We hadn’t really reviewed our pricing over the last five years from 2015 through to 2020.
We don’t do timesheets, and we have a pricing menu and calculator that we use internally for different services.
I immediately put the base price of our compliance and proactive tax planning package from $500, to $550 a month (a 10% increase).
Our structuring services (which includes setting up trusts companies, self-managed super funds and the like) increased between 20 – 50%, depending on the service.
I felt we were too cheap for the effort and additional work we put in, rather than just setting up the company or trust itself and handing over the keys.
We also increased the cost of our advisor facilitated estate planning by $500 or so at each service level.
All of this pricing was for new clients only, and we were going to review our existing clients’ pricing coming into June 2020.
Now, we might be increasing our prices by 10, 20 or sometimes 50% (depending on the service) but think about what happens to the net profit margin:
Let’s say our product currently is priced at $100.
Our wage cost is say 30% or $30, overheads are 40% or $40, leaving a profit margin of 30% or $30.
Due to the events of the last 3 years, our wage cost goes up by 20% and overheads go up by 10% – that is now $36 and $44 respectively.
Our profit has reduced from $30 down to $20 if we do not change our pricing, which means we’ve lost one third of our profit.
If we increase our pricing on that service from $100 to $120, our profit on that service would now be $40 taking into consideration the rising costs (which is actually an increase of one-third in profit, compared with what we were making on that service originally).
We continued to have no pushback from new clients on our pricing, and because it was the only pricing they had seen from us, there was no framing that we had recently increased prices. Instantly, those clients were substantially more profitable.
We adjusted our pricing at the start of 2022 as well – our base price for compliance now $600/m. Other prices tweaked as well.
Coming into the start of a new calendar year, I encourage you to place consider what you might want to change about your pricing – even just for new clients.
I’m not sure about your firm, but there seems to be an abundance of new work coming in, and our limitation is around delivery and finding good team to produce enough work. So why not make the work that you do a lot more profitable then otherwise would be by increasing your prices by between 10 – 50%?
