6 Tips for value pricing

Why is the concept of value pricing seen to be radical? It makes a great deal of sense and I appreciated the LinkedIn discussion and thought I would share some of the highlights. Here is one of the posts.
After mentioning I had taken 14 pages of notes on Baker's book on Value Pricing, above, Jacoline Loewen suggested I share a few Aha's from these notes. Here they are: Baker presents the idea that professional advisers should keep in mind that we are (or should be) giving our clients (which he calls customers) a crowbar with which to open a treasure chest. If so, ten times the price would still be a bargain for our crowbar. We should not provide a cheaper price merely because, for example, we may have lower fixed overhead. Value drives price, not cost. If we have significant intellectual capital (as defined by Baker), offering it at a lower price devalues it and sacrifices a significant amount of profit.
 We should focus on the totality of our services our firm provides the customer or client and consider bundling them together into a fixed price agreement, not an hourly rate agreement. The billable hour becomes the floor, not the ceiling.
 Baker outlines methods of qualifying the right customers/clients, the sins of hourly billing and ways to eliminate them, how to understand the value we offer that customers seek, key predictive indicators for knowledge workers, and eight steps to implementing value pricing.
In his section on developing and pricing offerings, the author identifies several elements, any or all of which a firm’s Value Council (explained in the text) may want to make part of a fixed price agreement, over and above the hourly rate, which is never mentioned:

1. Fixed Price. (A guarantee that the customer/client will not be surprised by an invoice; that all work will be authorized in advance, so that the client will be able to budget his or her professional spend with certainty.)
2. Change Orders. (This ensures customers that work will never be done without their authorization on price, terms and scope, giving them a choice on how to proceed.)
3. Service Guarantee. (An overt statement that your project will create value three to ten times greater than the cost or the customer doesn’t pay.)
4. Price Guarantee. (The customer may ignore any invoice they receive for which they did not authorize price, payment terms and scope. The customer will never be surprised by an invoice because all work is priced in advance.)
5. Unlimited Access. (The customer is granted unlimited phone calls and meetings to discuss whatever the customer wants.)
6. Payment Terms. (Financing plans.)

 The subtitle of Baker’s book indicates the concept of value pricing is radical. It may be radical, but after carefully studying his book, it makes a lot of sense to me.
Posted by Robert R Dunford
Robert R. Dunford, Principal
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