I’m sure many of you will have heard the well-known story of the old man, the hammer and the broken engine….
A huge engine in a large busy factory broke down.
And the factory owner spoke to dozens of ‘experts’ and ‘professionals’ but not a single one of them could help fix the problem.
Eventually the owner sought out an old man who had been fixing engines ever since he was a young man.
Within a few minutes of inspecting the broken engine, the old man reached into his pocket retrieved his hammer and tapped the engine twice.
The engine immediately came back to life.
A few days later the old man sent an invoice to the factory owner for £10,000.
“HOW MUCH?!” said the owner.
As an explanation the stunned factory owner requested an itemised bill, to which the old man only happily provided.
The bill read:
Tapping with a hammer: £5
Knowing where to tap: £9,995
So what does the story teach us?
As accountancy practice owners we’ve all faced clients who question our fees.
And it can often make you wonder whether your pricing is justified.
But I can tell you the problem isn’t how much you are charging…
And this responsibility lies solely with you.
Take the old man and his hammer for example…
The factory owner wasn’t paying for the man to fix his engine.
He was actually paying:
- For the years of expertise and experience the old man had built up.
- To prevent a potential huge loss of income for his busy factory not running how it should be.
Now the factory owner, understandably questioned the £10,000 fee.
And this is because he didn’t understand the value of the service.
It hadn’t been communicated up front, and he hadn’t looked at the bigger picture.
So, the moment the work was completed, the factory owners’ sense of urgency diminished and therefore the project value significantly dropped.
This is what’s known as ‘The Call Girl Principle’.
I’ll let you figure that one out yourself…
So how do we avoid this?
When selling your services, you need to communicate how the service will positively impact your client and emphasise the benefits.
So, if the factory owner considered beforehand how:
- Each day the engine is broken, his output is suffering
- His profits are impacted the longer the engine is out of action
He is much more likely to reach into his pocket.
If he considers £10,000 as potentially saving his business from a huge long-term loss, it is far more justifiable to pay than thinking of it as £10,000 for 2 minutes labour.
So the next time a client questions your fees…
Stand strong, the ball is in your court.
Hold your ground and focus on communicating the value of your services to them.
Pricing is undoubtedly a well-discussed topic in the accounting world right now.
And there are numerous viewpoints and opinions on which pricing strategy is best.
But as Warren Buffet said : “Price is something you pay, value is what you get” and it’s important you let your clients know this.