25 Jul Price the Customer not the Service
One of the most common mistake we are seeing in the bookkeeping and accounting community is pricing the service, NOT the customer.
Robert Crandall, former CEO of American Airlines was quoted once as saying “If I have 2000 customers on a given route and 400 different prices, I’m obviously short 1600 prices“.
What does this have to do with bookkeepers?
One of the most common mistakes we are seeing in the bookkeeping and accounting community is pricing the service, NOT the customer. As the CEO of the airline stated, if he could they would like to price each customer individually.
But we are seeing a number of industry authors with various tech companies, however, instructing bookkeepers and accountants to price the service. We have even seen some suggest that you should get down to pricing the transaction. In our opinion, this is just crazy!
Why would you give up the most powerful thing in your business – the ability to price the customer? Airline CEO’s, hotels and other large businesses are trying to work out how to price the customer (spending millions of dollars trying) and here we have the ultimate relationship business (bookkeeping & accounting) being advised to price the service.
The art of pricing is about capturing the maximum value for the value you deliver. This just cannot be done if you price the service.
To establish an optimal price, you must understand the value drivers of your customers. To do this you must have a value conversation with your customer. Value pricing is about setting a price commensurate with the value you are creating for a real human customer.
Often a reason given to price the service (or even the extreme of pricing the transaction) is that it is scaleable. By definition, they are saying that pricing the customer is not scaleable. The overwhelming evidence though is that pricing the customer is scaleable – Watchell Lipton (the most profitable law firm in the world) turns over greater than $750 million. We could name numerous other smaller firms proving this point.
If you want to price the transaction (despite the logic of retaining of pricing the customer) then you will need to be the lowest cost provider. You will need to invest heavily in automation and utilising a low-cost global workforce. to achieve a lower cost of delivery. Given bookkeeping and accounting are relationship businesses we should retain the power of pricing the customer.
If you want to have a mediocre business then price the service. If you want a great business then price the customer.
(Credit to Ron Baker to putting me onto this quote.)