Value Pricing: What, Why, When, and How

Transcription

1 Value Pricing: What, Why, When, and How Joe Woodard Woodard

2 About Woodard Our team provides professional! Education! Coaching! Resources! Community About Joe Woodard Joe s Recognitions! Top 100 Most Influential People by Accounting Today (2012, 2014, 2015, 2016)! Top 40 Under 40 Up and Coming Thought Leaders by CPA Practice Advisor (2008)

3 Learning Objectives 1. Learn what value pricing really means and how it is different than fixed fee pricing 2. Learn the connection between effectiveness, intellectual capital and value 3. Learn how to develop a personalized action plan to implement value pricing for your practice

4 Part 1 What is Value Pricing? Value!Pricing

5 Understanding Value!"#$%&' ()*$+',)-+'.)/"'

6 Value Drivers Up and Down Value Lack of Specific Knowledge Limited Expertise Wrong Types of Clients Specialization Results Focused VMP Driven Value

7 The Value Proposition A business does not exist to be efficient; rather, it exists in order to create wealth for its customers. The Wealth Must be Greater than What the Customer is Willing To Pay The Value of the Wealth is Made Only by the Customer

8 An Industry Miss $8.50 $8.50

9 An Industry that Understands Value $ $172.00

10 Applying This Principle to Our Profession Wealth for the Client Time

11 The Labor and Value Disconnect A commodity has a value, because it is a crystallization of social labor. The greatness of its value, or its relative value, depends upon the greater of less amount of that social substance contained in it; that is to say, on the relative mass of labor necessary for its production. The relative values of commodities are, therefore, determined by the respective quantities or amounts of labor, worked up, realized, fixed in them. The correlative quantities of commodities which can be produced in the same time of labor are equal. Karl Marx Labor Value

12 The Labor and Value Disconnect Labor (Effort) Value Labor (Cost) Value Karl Marx Du Pont ROI

13 The Labor and Value Disconnect Great Quotes by Ron Baker Pearls are valuable not because people dive for them. People dive for them because they are valuable. The job of financial management is not to insist that prices recover costs. It is to insist that costs are incurred only to make products that can be priced profitably given their value to customers.

14 The Labor and Value Disconnect The Firm of the Future Customer s Increase in Wealth* Value *Remember: Wealth is not necessarily (perhaps not even essentially) monetary.

15 Labor and Value Disconnect No customer in the world buys time, so how can that possibly be what professionals are selling it is no longer relevant in an intellectual capital-based economy. Ron Baker & Paul Dunn

16 Fixed Fee Pricing vs. Value Pricing Value pricing is not fixed fee pricing. Cost Incurred % Price

17 Fixed Fee Pricing as Cost Plus 1. Determine your cost to deliver a specific service, or a slate of services 2. Determine the price needed so your firm has a margin 3. On a regular basis, monitor a. The cost that you incur b. The scope/nature of the services offered 4. Adjust the fixed fee price to maintain target margin

18 Fixed Fee Pricing vs. Value Pricing Value Pricing Formula Wealth Generated % Price

19 Part 2 Effectiveness, Intellectual Capital and Value Pricing

20 Service Worker vs. Knowledge Worker Service Worker Service Worker Labor Category Professional Category

21 The Wrong Practice Equation Revenue People Power Efficiency Hourly Rate Obsession with Efficiency Production Trumps Knowledge

22 The Correct Formula Profitability Intellectual Capital Price Effectivenes s Obsession with Intellectual Capital Value Knowledge Trumps Production

23 The Components of Intellectual Capital Human Capital (i.e. Knowledge) is contained within all of the people in your organization, including contracted resources. Structural Capital is everything that remains when the people have left for the day. Social Capital is: Customers (Primary) Suppliers Vendors Networks Referral Sources Alumni Brand/Reputation

24 The Customer and Value Connection Five Steps Step 1: Think about how you purchase à Become the customer Step 2: Sell reactions and get those reactions through knowledge (your product) Customers will exchange their hard-earned money for only two things: good feelings and solutions to problems. - Ron Baker

25 The Customer and Value Connection Five Steps Step 3: Always ask the customer, What do you expect from us? Step 4: Exceed the customer s expectations by transforming the customer à The customer is your product. Step 5: Create Adaptive Capacity in your firm Use it for VIP customers with time sensitive needs Use it to increase your firm s IQ

26 Pricing Myth A huge thing that s holding us back in the profession is this big myth that we believe that clients are price sensitive. The reality is that is completely wrong. - Mark Wickersham

27 Pricing Fact The reality is clients are value sensitive - and value sensitive and price sensitive are two very different things. - Mark Wickersham

28 Client s Projected Return on Investment Client s Val Investment ue Increase d Profits??????? Peace of Mind Scaled Infrastructure Work- Life Harmoni Val ue -zation

29 Ultimate Value When you understand that accountants change lives, how on earth could you charge for that in 6 minute units. - Paul Dunn

30 Part 3 How to Implement Value Pricing

31 Complete the sentence: Don t sell me accounting services, sell me.

32 Implementing Value Pricing: A Primer Step 1: Discover What Your Client Values (i.e. what will generate wealth for them) Step 2: Find a Way to Leverage Your Knowledge to Create that Wealth Step 3: Communicate (and if necessary educate) the Client on the Connection Between Your Knowledge and their Wealth Step 4: Set the Price According to the Wealth the Client Receives* Step 5: Connect the Knowledge you Provide the Client to the Wealth You Created for the Client (post-engagement or engagement phase) *Price is based on a percentage under the wealth you create, not a percentage over the cost you incur.

33 Implementing Value Pricing: A Primer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

34 One Slide Synopsis of Value Pricing A business does not exist to be efficient; rather, it exists in order to create wealth for its customers. The Wealth Must be Greater than What the Customer is Willing To Pay The Value of the Wealth is Made Only by the Customer

35 Our Core Value Proposition We Speak the Language

36 Thank You for Attending! Joe Woodard