- If you're not convinced you should be
charged based on time for accounting and tax services,
then you've come to the right place.
In this video, I'm gonna explain to you
what value based pricing is, how it's calculated,
and how it can benefit you.
Stay tuned.
(grand music)
Welcome back to the Accounting & Tax Academy.
I'm Tony Dhanjal, and if you're new to the channel,
make sure you like and subscribe.
We'll be posting two videos per week
covering a range of topics
relating to accounting, tax, and finance.
And if you're a returning viewer,
be sure to let us know what you'd like to see
in future videos in the comments below.
Now, we recently posted a video
about different ways an accountants charge,
and have had a lot of requests to go into
a bit more detail about today's topic,
which is value based pricing,
and that's exactly what we are going to do.
Now put simply, value pricing can be
defined as the price for the value of a service
being delivered instead of paying a time based fee.
Often it's based on logical factors,
which we'll get into a bit more later,
and focuses on finding a solution to your problem
and aligning the service and fee quote
to the value it delivers to you and your business.
Let me give you an example.
Imagine you need some specialist tax advisory,
and have been quoted the following,
£400 plus VAT per hour to put together a tax plan
that could save your business at £20,000 over three years,
but it's not guaranteed, or a tax service that could save
your business £20,000 over three years, and if successful,
is charged at 10% of the amount saved.
So in comparison, you would only get
five hours of your tax advisor's time in the first scenario,
and then there remains the uncertainty
of exactly how much time is going to be needed
and what your final bill is going to be.
For me, the real benefit of value based pricing
is that it gives you a much clearer picture
of the value you are getting
in relation to the money you are spending,
and also transfer some of the risk away from you.
Now let's talk about the four
logical value based pricing factors
that can be used to give you a quote.
So number one, revenue of your business.
So, the higher the revenue,
the more transactions that are likely to occur,
and the accounting complexities,
and conversely, the lower the level of revenue,
generally, the lower complexity and transactions,
and thus the fee range.
Number two, quality of bookkeeping and records.
So, paper based records will result in higher fees,
whereas a well systemized digital bookkeeping process
will keep your costs down.
You can check out our video on accounting software
by clicking the link below,
just to see how easy it is to go paperless.
Number three, frequency of reporting.
If you need things like bookkeeping done weekly or monthly,
it would naturally be a higher fee range
than quarterly bookkeeping.
Number four, number of transactions items.
Now, this is a big one to eliminate time based billing.
Your fees for things such as bookkeeping,
payroll, general compliance, should be based
on the number of transactions or items,
and this metric is pretty easily ascertainable.
This eliminates inefficient bookkeeping
or work based on time taken, and gives you, the client,
complete certainty and transparency.
Now I can't speak for every provider, but here at Aidhan,
we take these four logical factors into account
when formulating a service plan and fee proposal for you.
(bright music)
Now, you might be sat thinking, Tony,
I'm just a small business, freelancer or contractor.
I just need my basic compliance.
Surely I don't need
a tailor made solution to my business yet.
Well, let me give you an example.
You need bookkeeping services for your business
and have approached two providers.
Provider one is using time based pricing,
and has quoted you 25 pounds per hour.
Now, they cannot give you an absolute total
because they will need to evaluate
the volume and complexity of work,
and quite often they only do this
once you have instructed them
and they have started working on your behalf.
Now it could take this provider three hours,
four, five, six, just don't know,
and you just don't know until the task is actually complete.
Provider two, using value based pricing,
has quoted you 85 pence per transaction.
You have 100 transactions,
so the cost of bookkeeping will total £85,
regardless of how much time it takes the provider.
With time based pricing, there is always uncertainty,
and scope for inefficiency on part of the provider.
With value based pricing, there is no such conjecture.
As long as you agree to the price per unit,
facts kick in, and the provider goes by
the actual number of transactions
in this particular scenario.
(bright music)
So value based pricing eliminates time based uncertainties
and fixed fee inefficiencies.
It focuses on delivering a relevant and suitable solution
for you and your business with value at the forefront.
So my advice as usual is to speak directly to a provider
who will conduct a fact find for you and your business
and create a tailor made solution
for your specific requirements.
And if you're currently looking for a value based solution
for your tax and accounting needs,
why not get in touch with us?
Head to our website, where you can use our Quick Quote tool,
or schedule a 20 minute fact find with me personally.
I hope this video has cleared up
any questions you may have about value based pricing,
and also taken you one step closer to knowing your numbers.
Please like and subscribe, and if you've got any comments,
pop it in the box below.
In particular, if there's any content
that you want us to produce in future videos, let us know.
Now this is Tony Dhanjal of the Accounting & Tax Academy,
and thank you for tuning in.
(upbeat music)