From Time-Based to Value-Based Pricing: The Ultimate Guide to Profitability

Megan - 0:19: Today, my guest is Reza Hooda. Reza helps accounting firm owners grow and get out of the day-to-day. He helps firms attract better-quality clients who pay higher fees, reprice existing clients who aren't paying enough, know who to bring on board to let the business grow, move from pricing by the hour to pricing the value, find the time in the day to get everything done, and put the systems in place to remove themselves from the day-to-day. And he's now helped over 350 other firm owners in his community solve these types of problems for their own business. Reza, thank you so much for being my guest on today's episode of CFO Weekly.

Reza - 1:28: My pleasure, Megan. Good to be here.

Megan - 1:30: Today, our discussion focuses on pricing accounting services and the need to move away from charging by the hour to pricing for value. We'll also be talking about what's working now to win clients for accounting firms, and I'm really looking forward to this topic and learning about you and from your experiences. So let's jump right in.

Reza - 1:49: Sounds good. Let's do it.

Megan - 1:51: So to start, you've had a fascinating journey from running a seven-figure firm to now coaching other accounting firm owners. So what has been the most surprising lesson that you've learned about running a successful accounting business along the way?

Reza - 2:05: Wow. Great question, Megan, to kick off. I guess the best way to answer this is probably going back to my journey of how I got to where I got to. So I started my firm back in February 2008. I used to work at PwC, and I'd always wanted to be my own boss because I didn't want to wait ten years to get to partner. I was quite entrepreneurial, but I never had that brainwave of an idea to go and set up a business somewhere. And I came to visit my father-in-law back in late 2007, and we got talking. He ran a small accounting practice on the South Coast of the UK, and he was looking to sell. So we got talking, and one thing led to another. And I said, "Oh, why don't I buy in?" And that was the start of my journey. As soon as I signed the contract a month later, the world went into a financial meltdown, the crisis of 2008. So I was the guy that was mortgaged to the hilt, and I was the guy that was taking a 70% pay cut in earnings, and I was the guy starting a business during the worst financial crisis since the Great Depression. But what was even crazier was that even though I'd worked at PwC, I had no clue how to run a business because they don't teach you how to run a business when you do your accountancy training. Nobody teaches you how to price your services. Nobody teaches you how to win work. Nobody teaches you how to lead and manage a team. So you end up just winging it. And that's what I did for the first five years and didn't get very far. So I was overworked, underpaid, had high staff turnover, high client turnover, and really struggled for the first five years of running my accounting firm. And it wasn't until sometime in 2014 where I came across a mentor who promised to solve all my problems. And I think things didn't get any worse for me, so I joined a webinar, an invite that I had received, and that planted the seed that led to my transformation. And the seed that was planted was that I was doing it all wrong. I didn't know what I didn't know. I was trading my time for money, and there was a much better way. Because as accountants, we don't actually sell time, and clients aren't buying time from us. They're buying a result from us. They're buying peace of mind. And so I went to learn from that mentor and realized there's this whole world out there of experts in the fields of marketing, and selling, and pricing. So I went to learn from them and started to implement what I was learning. And within just twenty-four months, I'd gone from struggling, frustrated, chasing clients for invoices of between £500 to £1,000 to winning a one-off project of £135,000 and taking our firm to seven figures with 50% profit margins, just seven people, and best of all, with me working less than ten hours a week in the practice. So what I learned really was that I didn't know what I didn't know, and I had to invest in myself to become a better business owner, to learn those business skills, to do the best for my clients, my team, and ultimately myself and my family. So that's kind of a long story short; the key, really, to success is to actually invest in yourself, to become a better business owner, because you don't need to get better at accounting or tax. You already know that kind of stuff. But when you run your own accounting firm, you need to develop those business skills that are going to help you to grow and scale an accounting firm that ultimately gives you that time, financial, and mind freedom that we all want as entrepreneurs.

Megan - 5:35: That's an amazing story and an amazing accomplishment. So congratulations on that turnaround.

Reza - 5:41: Thank you, Megan.

Megan - 5:42: And you've been very vocal about the importance of moving away from hourly billing to a value-based pricing model. What was the turning point for you when you realized that hourly billing was holding you back from true profitability?

Reza - 5:56: So it was all my journey of learning from my mentor and actually realizing that if you charge based upon hours, there's a ceiling to how much you can earn because there's only so many hours in the day. And that led me to think that there's a better way of doing this. And from that, I started to learn about value-based pricing, and what is value, and how do we communicate value, and what does value mean in the eyes of a client? Because ultimately, the client is the arbiter of value, and clients are not buying time from us. The only reason why we charge for time is because that's how it's always been done. And we inherit that from the firms that we work in. Just because it's always been done doesn't mean that it's the right way of doing things. And so then that was my turning point, that it was made apparent to me that there is a much better way of doing it, and here is the way to do it. And I started to experiment with that and got results and realized that actually clients much prefer the certainty in knowing how much they're going to pay and what they're going to get. And even better, they want choice. Because as customers in anything, we want choice, and we want certainty in anything we buy. And the only calculation going through our minds whenever we buy anything, whether that's a cup of coffee, whether that's a car, whether that's a Netflix subscription, whether that's accountancy services, is the price I am paying less than the value I am getting? And if price is less than value, then I buy. And if not, then I don't. So we need to get a better understanding of what is value in the eyes of our customer, and how do we project value in excess of price and communicate that to a client such that buying from us becomes value for money for them, and we get a price that represents value for us as well. So it becomes a win-win. And when you have a win-win model, then everybody's happy.

Megan - 7:57: And for other accounting firm owners out there who are fearful of making this kind of a shift in their pricing, what would you suggest the first steps be when making this transition, and how can these firm owners start seeing immediate results?

Reza - 8:12: I can understand why it feels uncertain, but the upsides are so much greater. Because if you're following an hourly billing model, you are not getting paid until you've finished the work, and usually a couple of months after you finish the work, because you'll do the work, you'll try and figure out what that bill should be. You'll then send that to the client. The client might then pay you a month or two later. So there's a huge cash flow issue when you are billing by the hour. Whereas when you move to value-based pricing, forget it's value-based pricing. Just think about, "Okay, I'm moving from hourly pricing to fixed pricing." And give a fixed price to your client before you start the work. Get their agreement on what you're going to do and what you're going to charge. And that is then paid to you usually on a monthly arrangement. Or if it's a project, then it can be in stages over the course of the project, and that will give you immediate results. Just think of how Uber revolutionized the taxi industry. Now, what did they do? It's very simple. They gave fixed prices, and they gave choice to customers. And they've completely transformed the industry because that's what customers want. Customers know exactly what they're going to get and how much it's going to cost. The worst thing is sitting in a cab and watching that meter going up and up and up, and you're sitting in traffic, and it's stressing you out. And all you want to do is open that door and jump out because you're getting stressed that that meter is ongoing. And that's how it feels to a customer when they're on the clock. They won't call you because they're worried about racking up costs on your end since you are selling time. Instead, agree at the outset. What is it going to cost them to work with you for access to your expertise and agree on that monthly arrangement with them so you get paid faster? And the client is happy because they know what they're paying for, and they know what they're going to get at the end of it.

Megan - 9:59: And how do you define value in the context of an accounting firm's services, and what factors should be considered when setting a price for these services?

Reza - 10:07: The way I like to explain value to accounting firms is you've got the tip of the iceberg, which is above the surface, and then you've got the rest of the iceberg, which is beneath the surface. And so I like to break value down into two parts. You've got the actual value, and you've got perceived value. Actual value is all beneath the surface. That is all the stuff that you will do for your client, which before they've come on board with you, they haven't felt yet. So the turnaround times, the amazing access to your expertise, how fast you are at responding to their queries, the amount of tax you're going to save them. This is all beneath the surface. Before a client comes on board with you, they haven't felt that actual value yet. So the only thing they have to go on is perceived value, and that is stuff above the surface of this iceberg. So perceived value is things like, "How specialized are you in the marketplace?" "How much content have you put out addressing the most common questions that a customer has about tax or working with accountants or any questions they may have around their particular sector?" This is all perceived value. What is the experience in booking a call with you or having a meeting with you? When they come into your office, is it complete chaos with paper everywhere and everybody on the phone and a very chaotic atmosphere and a stench from the takeaway upstairs or down the road? Or is it a serene environment? Do they have a VIP parking space? When they come to your office, are they then greeted nicely? Are they given a menu of tea and coffee options to choose from? Are they served coffee in a nice china cup as opposed to a free mug that you got from an accountancy roadshow? These experiences matter. Why? Because perceived value, above the surface, is the only thing a client has to go on before they work with you. So we need to invest in the experience that we give our prospects before we even have a meeting with them because that drives up perceived value. If we can drive up perceived value in a prospect's eyes, we can drive up the price that we charge.

Megan - 12:23: And you've helped many firm owners transition to value-based pricing. So what kind of reactions do you usually see from clients? Do they understand that this is better for them, or is this something that you have to convince them of?

Reza - 12:38: I think in this day and age, it's pretty hard to remain defensive around hourly-based pricing because we live in a world of AI where things are happening so fast. We can have emails drafted for us within seconds. We can do tax research in seconds. AI is making life so much easier for us and so much more efficient. Software is making things a lot more efficient for us, a lot faster for us to do. So we're actually shooting ourselves in the foot if we're still billing based upon time. Because we're able to do things a lot faster, but the client is still getting the same output. But does that mean that we are going to be charging clients a lot less now because we're doing things a lot faster even though the client is still getting the same output? So when you explain it like that, it's kind of a no-brainer that, yes, okay, I understand that this is not the right way of doing things, and even more so now that technology has made it so much more efficient and faster for us to do things. And, therefore, it's a bit of an easier sell these days to move from hourly billing to value-based pricing because, ultimately, that is how we as customers buy anything in life. We don't buy based upon the costs or the time or the effort of the supplier in anything that we buy. Everyday example. When you go into your local Starbucks, you don't walk in there thinking, "Right, what is the cost of the coffee beans? Let's say that's 30¢. What is the cost of the milk that's going into my coffee? Let's say that's, uh, 10¢. What is the direct cost of the labor associated from the barista of making my coffee? Let's say that's another 20¢. What is the overhead attributed to my cup of coffee? Another 10¢. What is an acceptable profit margin? Let's say 20¢. I'm only going to pay $1.50 for my latte." You don't do that. You go in. You look at the price. You look at the choice that's presented to you, and you make a judgment in your mind. "Does that price represent value to me or not?" And if it does, I buy. And if not, I walk away. And that's the same when we buy anything in life. We don't care about the costs of the supplier. We don't care about how much time they spend. We don't care about their effort. We only care about what we get. And in fact, for customers, if you do things faster, they're willing to pay you more, not less.

Megan - 14:55: And you mentioned AI. I'm just curious, how do you see accounting firms using AI, and how are you using it?

Reza - 15:02: AI is revolutionizing virtually every sector. I think it's just in its infancy in terms of application to accounting firms, but there are some great things happening. We're using it to do research. We are using it to draft emails, to draft reports, to assist us with putting together spreadsheets and formulas. It's already built into the software that we are using, like Xero and QuickBooks. So AI is everywhere in our world, helping us to make the mundane much more efficient so we can spend time doing the stuff that clients actually value, which is conversations with them, being proactive, actually helping them to grow their businesses, and save tax. We have more time for clients because we can use technology and AI to make our processes a lot more efficient.

Megan - 15:52: And as accounting firms make the shift to value-based pricing, what new types of services or offerings should they consider introducing to ensure that they're delivering enough value to justify the change in price?

Reza - 16:04: Yeah. This is a very "accountant-y" question that accountants always think they have to justify their prices.

Megan - 16:10: Very true.

Reza - 16:11: They're already delivering lots of value. They just have such complex and impostor syndrome around the prices that they... you're already worth it. You can already charge that price. You don't need to deliver any more value. The thing is, you know, value-based pricing is win-win. At the moment, the client is winning a lot more than you are. So you just need to level up the stakes. On value-based pricing, you get the agreement of the customer before you're doing the work. So you know that they're going to be happy with it. Conversely, with hourly-based pricing, they're in the dark. They have no idea what the fee is going to be until you've done the work. And then there's no surprise why it's stressful for you to figure out what you're going to charge. And then there's this whole bartering that goes on with the client because they're not happy with it either. It gets rid of all of that, and everybody's happy because you've already agreed at the outset.

Megan - 16:57: And this next question is along those same lines of having to justify yourself. But many accounting firms are used to competing on price, especially in a crowded market. So how can firms differentiate themselves with value-based pricing while still attracting high-quality clients who are willing to maybe pay a premium for more white glove service?

Reza - 17:20: My favorite question. Most accounting firms, they operate in a sea of sameness. And what I mean by that is that they don't differentiate themselves. When you don't differentiate yourself, then the only thing differentiating you from another accountant is your price, and that's never a good thing. And the reason being is that most accountants are generalists, which means that you become a commodity. So if your client can't see you as different than the next accountant, then the only thing that's going to differentiate you is price, and that's never a good thing because it's going to be a race to the bottom. So instead, what we need to do is to differentiate using specialization, niching down, as you might say, on your side of the pond. But specialization is key. So for example, I am a big believer in this. I've been teaching accountants for the last five years in terms of how to build marketing systems that generate leads on autopilot. And the core foundation of that is to become really crystal clear on who you serve. When you become crystal clear on who you serve, it becomes much easier to find your ideal client because you're now calling them out by name. And there's something really interesting and magical that happens when you really focus on serving a particular sector of people. So, for example, we launched a brand new accounting firm brand a few years ago called Capture Accounting, accountants for content creators and influencers. It was a brand new firm that I launched as a marketing cast because I kept hearing from my audience that we're struggling to win new clients. "How do you do it?" So I had been teaching the course for a while, but I thought this time, rather than just teaching you, I'll do it with you. I'll launch a brand new firm with a new name, a new logo, a new brand, a new website, and everything I do, I'll share with you. And the promise of the course was zero to £100k in twelve months. So if we didn't get out there ourselves, it would be a serious egg on my face. Thankfully, we got there in nine. And now Capture Accounting, which was this new firm, is the fastest-growing brand in our firm today. Why? Because it's very clear who we serve, and we will then become the category of one, or we swim in that blue ocean compared to the bloody red ocean that everybody else is fighting over. And what you can do when you're a specialist is that you can charge more. Who charges more, the brain surgeon or the GP? The brain surgeon. Right? So when you're a specialist, you can charge more because people want to work with specialists. People are happy to pay a premium to work with specialists. Conversely, on the other side of that, internally, your team can take on more clients in the same sector because it's the same type of work. They're getting the same sort of questions when it comes to tax, etcetera. They know exactly how to set up the books. They know exactly how the accounts disclosure should be. They have the answers at the tip of their tongue to any client, which means that your team can handle more clients in that niche as a specialist than you would trying to deal with 57 different industries. So what happens there? You're getting more in at the top end from clients who are paying you more. It doesn't cost you as much to deliver that service, so you're reducing the rate at which you take on cost. And it's a shame you can't see me here because I'm doing something with my hand in terms of on one level, we got more coming in, less going out. What's that big gap in the middle? That's your nice, lovely, healthy profit. So that is the key and the secret to building a highly profitable firm.

Megan - 20:36: Let's talk about you and your products and services for just a minute. What kind of products and services do you offer for accounting firm owners?

Reza - 20:46: I help accounting firm owners to grow and scale their firms and work fewer hours. I still run my firm, but it operates now without me. It runs on less than three hours a week. So most of my time is spent with accounting firms. And I do this mainly through a one-to-many program through my community, which is called the Profitable Accountants Community. I have the coaching, the courses, and the community to help firm owners to grow, to help them get higher prices, to help them build systems, to be able to take the load off them and reduce their working hours, and also by creating that community because it's very lonely being an accounting firm owner. There's no one to bounce ideas off. It becomes a very lonely exercise. So bringing people together on the same journey, there's about 160 firm owners in the community at the moment, all helping each other, working together with access to everything that I'm teaching them to be successful. And it's something that I wish had existed when I first started my firm, and I wouldn't have wasted so many years doing the wrong things. And that's my aim now to help other firm owners not take ten years to get to where I got, to help them get there a lot faster by learning from the mistakes that I made so they don't have to waste time and money doing the wrong things like I did.

Megan - 21:58: Another favorite success story of someone you've helped along the way.

Reza - 22:03: Oh, so many. One sticks out. Amy, who joined who read my book in January 2024 whilst she was still employed, she then joined my power positioning course that I was running to get new clients to build that marketing system in February 24. In June 24, she got a practicing certificate and actually started trading. In September 24, she won her largest client paying £38,000. And within six months, she'd got to £100k from a standing start. That's one success story. Amy's done brilliantly on that. I've worked with more established firm owners who I've helped to transition away from the hourly billing model to value pricing. And one of my mastermind clients has even surpassed the fee that I won. So the highest fee that I won in practice was £135,000 using my nine-step pricing framework for one-off projects. And he got a fee of £325,000 using the same framework.

Megan - 23:02: I could go on. But, um, yeah. That's amazing. He got the idea. So for all of the accounting firm owners out there listening, or maybe people who are considering starting their own accounting firms, what's just one thing you'd like to leave the audience with?

Reza - 23:19: I would say get clear on the who, then the what, where, and how to find your ideal client becomes so much easier. So a big proponent of getting really crystal clear on who you serve, specializing, and niching down. Because when you try and appeal to everyone, you actually appeal to no one. And that is the key to building a successful firm in this day and age, for people to seek you out. Because the old model of relying on referrals is waning, and that's how most people build up their firms. They take on anyone and everyone, but then they're not pricing properly, and they get to a point where they've got too many clients and they're overworked and making less money than they did when they were employed. So at the outset, if you can become specialized right at the outset, charge what you're worth, that is the foundation to building a profitable firm that ultimately will make you proud.

Megan - 24:12: Reza, thank you so much for being my guest today.

Reza - 24:14: It's been a pleasure, Megan. Thank you for having me.

Megan - 24:17: I've really enjoyed speaking with you, and thanks for finding the time to be here with us today to share your experience and knowledge, and I wish you all the best.

Reza - 24:24: Thank you so much, Megan.