
We started discussing the pros and cons of phasing in IMPACT Based Pricing in a 90 minute Thank Tank. I was happy to answer all his questions and respond to his objections. In the end he boiled it down to two risks:
- One was the risk of covering the compensation package he’d committed to for the CTO.
- The other was the risk of changing their pricing model.
Which risk was worse?
Being a numbers guy, he tried to quantify the two risks.
To cover the CTO’s compensation package through hourly billing, every associate and CPA would have to bill quite a few more hours per month. That would affect everyone’s personal lives as well as company culture. It didn’t feel great.
If they adopted IMPACT based pricing, most people’s hours worked would not change. What would change was the kind of work they did. It would be more creative, and outcome focused. They’d have more freedom to speak with clients knowing the clock wasn’t ticking. They could apply more of their knowledge and expertise and get paid for that because their depth meant bigger IMPACTS. So the numbers were in favor of IMPACT Based Pricing.
But—what would clients think? Would they lose some?
I said that other clients have lost a few of their clients when they made the switch. But not one of them complained. The clients who objected were the ones always looking for the most outcome for the least cost. They often objected to the charges on their monthly bills. James realized he could afford to lose those clients.
We moved on the plan for phasing in IMPACT Based pricing. The goal was to implement the plan over three months at which time they would almost entirely be on an IMPACT Based Pricing model. James learned and used my guide to talking with clients about IMPACT Based Pricing.
All new clients, from day one, would be offered services for an IMPACT Based price.
There were a few hiccups, as there always are with new ideas. At the end of six months, James told me that hiring the CTO and also adopting IMPACT Based pricing have his firm set to thrive for years to come.
“I would never have thought of this, Susan,” James told me. “I’m so glad you did and helped me come to terms with it in my own way.”
How about you?
If you’re thinking about your pricing approach, please read as much as you can about the advantages of pricing based on the impact you deliver.
You could also read about the disadvantages of hourly billing.
Next step? Schedule a Think Tank. We’ll cover everything that’s on your mind about IMPACT Based Pricing.