The Difference Between Fixed Fee and Value Pricing

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Pricing is not purely logical. Psychology plays a major role. One thing is guaranteed – the price you share with a potential client has an immediate impact. Some will immediately opt-in because your rates are at, or below, their expectations. Others will be surprised you charge that much. And, a certain percent of clients will recognize your value is far greater than the fees you charge. 

The Confusion between Fixed Fee and Value Pricing 

Fixed fee and value pricing seem similar, but they’re not. Both refer to a set price for your services – that’s the primary similarity. Let’s dig a little deeper into these terms to clarify their differences. 

Here’s what the fixed pricing formula looks like:
Service ->Cost ->Price ->Value ->Client 

Since these fees reflect time, tasks and processes, fixed fees commoditize your services. This price equation prioritizes your costs and time. So, your rates reflect what’s most important to you as a firm owner. 

On the other hand, value pricing places the client at the beginning of the equation. This formula is inverse from the fixed price model. Your rates reflect a client’s values, not the firm owners. 

This is the value pricing equation:
Client ->Value ->Price ->Cost ->Service 

You see, value is subjective. What you value differs from what your clients highly value. And, it’s your clients who decide whether to engage with you or to move on. 

Therefore, consider what’s most important to your clients. Start out by asking yourself three important questions. 

1. What challenge do you solve for your clients?
2. Why do clients choose to work with your firm?
3. What’s possible for your clients once you solve their challenge?

This article on 5 Steps to Confidently Price Cleanup Projects has some great information to get you started. 

Redefine Your Priorities 

According to Peter Drucker, The customer rarely buys what the business thinks it sells him. One reason for this is, of course, that nobody pays for a ‘product.’ What is paid for is satisfaction. 

Strip your time and costs out of the pricing equation. Although it may feel true, clients don’t want to buy your time. And, clients aren’t concerned about your costs. 

Flip your priorities. Emphasize your clients’ needs instead of yours. If you’re unsure what they are, then talk with your clients. Ask questions which reveal what they value most about your services. Then, let them know how your service resolves those needs. 

By doing so, you illuminate what they gain. Your clients realize the benefits of working with your firm. 

Value pricing emphasizes results rather than functions. Of course, this requires more effort. However, it also raises the value of a client. 

What Clients Highly Value 

Once Jamie defined her specialty, her accounting practice steadily grew. She works solely with attorneys to increase their profit margin and manage their finances. 

Since Jamie has business savvy, she offers advisory services along with accurate financials. Her clients no longer worry about the accuracy of their trust accounts and financials. This allows them to focus on their firm’s growth. 

Jamie realized that some law firms are not a good fit for her services. She’s not interested in working with law firms who aren’t interested in her advisory services or financial insights. And, she no longer tolerates clients who keep her waiting. 

Same Work; Different Prices 

Jamie researched different price strategies. Value pricing, unlike fixed fees, prioritizes the client’s interests. Plus, she earns more when she prices the client instead of her time. 

As I mentioned earlier, value is subjective. Since Jamie is pricing the client rather than her services, clients may pay different fees for the same work. That’s because the value one client obtains from her work differs from the value received by the next client and so on. Her pricing reflects this value variation! 

Jamie has two clients with legal practices. Tom’s been in practice for 8 years. He no longer has time to manage his finances. So, Jamie does his bookkeeping and invoicing. During their advisory meetings, Jamie helped Tom save $50,000 in expenses, improve employee retention and increase profits by $300,000. 

Now let’s consider Sarah, who started her law practice last year. With Jamie’s insights, she ultimately saved Sarah $10,000 in expenses and her profits increased by $40,000. 

Now with fixed fee, both clients would pay the same for her services. When you strictly consider the numbers, Tom receives greater value from Jamie’s accounting and advisory services. Since value pricing prices the client rather than the service, his fees are greater than Sarah’s. 

Value is Subjective 

The client determines fair price and value. Value pricing works when your client realizes the gains from hiring you are greater than your fees. You charge differing amounts based on the value your services create for a client’s respective business. As you gain comfort with this price strategy, any guilt about charging different prices to different clients for similar services quickly disappears. 

Even if you invest the same amount of time doing similar work, the resulting value differs considerably from one client to the next. Therefore, you pair your fees according to each client’s value. And yes, this means one client may pay a higher, or lower, rate than the next. 

Value Pricing Paves the way to Success 

Value pricing separates your fees from time. Therefore, you earn more without feeling like a slave to your business. 

Imagine having clients who no longer watch the clock, challenge your invoice or question the amount of time you spend in their file. When your accounting firm leads with value, you gain awareness about your client’s perspective. 

Interested in how to start value pricing your services? Claim your FREE RESOURCE that outlines exactly how to increase your rates today. Then you’ll be on your way to earning more without working more. 

Loren Fogelman, founder of Business Success Solution, is an expert in pricing strategy and sales for accounting professionals. She delivers talks across the United States at major conferences such as Inbound as well as many accounting niche conferences. From 2018 to 2021 she’s been steadily recognized by HubSpot in its list of the world’s top 22 business coaches.