“Pricing Model” means how the firm charges for its services and products.
There are two primary options: time based, and value based.*
Which Executive Should Choose the Pricing Model?
Chief Financial Officer (CFO)?
Companies typically look to the CFO for all their financial advice. The CFO knows the firm’s financials well, has been trained to do analysis of past results and projections for the future. The CFO manages cash flow, Accounts Payable and Accounts Receivable. The CFO will advise on financing when needed.
So, perhaps you think the choice of pricing model fits into the portfolio of of the CFO. The CFO could analyze different pricing options and price points and choose the one that maximizes the firm’s financial results.
Chief Marketing Officer (CMO)?
The CMO has his or her pulse on the firm’s target market. What are the needs, wants, and desires of the firm’s market? What are the pricing options offered by competitors? How could the pricing model be used to build the firm’s brand and attract even more clients? How would changes in the pricing model impact the firm’s position in the minds of existing clients?
So, perhaps you think the choice of pricing model fits into the portfolio of the Chief Marketing Officer. The CMO could analyze different pricing options and price points and choose one that helps the firm stand out its market.
Chief Executive Officer (CEO)?
For me, the only person to make the pricing model decision is the CEO.
Why? Because the firm’s pricing model says EVERYTHING about the company’s mission, vision, and values. The pricing model is a strategic decision, not a tactical one.
When the firm chooses to get compensated for the value it delivers to its clients, it says “everything we do is for YOU. There is no mistaking our work for any reason other than to deliver promised value.”
Value Based Pricing is a philosophy and mindset that permeates the firm. Every single associate or colleague will be motivated to deliver value. Every conversation about desired clientele is about identifying those who appreciate and will pay for value delivered. These clients will bring in other clients with the same appreciation.
There is no limit on firm growth. To charge for value delivered, the firm will deepen its understanding of its clientele. What is important to them? How will those important things change their lives going forward? Where is the next level goal and the one after that? What new paths are worth exploring?
The CFOs and CMOs data never get into the minds and dreams of the clients.
As the firm’s understanding deepens and expands, new and previously unimagined opportunities to deliver new value arise. The firm will never run out of options to deliver value. As new opportunities arise, the firm can discontinue old ones. The firm grows as its clients grow.
What is your firm doing to be sure that your revenue is based on value delivered, not time worked? If you’re not doing anything, or your industry firmly believes in a time based pricing model, book a complimentary Starter Call. Call or text VBP to me directly at 703-801-0345.
*Time based pricing practices include:
- Hourly billing: provider charges for each hour of work.
- Retainers: a lump sum deposited in advance, from which the hours worked are deducted.
- Packages of time: For a fixed fee per month the client gets whatever services can be provided in a fixed amount of time.
- The Therapy Model: clients buy time-based aacess week to week or month to month
Value Based pricing is the practice of setting fees that are commensurate with the value delivered to the client.
- The value delivered is clearly described.
- There is a start and end date.
- Within that period the provider does whavetever is needed to deliver the promised value.
- The best value based providers include unlimited access to the provider during the period of performance.