Upfront pricing or quoting is the practice of providing a fixed price at the beginning of a job or task (subject to certain conditions).
I witnessed it in practice recently with a client. The numbers have been changed but the concept is the same. His much larger competitor was charging $100 per hour for a task that was taking 100 hours, therefore revenue of $10,000.
Our client determined he could do the same task in 70 hours due to efficiencies he had created in his business by having set procedures, appropriate technology and tools of trade, and having a well trained team.
He could have charged on the old method (70 hours x $100 = $7,000), however he decided to offer the customer a quote of $9,000, which they accepted. He completed the task in 70 hours – effective hourly rate of $128!
He is now working to improve efficiencies even further. If he gets to say 45 hours, his hourly rate jumps to $200, double that of his competitor!
The benefits of this form of pricing are:
- The customer has no surprises
- Good for cash flow (both you and the customer)
- Promotes efficiency within your business
- Encourages faster turnaround times
The beginning of the financial year is a great time to review your pricing strategy and set some goals to improve efficiency within your business. Feel free to contact us if you need help creating the right pricing structure.
by Scott Sharp
Scott is a Senior Accountant at Insight Accounting advice. He has a Bachelor of Commerce and is a registered tax agent. Scott’s experience covers all facets of accounting but he specialises in small businesses and SMSFs.
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