This blog originally appeared online in the author’s Practice Builder Corner. It has been republished on CPA Now with the author’s consent.

By Rod Burkert

Return on investment (ROI) is the equalizer between the value of the client's problem and the fee you can charge for solving it. Thus, if you know the value of the client's problem and their propensity for risk (required return) you can triangulate on a mutually acceptable fee quote without the need for discounting.

Client ROI Is Key to Pricing

When it comes to your pricing, affordability for the client is not your responsibility. That is true for any level of service you offer. In fact, one of the purposes of having different levels of service is to accommodate different levels of affordability so you can avoid discounting. But for any level of service, your pricing (and a client’s resistance to it) comes down to the client’s return on investing in you.

The client’s ROI could be in the form of the dollar return a client gets as a result of engaging you (think consulting), or it could be in the form of the emotional relief a client gets from you solving a problem (think divorce).

ROI Is the Equalizer

The ROI for a client is the equalizer between the value of their problem and the fee you can charge for solving it. Let’s say you have a $1 million problem. Would you pay me $50,000 to solve it? (20x ROI equalizer.) Would you pay me $100,000 to solve it? (10x ROI equalizer.)

Note that in either case (actually, in any case), the time it takes for you to solve the problem (traditional hourly billing) is not relevant to the client, even if it may be relevant to you from a capacity planning point of view. In terms of a formula, it could be presented as $ Problem = ROI x Your Fee or Your Fee = $ Problem / ROI.

It is important to note that if your fee quote seems too high to the client, they may be overstating the value of their problem or underestimating the risk of solving it. But instead of discounting the fee to get the work, use this situation as a foundation for having a rational, quantitative-based pricing conversation so you can agree on a mutually acceptable investment in you without discounting.

Why You Should Care

Twenty years ago, pricing a prospect’s problem and offering an alluring ROI was not something that was considered. Today, however, it can be a critical skill for converting prospects into clients and landing more work at better fees.  

If you want your pricing to hold up, you need a whistle-wetting ROI for every level of service you provide for every client problem you solve. As you can imagine, in this pricing paradigm it is critical to get the information you need to estimate the value of the client problem. This video on YouTube lays out the steps to do this: Problem > Pricing > ROI.

If you would like to hear more from Rod Burkert, join us at the online PICPA Advisory Services Conference on Oct. 4 and 5. Burkert will be speaking on this topic in “ROI Pricing: Stop Discounting Your Fees.”

Rod Burkert is a practice development coach with Burkert Valuation Advisors LLC in Bisbee, Ariz. He can be reached at rod@rodburkert.com.

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Statements of fact and opinion are the authors’ responsibility alone and do not imply an opinion on the part of the PICPA's officers or members. The information contained herein does not constitute accounting, legal, or professional advice. For actionable advice, you must engage or consult with a qualified professional.