Vice President of Product Marketing Karbon
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7 Steps to Setting Initial Value Pricing Fees

Aug 8th 2017
Vice President of Product Marketing Karbon
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For many practitioners, the fear of setting the prices for their bundled services is the barrier holding them back from moving down the path towards value pricing.

Building off of the concepts discussed in Ron Baker's "Pricing on Purpose" and Jason Blumer's "The Value of Puppies," we'll use the power of threes, estimation techniques, and your gut instincts to narrow in on a set of prices that work for you and your firm. Read below to learn key steps to setting your prices PRIOR to meeting with a prospective client and AFTER you have constructed your three packages of services (good, better, and best).

Step 1: Form a pricing committee

If you have no other employees to form such a committee, use your spouse. The committee's job (even if it’s only another individual) is to give you feedback on your prices to see if you're on track or off the mark. You will leverage the committee for insights during and at the end of this process and when offering prices to prospective clients in the future.

Step 2: Gain inspiration from others

Prior to working through your pricing details, gain inspiration from others. First, review the websites of your mentors, peers or leading practitioners (i.e. via Intuit's Find an Accountant site or Xero's Find an Advisor directory). Second, draft a questionnaire to send to your existing clients that allows them to assess their needs and to provide their thoughts on what they would expect to pay for those needs to be met. This is a good method to test your good, better and best bundles to see if they hit the mark.

Step 3: Understand your costs per bundle

In figuring out your relative cost per bundle, the "relative" part of that is most important. Don't worry about being exact. You know your business and you know what your time is worth. Look at the services in each bundle and come up with your best estimate of how much each will cost you in terms of time and resources. This will give you how much you need to charge over to make a profit. Remember that profit is the goal here.

Step 4: Determine the pricing boundaries of each bundle

Now we come to the actual pricing. Initially, we'll develop the pricing boundaries for each package: BATNA and Ideal. Your 'BATNA' or "Best Alternative To a Negotiated Agreement" price is the lowest price for the bundle that still turns a profit. It is the absolute minimum profit you are willing to take for this package. The Ideal price is the highest price for the package that you could imagine anyone reasonably paying. Most clients would not pay this price, but a select few would be willing to pay it for the extra satisfaction that they know they are going to get from working with you and your firm.

Step 5: Move your prices from Average to Expected

With the boundaries set, take the average of the Ideal and BATNA to get your average price per bundle. While this may be the price you offer for the given bundle, evaluate whether this number "feels right." Adjust the price up or down between the BATNA and the Ideal so that it is a price you would be happy with. Typically this is a bit higher than the average. It's important not to undersell your services here. You know what you are worth; don't be afraid to ask for the compensation to match that value. At this point, you have developed three prices per package (that's nine prices in total).

value pricing chart

Step 6: Fixed fees or value pricing?

The next step is to determine if you're going to be using fixed fees or value pricing on your packages. If you're not so sure in your sales skills or are just starting out, it might be useful to start with a fixed fee system based on your Expected price. Later, once you're more comfortable, you can move into a value pricing structure.

With value pricing, each package has a range of prices that you have already come up with. As the package is modified and as you add value to the package by way of communication with your client, the price can slide up and down the scale from your BATNA to your Ideal. As such, the price of the package will vary from customer to customer.

Step 7: Do a dry run and repeat

The last step, of course, is to do a dry run and repeat the process as necessary. Bring your packages to your pricing committee. Pitch the packages and prices and have them look over everything to see if it all makes sense. Modify as needed until the packages and their prices are a good fit for both you and the pricing committee.

In Summary

Pricing is both an art and a science. By using the power of threes, estimation and your inherent knowledge of your practice and clients, you can narrow in on your initial set prices for your identified bundled services. It's important to be unafraid of making pricing mistakes; with each mistake, you will be able to get closer to that perfect price point of each of your packages. Remember, it is a marathon and not a sprint.

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