Times It’s Actually Best to Undercharge Clients

There are numerous articles about why accountants and bookkeepers shouldn’t undercharge for their services. These articles serve the very important purpose of helping us understand the value we provide to our clients. Better still, others explain how to confidently price new services. For many of us, understanding how our services translate into results for our clients is enough to convince us to charge fairly for our services (and the knowledge and expertise that go into those services), despite some professionals wondering if it was alright to charge their clients during the pandemic at all.

For others, though, simply understanding our value isn’t enough. We might intellectually understand that we are changing our clients’ businesses and lives for the better, but when it comes time to actually type a number into our proposal, we balk. And, far too often, the number we type into the proposal is less than it should be.

Why do we do this?

The “why” behind our tendency to undercharge for our services is not very well explored. It’s easy enough to label our tendency to undercharge as being fear-based, but telling ourselves we need to simply “get over it” isn’t particularly helpful. Sure, we can muscle our way through fear, but it would be much more beneficial to understand the “why” behind our fear – and how to overcome it. And maybe the problem isn’t fear at all…which means we might be muscling our way through the wrong challenge.

I asked more than 40 accountants, bookkeepers and financial coaches why they find themselves tempted to undercharge for their services. Their answers weren’t particularly surprising, but they did confirm my suspicion that there are several core, underlying reasons why we tend to charge less than we know our services are worth. In this series, we’ll be exploring these reasons and – more importantly – how to overcome them.

But first, let’s clarify when and why it might be appropriate to charge less than the industry accepted value for your services.

When Is It Appropriate to Undercharge?

Undercharging isn’t always a bad thing. In fact, there are some cases when charging less than the market value for your services can be a strategic business move. Some of these reasons include:

1. A business model that focuses on volume for profitability. In this business model, the provider might invest heavily in building automation that enables them to serve a large volume of clients with minimal ongoing overhead.
2. Breaking into a new market. Sometimes, in order to gain traction in a new market, a provider will intentionally charge less than market value. By doing this, they begin to attract clients in the market they want to serve and start making a name for themselves.
3. A focus on giving back. Maybe the provider wants to provide high-quality services to historically underserved and financially challenged communities. In order to do this, they decide to reduce their prices for this community.
4. Building skill set. Some newer providers might still need to build their skill set. They might choose to charge a lesser amount to their clients as they build their experience.

In all of these examples, the decision to undercharge is strategic, not based wholly on the provider’s beliefs about what their market will pay. There are some risks in all of these approaches, but as long as the provider has a plan to ensure their long-term profitability, these approaches can work well.

For example:

• The volume-based business model usually assumes that there will be a point where each new client engagement results in nearly 100 percent profit.
• After a provider has established themselves in a new market, or once a newer provider has built up their experience, they will likely decide to increase their prices to attain the profitability they desire.
• Those serving historically underserved communities probably have another segment of their business that is profitable enough to offset the cost of serving an underserved community at a reduced price (not to mention the feel-good factor of doing good in the world).

When Business Strategy Isn’t Your Why

It’s easy to convince ourselves we have a strategic business reason for undercharging for our services. Our egos are tricky, and if we’re not careful we can justify undercharging as being “strategic” when really there’s another underlying reason behind our hesitation to charge what we’re worth.

Starting with the next article, we’ll look at these sources of hesitation and – more importantly – how to overcome them. In the meantime, if you’ve found yourself charging less than you know your services are worth, I encourage you to spend some time reflecting on the thoughts you had as you made the decision to reduce your prices. See if you can arrive at your own “why” behind undercharging. Only then will you be ready to work on changing your beliefs around why you undercharge.