Why Discounting Could Destroy Your Accounting Firm Profits

Have you ever reduced your price to win a new client? It seems logical. Drop the price a little. Win the client. Make up for the lower price with more work.

But there’s a problem. The maths of discounting can be frightening. And a relatively small discount can have a huge impact on your profits.

Let me explain…

The Frightening Maths Behind a 10% Discount

Imagine you sell a service for £100 and have a 35% gross profit margin. Your costs are £65. That leaves you with £35 gross profit.

Now suppose you give the client a 10% discount. Your selling price falls to £90. But your £65 of costs haven't disappeared.

Your gross profit has fallen from £35 to just £25. That's a 28.6% reduction in gross profit.

And here's the really scary bit. Based on the example in my source material, you would need approximately 39.7% more customers to maintain the same level of gross profit.

Think about what that means. More clients. More emails. More meetings. More deadlines. More pressure on your team.

And after doing all that additional work, you've merely got back to where you started. That's the 39.7% Breakeven Monster.

Why Discounting Can Attract the Wrong Clients

There's another problem with discounting. When you compete primarily on price, you risk attracting people who buy primarily on price.

These clients may be more likely to question your fees, demand more of your time and look for a cheaper alternative. That isn't a great foundation for a profitable accounting firm.

This is why accounting firm profitability isn't simply about having more clients. You need the right clients paying the right price.

Stop Discounting and Start Pricing for Value

One of the most important principles behind value pricing for accountants is recognising that different clients value things differently.

Suppose you charge every client the same price for a particular service. For some, your price will be too expensive. For others, it will be less than they were willing to pay. Economists call that lost opportunity consumer surplus.

Consider this… Publishers often charge considerably more for a hardcover book than a paperback. The production cost alone doesn't explain the difference.

Some readers will pay more because they want the book now. The same principle can apply to accounting. One client might happily pay more for a guaranteed faster turnaround. Another might value greater access to you. Another might want additional meetings or support.

Better pricing strategies for accounting firms recognise those differences.

Create More Value Instead of Cutting Your Price

During the Malaysian luxury hotel crisis in the late 1990s, many hotels responded by reducing room rates. Then they started cutting costs. Service levels fell. There were fewer flowers. Towels were changed less frequently.

Ritz-Carlton took a different approach. Instead of joining the race to the bottom, it focused on creating additional value. Its ideas included Technology Butlers to help guests with laptops, a Bath Menu and personalised touches for guests.

The lesson for accounting firms is powerful. When a client pushes back on price, don't automatically ask:

“How much can I knock off?”

Ask:

“How can I make this more valuable?”

Give Clients Three Choices

Starbucks doesn't simply offer you one size. You have choices. That same idea can make accounting firm pricing much more effective.

Create three packages. Perhaps you call them Bronze, Silver and Gold. Or whatever names best fit your firm. Present the highest-value option first. Then make the differences between the three choices crystal clear. A simple tick-list can help clients see what they gain as they move from one option to another.

Now, here's the key part… You're no longer having a conversation about whether the client should buy. You're helping them decide which option is right for them.

Protect Your Premium Service

When cheap floppy disks flooded the market in the 1990s, 3M didn't simply slash the price of its premium product. It introduced the Highland brand to compete at the cheaper end of the market.

There's an important lesson here. If somebody wants a cheaper service, that doesn't mean you have to damage the value of your premium offering.

You could create a different version. Change the service level. Change what's included. Create clear boundaries. But don't automatically deliver the same thing for less money.

Bundle Services Around the Client’s Solution

McDonald's demonstrated another useful pricing lesson with its Value Meal. By bundling products together, the average sale increased from $2.30 to $3.40 in the example from my source material.

Why does bundling work? Because customers start thinking about the complete solution rather than analysing the price of every individual component.

Accountants can do the same. Instead of selling bookkeeping, accounts, tax work, meetings and advice as disconnected items, think about the complete solution the client wants.

Package services around outcomes and needs. That makes direct price comparison harder and focuses the conversation on value.

The Real Route to Higher Accounting Firm Profits

If you want to know how to increase accounting firm profits, don't assume the answer is more clients. Start with pricing.

Before offering another discount:

• Understand what the client really values.
• Give them three clear choices.
• Add benefits rather than cutting prices.
• Bundle services into meaningful solutions.
• Protect your premium offering.
• Price around perceived value.

Better pricing can mean you don't need to work harder simply to stand still.

Pro Tip

Before agreeing to your next discount, do the maths. Calculate how much gross profit the discount will cost you. Then calculate how many additional clients you'll need to recover it.

You may be shocked by the answer. Then ask yourself one question:

What could I add to make this price feel more valuable instead?

FAQ

Is discounting accounting services always bad?

Not necessarily. But you should never discount without understanding the impact on profit. If you reduce the price, consider changing the scope or service level too.

What is value pricing for accountants?

Value pricing means setting prices with reference to the value perceived by the client, rather than simply basing the price on your costs or time.

Why should accountants offer three pricing options?

Three options give clients choice. They also allow you to demonstrate different levels of value rather than forcing every client into the same service and price.

Final Thoughts

Discounting looks easy. But the hidden cost can be enormous. A 10% reduction in price might not sound frightening. Yet, under the assumptions we've explored, it can leave you chasing nearly 40% more customers simply to recover your gross profit.

So stop assuming that cheaper means more competitive. Create more value. Give clients choices. Package your expertise properly. And have the confidence to price the value you deliver.

I'll leave you with one question:

If you increased your prices by 10% today, what value would you have to add to make your customers feel like they were still getting a bargain?

Answer that question and you may discover a much better route to growth than discounting.

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Wishing you every success on your pricing journey

The Value Pricing Academy Team