Value pricing is about pricing the CUSTOMER, not the SERVICE. If you’re billing a flat (predetermined before you even talk to the customer, or chosen from a menu of prices listed on your website) monthly fee, feel free to call it value billing. But, do not call it Value Pricing! They are radically different, and I can’t say (or hear) it enough times. Pricing the customer is the whole point, representing the foundation of the entire concept of value pricing. It’s also possibly the most difficult to truly grasp. After all, value is subjective.
As a Black Swan, Ron Baker has taught me well. I create three options, artfully crafted with the customer in mind. Yes, of course, I have to consider the services I’m providing and the hours I’m going to spend. But, above all else, I have to consider the value to the customer. It’s where the value billers diverge from the value pricers.
Oh, how I can agonize over one of these proposals! Granted, it is getting much easier, but it’s still incredibly challenging. It’s equal part skill and art. As Ron likes to say, price is a terrorist – it creates more fear in the seller than the buyer.
There’s this moment during the creation of these proposals when I need to get quiet and REALLY focus on the customer and their point of view. What is the value to them? Are they up against a deadline that they need me to meet? Do they require follow-up support? What terms of payment work best for them? What is their option if they don’t retain my services? You’d be amazed how many things are valuable to them, and perhaps how many things you’ve been giving away (something ProAdvisors® are especially good at).
I’m pretty sure that I can do a reconciliation in about 1/10th of the time it took me when I first started, which means I’m 10 times faster than I used to be. I sure don’t want to be hourly billing. We have this golden opportunity right now because of the shift to the cloud. Things are going to speed up drastically. If you’re charging by the hour, your billings could potentially go way down, while the value to your customer hasn’t changed at all. Seems unfair, right? It is. Does your hairdresser charge by the hour? What about a surgeon? We are knowledge workers, not time clock punchers. My expertise does not equate to the hands on a clock!
I love the following story that Ron likes to share:
So Picasso agreed to sketch her. After studying her for a moment, he used a single pencil stroke to create her portrait. He handed the women his work of art.
“It’s perfect!” she gushed. “You managed to capture my essence with one stroke, in one moment. Thank you! How much do I owe you?”
“Five thousand dollars,” the artist replied.
“B-b-but, what?” the woman sputtered. “How could you want so much money for this picture? It only took you a second to draw it!”
To which Picasso responded, “Madame, it took me my entire life.”
(At this point, Ron likes to mention the fact that Picasso should have priced up front. Ha! But, what a great story.)
A friend once told me something that has stuck with me. When you’re tracking your hours, you have to live it three times; first when you do the work, second when you record the hours on a timesheet and third when you (sometimes weeks later) compile the hours to bill your customer.
I despise tracking my time and keeping timesheets. How do I know if I’m making any money without tracking my hours, you might ask? It’s simple; I just know. I have actually NEVER kept track of hours once a customer has signed one of my fixed price agreements. And, I doubt I ever will.
Billing and pricing are two different things. If you’re billing a flat monthly fee, feel free to call it value billing. But, do not call it Value Pricing! I can’t say it enough times … Value Pricing is about the CUSTOMER.
The Black Swan Project is a unique training and coaching program hosted by the Institute of Professional Bookkeepers of Canada (IPBC). For more about the IPBC, visit their website.
Read Pricing on Purpose: How to Implement Value Pricing in Your Firm by Ronald J. Baker
Editor’s Note: Read Marnie’s previous article, “Goodbye Timesheets … Hello Value Pricing!“