Business Management

The Future of Professional Services is Here: Why You Should Try Value Based Pricing

Expertise: Business Management, Landlording & Rental Properties, Personal Finance, Personal Development
65 Articles Written

I think everyone would agree that a business, or rather the business’s products or services, is defined by the value it creates for customers. Value is in the eye of the beholder, and it makes sense for businesses to price their products and services according to the value those products or services generate for the customer.

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Yet as real estate investors, when calling upon your CPA, attorneys, and other professionals, you typically want to know what their hourly rate is. Have you ever wondered, though, if billing by the hour is truly client focused? Is being billed by the hour really the best way to determine the value you will realize from a particular service?

In the recent months, I have implemented a pricing model called value based pricing for my clients, and they have showered me with appreciation. I've received comments such as, "This is an excellent business model" and "You are doing something no one else is doing, and it really makes you stand out."

I learned of value based pricing through the AICPA and figured, since I’m operating a new practice, I may as well give it a shot and test the model for a few months. After working with clients and utilizing the value based pricing model, I know I’ll never go back to the dreadful billable hour.

Related: The Small, Simple Business Model That Supports Profits AND Free Time

What is Value Based Pricing?

The value based pricing model is a movement that has been sweeping across professional services firms as of late. The model aims to redefine how professional services firms price their services by placing the focus on the value received by the client. Value pricing adheres to the Subjective Theory of Value, which places value on how scarce and useful an item is, rather than basing the value of the object on how many resources and man hours went into creating it.

Firms that bill by the hour adhere to the Labor Theory of Value, which stipulates that the value of a good or service is dependent upon the labor used in its production. But is that really a true statement? Labor should not determine the price of goods or services; rather, the price is a function of supply and demand for such goods and services.

Take for instance two people, A and B, who have hired a CPA to prepare their taxes. “A” has a W2 job, no investments, and does not need to itemize. “B” owns a company, has several real estate investments, owns shares of S&P 500 companies, and takes advantage of many itemized deductions. Should these two people be billed at the same rate per hour?

Value pricing looks at these starkly different situation and asks, “What value will each of these clients derive from effective tax preparation services” instead of simply billing each individual at a fixed rate per hour. Since I’m a CPA, I’m using a tax example, but this logic can be applied to all types of services rendered.

Value Based Pricing Compared to Hourly Billing

Wouldn’t it be nice to end a conversation with a lawyer or CPA and know exactly how much you will be obligated to pay for their services? That’s what value pricing aims to achieve; in fact, a cardinal rule among those who utilize value pricing over hourly billing is “no surprises.”

Value based pricing has been defined as the maximum amount a given client is willing to pay for a particular service, before the work begins. Firms using value pricing only provide services after price, payment terms, and project scope have been determined. Overall, it creates a better client experience because the client is involved in the pricing discussion and doesn’t have to worry about extra fees due to additional hours worked. Ideally, value pricing allows service providers to quantify the value the client will realize at the beginning, leading to fewer rebukes and questions as the project comes to a close.

Value pricing begins with the client and focuses on the value the client will realize from the provided services. Price is then discussed as the service provider works out their costs and an appropriate profit margin. Only then is the service provided.

On the other hand, hourly billing focuses on the service first, then the cost incurred for providing the service, the pricing required to realize a profit, the value derived from the service, and lastly the client’s needs. It’s a backwards model, one that does not prioritize the client’s needs and the value the client will realize from any performed service.

For firms that use value pricing, costs will not play a role in determining the value the customer realizes or setting a price, except as a minimum to cover costs. The model is very client value focused and involves the client in pricing discussions. It steers away from discussions about estimated hours and more so about the scope of services to be provided and the value realizes from those services.

That’s Great And All, But Why Should You Care?

As real estate investors, you are looking to build a solid team of professionals that can provide you excellent advice when you need it. More than likely, two members on your team will consist of a lawyer and a CPA. Both of these professionals will likely bill you by the hour for their work – but this is a poor model, as not every hour is created equal, and valuing a service based on the labor required to provide that service is backwards, de-prioritizing the client’s needs and value perceived from the service provided.

Sometimes you will have a pretty basic question or need; other times, it will be imperative that you receive specialized and thorough advice. These services should not be billed the same, on an hourly basis, because you are realizing different levels of monetary value for the diverse services provided.

You may protest by saying, “But the less intricate service will take less time; therefore, fewer hours will be billed and the price will be less.” And that’s a valid argument; however, it doesn’t put the client’s realized value in perspective. To take it a step further, it places the pricing risk on the client. By billing by the hour, you (the client) take all the pricing risk. If a project goes over the estimated hours, you have to fork out the extra cash (hard earned, if I may). Value pricing places the risk on the services firm because it’s fixed upfront before the work begins. The firm must figure out how to provide high quality services in the most efficient way possible to boost their profits, rather than simply billing an extra 15 minutes.

Related: Not Every Real Estate Investor Needs a Concrete Business Plan: Here’s Why

Value pricing allows for increased transparency and communication. Since you are involved in the pricing discussions, you understand how the price was determined. No longer will you have to put up with a blanket $150/hr (because how was that determined in the first place?). You won’t have to worry about being billed for a 10 minute question, as the price has already been set.

Value pricing also aligns the interests of the firm with that of the client, which is what you really need. You need a firm that will fully understand your needs and work with you to not only increase the value of services provided, but help you understand the full value you are going to realize from provided services.

Lastly, you should care because you will sleep easier at night knowing that you can trust the professionals you are working with and know that they are committed to your cause, whatever that may be.


Thousands of firms are moving in the direction of value based pricing, though that doesn’t even begin to scratch the surface of the number of professional services firms operating in today’s market. But they are out there, and their clients are extraordinarily happy with the value based pricing model.

Eventually, value pricing will be the universal go-to model for professional services firms. As real estate investors, we should be jumping for joy as service quality, transparency, and overall satisfaction is bound to increase.

What kind of pricing or billing do you use? Would you consider trying value based pricing?

Leave your comments and questions below!

Brandon Hall is a CPA and owner of The Real Estate CPA. Brandon assists investors with Tax Strategy through customized planning and
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    John Bierly Rental Property Investor from Bainbridge Island, WA
    Replied over 5 years ago
    Good luck. This is not new, it has popped up every so often in professional services since the 80’s in my experience (one advantage of being an old guy is you can say things like that). My experience is that clients hate it and typically view it as an argument to charge a higher fee, and trust me you will spend a lot of time trying to explain and justify that goes away in the fee for labor model.
    Brandon Hall CPA from Raleigh, NC
    Replied over 5 years ago
    Hey John – thanks for reading and your comment. I have to respectfully disagree though. The majority of the clients I have spoken with about this (and performed services for) have shown appreciation for the model. It’s more transparent, and the value realized is better know than compared to an hourly billing model. Maybe it’s my target market, maybe it’s a stroke of luck, but I haven’t received any push back. And if I do, I can always refer the client to friends of mine who bill by the hour.
    Stephen S. Wholesaler from Holiday, Florida
    Replied over 5 years ago
    This is not a new concept and is based primarily on the concept of de-coupling the consumer from the hourly rate being charged. Just as credit cards, insurance, student loans, auto loans, and mortgages serve primarily to hide ‘the value of a dollar’ from the consumer. That is; to decouple the actual cost from the perceived cost. A very real logistical problem in pricing something is getting past / above various psychological / mental barriers which consumers typically have. The most common perhaps being what they themselves earn per hour. $100, $150, and $200. being some others. Value based pricing is just a way of disguising the cost by not using the term ‘hourly rate’ – even though all value based pricing numbers are calculated from some required hourly rate of income – that which is required to operate the business at the desired profit percentage level.
    Brandon Hall CPA from Raleigh, NC
    Replied over 5 years ago
    Hey Stephen – thanks for reading and sharing. It makes sense that people relate pricing to what they would earn per hour, so they expect to pay per hour. But an hourly rate isn’t the best way to determine the value add to the client. While value pricing may hide the cost, hourly billing hides the value to the client. It is certainly important to understand hourly metrics, however value pricing starts with the client and the value the client will realize from the performed service. Cost and profit are included (as I stated in my article), however those metrics are not the focus. The point is to shift the focus to that of the client’s needs and goals and you will have a happier, more loyal, client.
    Jen Shrock from North West, Pennsylvania
    Replied over 5 years ago
    I work in the manufacturing industry and would appreciate value based billing over hourly based billing myself. I compare it to quotes that we provide to our customers. The onus is on us to be diligent in our assessment of our efforts required and efficient in how we produce the product. I can certainly say that the few times I have been involved in a time and materials project (billing by the hour), the efficiency of the work has been quite different and not in the favor of the one paying the bill. As a personal example, I actually had a contractor try to tell me once, after getting into a job, that he had quoted me time and material instead of a flat fee when he had not. This came up because he had dawdled on the job in the beginning instead of buckling down to get the job done. When I refused to pay the extra, he took me to small claims court. I ended up winning the case after arguing the points above (in a bit feistier fashion I must say). I can see where value based services could be a good option for some. As in life, not everyone likes the same flavor of things, whether it be ice cream or professional services, and is appreciated by all to have a choice in variety to be able to get what we really want. If a person doesn’t perceive a particular value based service to be what they want, then there are plenty of bill by the hour professional options as well. It all tends to fit with your personality and mine is prone to want to know a hard solar figure up front so I can better plan and budget for it.
    Jen Shrock from North West, Pennsylvania
    Replied over 5 years ago
    I want to know a hard dollar amount…not hard solar amount. Darn auto correct and not letting me edit from a phone.
    Brandon Hall CPA from Raleigh, NC
    Replied over 5 years ago
    Hey Jen – thanks for reading. We share the same though process, if a client wants to be billed by the hour, I can refer them to a friend who does just that. Though I have yet to run into someone that would rather be billed by the hour then know the full price and scope of related services up front. Thanks for your comment!
    Val Dychok Software Developer from Conway, Arkansas
    Replied over 5 years ago
    Great article Brandon, thank you for sharing!
    Brandon Hall CPA from Raleigh, NC
    Replied over 5 years ago
    Thanks for reading!
    Chris S
    Replied over 4 years ago
    Hey Brandon, great article. We operate our remodeling business in the same fashion. We take in all of the information from a potential client and create a package price for them to take or leave. The key is presenting the emotional value difference we provide to the client that our opponents may not. But taking this idea one step further. With the explosion of online shopping and instant pricing, etc. Can professional services be both a value-based pricing model AND a transparent pricing model where clients can visit your site to see what a typical tax preparation service would cost? I struggle with that. With 1) the vast number of variables involved and 2) the vast difference of experiences clients have that set their bar for service expectation, how can my company post pricing on our site for the average master suite addition without making it so watered down it is of no benefit to the shopper in their effort to “comparative price” our service. The addition in this example could fall between $75K to $200K or more, depending on those two factors. I’m curious to hear your views on this. Thanks!
    Brandon Hall CPA from Raleigh, NC
    Replied over 4 years ago
    Hey Chris, So this is something I’m running into as well, especially during this time of the year as everyone wants quotes on tax prep. Half of my most recent article even discuss the disadvantages of price shopping for the consumer. What I’m doing is letting everyone know my base price – that is the absolute lowest price you will pay for the most basic tax return. This does two things (1) it sets minimum expectations and (2) it filters out the clients that I don’t necessarily want to work with. If you don’t have a base scope of work and a base price, perhaps it’s time to narrow down the remodeling services you provide. What is most profitable for you? Can you carve out a niche in that specific area? Now pricing becomes much easier. You could also provide a form of “case studies” to your potential clients. Have packets of information put together – list the pricing, scope of work, and the benefits received. I would definitely hire some sort of marketing firm or professional for this as they will be able to craft it in a way that 100% emphasizes the value you add to the client. The ROI should be huge. I hope this helps. Feel free to connect with me and we can continue the dialogue. I’m all for some strategy masterminding.