Can dynamic pricing work for accountants?
26 February 2020: used by airlines, ride-hailing apps and the likes of Amazon, dynamic or “surge” pricing is becoming common practice among today’s digital-savvy businesses. But how should accounting firms approach this brave new world of pricing their fees?
Dynamic pricing is a strategy whereby businesses set flexible prices for their products or services in response to current market demand, as well as other variables such as competitor pricing. Many of us will have experienced this pricing model first-hand, whether that’s paying inflated hotel prices during the school holidays or purchasing a cheap off-peak train ticket.
The strategy is commonly used in industries such as hospitality, online retail, energy and transport. Airlines, for example, frequently change their prices based on the day of the week, flight time and how many seats are left on the plane. Likewise, Uber famously (and sometimes controversially) adjusts its fares according to the demand for its services.
The question is, does this pricing strategy have a place in the accounting sector? At first glance the answer might be no. After all, as ICAEW Business Advice Manager Nila Khan points out, the relationship between accountants and their clients is very different from that between an airline and its passengers.
ICAEW Chartered Accountants strive to build a personal rapport with loyal clients, with relationships often being nurtured over years of repeat business and face-to-face contact. But compare this with, say, booking a flight. Those of us who aren’t frequent flyers will most likely carry out a quick internet search and choose the best deal available. There’s certainly no personal or emotional dimension involved, plus most people are happy to forgo loyalty to secure a cheap flight.
Pricing has always been a difficult area for accountants, particularly as client relationships are so fundamental to securing recurring business. The fact is, most long-standing clients appreciate the clarity that comes from fixed-price agreements. Accounting firms simply can’t risk marginalising or penalising loyal clients by employing a dynamic pricing model that sees fees fluctuate throughout the year.
However, that’s not to say the accounting sector can’t take inspiration from this pricing strategy.
As with most industries, there are peaks and troughs in accountants’ workload, from the busy self-assessment period to the comparative lull that comes after the 5 April. But while you may not want to arbitrarily raise prices at peak points in the year (January for example), as Khan suggests, it might be beneficial to adjust your standard fees in certain circumstances.
“You could charge clients a higher fee if they fail to supply their information by a set date. This should hopefully deter clients from providing their paperwork at the 11th hour, thus minimising the burden during peak times,” says Khan.
“You might also want to consider charging a higher price when an unexpected critical event in a client’s business results in a considerable and sudden increase in your accounting workload.”
In some cases, deviating from the standard fee structure can also deliver a more positive message. For example, you could offer a slight fee reduction over the year for clients who use data capture software to keep their records in good order. Or you might want to charge discounted fees to those who supply their information during the low season. For instance, a client with a March financial year end could pay a lower fee if they provide their information before the end of April.
While dynamic pricing might not be suitable for every sector, accountants can still take inspiration from this model. At the very least, it encourages firms to rethink their existing approach to fees – and that’s not a bad thing.