Making the Case for Value Pricing
by Terri Eyden on
By Alexandra DeFelice
Are you really getting paid for what you do?
This question set the stage for Ed Kless and Ron Baker's presentation at the AccountingWEB Live! conference in Dallas earlier this month, during which they made the argument that firms must make the move from charging by the hour to charging by value.
The debate between billable hours vs. value pricing has heated up in the accounting profession over the past few years, especially as technology continues to increase efficiency. Kless, director of partner development and recruitment for Sage North America and senior fellow at the VeraSage Institute, argued that the more efficient people become, the less money they earn because of their ability to do the same work - or more work - in less time.
"Not a single customer has purchased a single hour from you. They purchased the results of the hours," Kless said. "Sell what your customers buy. If they aren't buying hours, why are [hours] on your invoice? "
The problem in billing by the hour is that clients don't really care, or at least they don't want to know about the time and pain involved, they just want the end result, according to Baker, cofounder of VeraSage Institute, whose "quest" is to bury the billable hour and replace it with pricing on purpose.
Implementing Value Pricing
Check out Ron Baker's comprehensive book on pricing your services - Implementing Value Pricing. In this practical guide, you'll learn how and why to:
- Implement a business model change
- Create more value
- Unlock the tremendous competitive power hidden in the intellectual capital of every professional firm
In Implementing Value Pricing, Baker thoroughly discusses:
- Business model innovation
- The latest research on the history of the billable hour and timesheets
- The foundations of creating value
- An eight-step model to assist firms to implement value pricing
- Two frameworks for scoping complex engagements
- What, specifically, replaces hourly billing and time sheets
The book also features seven appendices (available for download on the companion website) that contain checklists, strategies, sample forms, and case studies.
"We don't only focus on labor pains, we bill by them," Baker said of accountants. "The customer wants to see the baby, not how hard it was to [birth] it. Stop measuring the labor contractions and start thinking about the baby."
Baker shared a story of an expensive Napa Valley wine he wished to buy. He saw the value of the product and was willing to pay a premium for it, regardless of the "why" behind how good it was. The winery employees felt the need to justify the cost by explaining the detailed and time-consuming process they used to produce the wine. But at the end of the day, Baker didn't care about all of that. He just wanted to enjoy the end result.
"Trying to justify your costs after the work is done is a losing proposition," Kless said. "Go on the value quest. Talk to your clients about what they want and how much they're willing to pay for it."
Maximize the lifetime value of the profit your customer makes from your service. Then match the value to the customer to the price you charge. The more value you bring customers, the more you can charge. And what they value is to benefit from the knowledge your firm possesses.
Transitioning to value billing has to start with a conversation with your team about why you're making it happen. Then begin talking with a few clients to whom you believe you can bring additional value, keeping in mind that each client will value things differently.
Baker gave an example using the value of water. If he were doing his dishes, he would perceive water at its standard value. If he were stranded in the desert, it would be exponentially more valuable, yet if the water were flooding his basement, it would have a negative value.
"Money isn't created or destroyed," Kless said, quoting the famous line from the movie Wall Street. "(It's) just transferred from one perception to another."
If your clients perceive the value of your work, they'll be willing to pay the cost.
- A Journey to Value Pricing
- Value Proposition: What's Price Got To Do with It?
- Pricing Your Services, Part 2: Time and Money
About the author:
Alexandra DeFelice is senior manager of communication and program development for Moore Stephens North America, and a regional member of Moore Stephens International Limited, a network of more than 360 accounting and consulting firms with nearly 650 offices in 100 countries. Alexandra can be reached at firstname.lastname@example.org.