Imagine for a second that you’re on a game-show and up for grabs are 2 prizes:
1. A bottle of water
2. A diamond
It’s an easy choice, right? The diamond is clearly more valuable.
Now, imagine being given the same choice only this time you’re not on a game-show, you’re lost walking through the desert and you’re extremely dehydrated.
Do you choose differently? Why?
Isn’t the diamond still more valuable?
This is what’s known as the ‘Paradox of Value’, and what it tells us is that defining value is not as simple as it seems…
In the game-show scenario, you were most likely thinking about each items ‘exchange value’, what you can obtain for them at a later date.
Whereas in an emergency scenario, such as the desert, you are most likely thinking about each item’s ‘use value’, how helpful they are to you in your current situation.
To simplify things, modern economists have unified these considerations using the concept of ‘utility’, how well something satisfies someone’s wants or needs.
And the utility something has to someone is reflected by how much they’d be willing to pay for it.
So, what does this mean for the way you price in your accountancy practice?
Your clients (just like you) all have wants and needs.
Now, some of these are more primitive e.g. a need to eat food, and some of them are more to do with esteem and self-actualisation e.g. they want to have financial freedom.
And what this means is that they are most likely thinking about your services ‘use value’, i.e. how well it will satisfy their wants or needs.
So, when it comes to pricing your services, think about the utility that they have to your clients.
Ask yourself, “what wants and needs are my services satisfying?”, or even better, ask your clients directly!
Here are some examples:
– They WANT to grow their business so that they can earn more money and retire early
– They NEED to improve their cash flow otherwise they risk the business failing
– They WANT a mortgage reference letter to complete the purchase of their dream home
– They NEED their auto-enrolment duties taken care of otherwise the risk being penalised for missing staging dates
– They WANT to minimise their tax liabilities so that they can invest the money in other businesses
And when you think about your services from this perspective, and more importantly communicate this clearly to your clients, the utility that it has to them (i.e. the amount they’d be willing to pay for it) will definitely increase.