Larry Phipps. Pricing Professional Services. Who is Larry Phipps? What we will NOT be discussing ISPLS Convention. Pricing Professional Services

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1 Presented by Larry Phipps NCPLS and President Who is Larry Phipps? BS in Forestry NC State 1980 BS in Wildlife Biology NC State 1980 NC SIT 1984 NC PLS 1986 Founded Phipps Surveying 1990 Started Teaching for LSW 2000 President LSW 2003 We will NOT What we will NOT be discussing Set minimum prices Agree upon a wage structure for employees Agree upon non-compete territories or products

2 What happened in AR? 1992 NW Chapter of the Arkansas Society was charged with violating the Sherman Anti-Trust Act. 15 U.S.C.A. 1. Every contract, or conspiracy, in restraint of trade or commerce... is declared to be illegal. What happened in AR? The Dept. of Justice alleged that members of the NW Chapter: Conspired to set a minimum price for Lot surveys ($300) Actually established and received $300 minimum for Lot surveys What happened in AR? In February 1993 the Justice Department and the NW Chapter reached a plea deal. The Chapter paid a $60,000 fine Other costs to individual surveyors: Attorney s fees Lost work time Lost reputation

3 What we will discuss 1. Tracking your cost 2. The difference between pricing a product and pricing a service 3. Various pricing methods with advantages and disadvantages 4. Value Pricing vs. Cost Pricing What do you do? Mr. Factor calls and tell you he needs a survey of his 75 acre parcel. What do you do? Miss Medley calls and tell you she needs a survey of her half acre here in town

4 Cost Any discussion of Pricing has to start with cost. What does it cost you to provide your service? Cost What does it cost? Fixed costs These costs do not change with the amount you survey Variable costs These costs do change depending on how much you survey Fixed Costs Rent/Payments Insurance Utilities License renewal Continuing Education cost Memberships Equipment Property Taxes

5 Variable Costs Payroll Maps, Deeds Recording Fees Workers Comp. Insurance E & O Insurance Expendable Field Supplies Expendable Office Supplies Equipment Maintenance Gas Monuments Income TAXES After you can track your cost! How do I Price my services? Product Service Product vs. Service Supply limited by producer Special sale prices No special skills needed to obtain more product Supply limited by time No special sale prices Special skill required

6 Is your service a Commodity? Commodity 1. an article of trade or commerce, esp. a product as distinguished from a service. 2. a generic, largely unprocessed, good that can be processed and resold. Is your service a Commodity? Commodity All sources provide exactly the same thing The only difference is price You determine which you buy based on price only Is your service a Commodity? How do you answer these questions? What does a survey cost? What do you charge per hour?

7 How Do You Price a Survey? Hourly rate Set Fee Per Project Hourly rate Advantages Well known Requires least effort on the part of the business owner It seems easy to compare what you do vs what other professionals in the area do Hourly rate Disadvantages Hard cap limit on what profit you can make No incentive to employ new techniques or equipment Have to keep track of time on everything you do Clients fussing about invoice amount is almost guaranteed (All they see is the time you spend on-site)

8 Set Fee Advantages No longer have a limit on profits (or losses) Powerful incentive to be innovative Easier to explain to client Forces owner to analyze the entire business process Requires a clear scope of work agreement with client Scope of work can double as contract Client knows what the service will cost Set Fee Disadvantages Can lose money on difficult projects Forces owner to analyze the entire business process Requires a clear scope of work agreement with client Per Project Advantages No longer have a limit on profits Powerful incentive to be innovative Easier to explain to client Forces owner to analyze the entire business process Requires a clear scope of work agreement with client Scope of work can double as contract Client has a good idea of cost

9 Per Project Disadvantages You have to do some work on each project before you price it You will be doing some work for which you will not be paid Forces owner to analyze the entire business process Requires a clear scope of work agreement with client How Do You Price a Survey? Hourly Easy but limits profit Set Fee No profit limit but risky Per Project No profit limit less risk requires more work How Do You Price a Survey? Let s see how this works on a real project. The call from Mr. Factor (75 acres). What did you tell him?

10 How Do You Price a Survey? Hourly? Well sir, we charge $100 per hour for field time and $45 per hour for office time. How Do You Price a Survey? Set Fee? Well sir, we charge $1 per foot for boundary surveys. How Do You Price a Survey? Per Project? What will it cost to survey my 75 acres? Asking that question is like asking what it costs to fix a car

11 How Do You Price a Survey? Hourly? Neither of you know anything at all about the project. Set Fee? Neither of you know anything at all about the project. Per Project? You ve got some work to do. What are the questions? Determine your scope of work. What do you need done? What is the purpose of the survey? Who needs to receive a copy of the work? Who will be paying for the work?*** What are the questions? What work will be necessary to accomplish the goals of the client? Research Boundary survey Monument corners Map Legal Description Locate right of way

12 What are the questions? What determines the time necessary to complete the field work? Perimeter distance Vegetation Topography Number of corners Driving distance Site access What are the questions? Perimeter distance Vegetation Topography Number of corners Driving distance Site access 14,400 feet thick moderate 86 1 hour - each way poor Scope of Work

13 How Do You Price a Survey? That is an extreme case. What about the half acre in town? What are the questions? What work will be necessary to accomplish the goals of the client? Research Boundary survey Monument corners Map Legal Description Locate right of way Tie to NC Grid Monument What are the questions? Perimeter distance Grid Tie distance Vegetation Topography Number of corners Driving distance Site access 2,120 feet 1,500 feet moderate steep 4 5 min good

14 What did you tell the caller? It was just a half acre. No big deal, right? What about Value? We ve talked about determining price directly relating to cost. What about Value? How do you Price? High Low High

15 How do you Price? What about when clients do not use Price Alone as the determining factor? High This only works when the quality is UNKNOWN. Low Increase Price can = Increased Demand?? High How does this affect how you Price your service? Understanding the above principles leads to some fundamental conclusions. 1. Never ever compete based on Price Alone 2. Some clients will pay more for a higher quality product How does this affect how you Price your service? fundamental conclusions cont. 3. Perceived quality affects what you can charge 4. Some clients will pay more for faster service

16 Who are we talking to? Client Party Who Benefits? Third Who Pays? Client Third Party Who are we talking to? 1. The Client Pays AND Benefits They understand that quality matters just as much as price They understand the importance of getting Professional service Who are we talking to? 2. The Client Pays for the Benefit of a Third Party The client doesn t care about quality. Price is all that matters. They don t want quality if it costs them money or makes their lives harder

17 Who are we talking to? 3. A Third Party Pays for the Benefit of your Client The client doesn t care about price. Quality is all that matters They want the best of the best. Who are we talking to? 4. A Third Party Pays for the Benefit of a Third Party The client doesn t care about price OR Quality. All they want is EASY. Class 4 Client? 4. A Third Party Pays for the Benefit of a Third Party 1999: Women serving in the Danish army were furious when a male supply officer purchased brassieres, all the same size, for 500 women soldiers. The officer said the manufacturer claimed 34-C would fit 90% of Danish women. The women vehemently disagreed

18 Who do you want to talk to? Client Party Who Benefits? Third Who Pays? Client Third Party So how should we price? Hourly? Set fee? Per Project? Hourly - How? Cost per hour x multiplier or Labor cost per hour x multiplier or Call other surveyors in the area and ask what they are charging per hour

19 Set Fee - How? Cost per linear foot of boundary or Set fee for a particular service or Set fee per corner set or checked or Set fee per acre Per Project - How? Start with a Set Fee approach then adjust depending on Project specific factors Per Project - How? Factors considered when adjusting the Fee. Vegetation Topography Quality of existing records # of corners to be set Distance to tie points

20 Price Example You get a call to provide a boundary survey, legal description and map of a 25 acre parcel. What is your price? Everything I see points to a lower than normal price. Who asked themselves this question? What is the value of the work to the client? The Fatal Flaw? What is the number 1 thing wrong with all three approaches to pricing? Hourly Set Fee Per Project

21 COST vs Value Each method is rooted in the cost associated with providing the service. Not on the value of the service to the client. Value Pricing The key to Value Pricing is making sure your client understands the real value of your service. Your service better provide good value! Value Pricing It s not about cost, it s about value

22 How does an Appraiser determine Value? Cost Similar product Income Value added Reputation How does an Appraiser determine Value? Cost A survey is worth what it cost to produce the survey. How does an Appraiser determine Value? Similar product What would it cost to get this same survey using other methods?

23 How does an Appraiser determine Value? Income What income can be realized with a survey vs. what would be realized without a survey? How does an Appraiser determine Value? Value Added What is the property worth with the survey vs. without the survey? How does an Appraiser determine Value? Reputation The value of the survey is directly related to the reputation of the surveyor?

24 Reputation? That doesn t really work does it? Reputation? Reputation? How do you get a reputation for being the best?

25 Reputation? Build your business on three simple principles. 1. Deliver better than expected. 2. Deliver sooner than expected. 3. Deliver less expensively than expected. Reputation? The key is not the delivery side of the equation. The key is managing your client expectations. Reputation? Your clients are not expert surveyors. Getting a survey is a rare thing for most people. We are the experts. It is our job to help the client know what to expect

26 Reputation? Building a good reputation involves the same steps as Project Based Pricing. 1. Work with your clients to develop a plan to solve their problem. 2. Insist on providing a price estimate. 3. Manage expectations. Summary 1. Don t price your service like it was a product. 2. Manage client expectations to build and keep your reputation. Summary 3. Figure out what your client needs; then, what it will take to meet that need. 4. Price based on value, not cost

27 Until you value yourself, you won't value your time. Until you value your time, you will not do anything with it. M. Scott Peck Want to know more? Ask the instructor Part 2 of this class is Implementing Value Based Pricing