What does value pricing really mean?

value pricing Aug 27, 2019

Value pricing is a superior way of pricing.

When you boil it down, there are really only two ways of pricing: cost-plus pricing and value pricing.

You can watch the video I did on this topic here.

If you understand economics and the supply and demand equation, one deals with the supply side, one the demand side.

Cost-plus pricing: Add up the costs and add on an amount for profit.

In the accounting industry, many people use time-based billing as their form of cost-plus pricing.  It’s a crazy way to price, partly because customers hate it and partly because it won’t earn you as much money as value pricing.

Customers want certainty when buying. They want to be able to budget and plan, so giving them a fixed price upfront will give them the certainty they need.

The problem with hourly rates is you have no idea how long a project is going to take until you have done the work. That means you can’t give the client a fixed price and you instead have to give them a surprise price at the end of the work.

If you do give the client a fixed price, you are then taking on the risk that you might work slower than you imagined or something unexpected happens which adds time to your work. You could make a loss.

Value pricing is completely different.

Rather than focusing on costs, value pricing focuses on the customer - their wants and needs, and what they value.

Value pricing isn’t easy because value is subjective. Everyone values things differently.

As my friend Ron Baker says, “value is in the hearts and minds of customers”.

Your job is to figure out what that value is.

The great thing about value pricing is that it aligns your goals with the customers. You are constantly thinking “How can I improve the client’s service? How can I give them more value? How can I help them the most?”

With hourly rates if you wanted to make more money you would just do the work slowly - that’s not fair to the client, it’s unethical.

With value pricing it is necessary to give the client the most possible value so that you can charge a higher price. It’s a win-win situation.

Let me give you an example of value pricing:

You may ask a potential client when you meet with them:

“Who would you like to deal with? When we have an annual review meeting, would you like to meet with me, the senior partner, or my assistant?”

They are always going to pick you. Because they value you. If they value dealing with you, then you can give them that choice, but you can charge a higher price to reflect the value they are getting.

It has nothing to do with the cost, or the time it takes. It’s all about value to the customer.

Give the client the choice and if they choose you it’s one price, but if they choose your assistant it’s a different price. The customer will choose based on their own perception of what is the most valuable to them and what is the best price.

It’s fair pricing.

If you would like to learn more about value pricing, I run a free monthly online training session with a different topic every month. You can attend and ask me questions which I will answer live in the session. Click here to register and I will send you an invitation to the next session.

And if you would like to join a community of like-minded accounting professionals learning to price more effectively and confidently, you can join my Facebook Support Group here.

Wishing you every success on your pricing journey.

Mark Wickersham

Chartered Accountant, public speaker and author of Amazon #1 best-seller, “Effective Pricing for Accountants

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