“My client, a top notch consultant in the safety industry, struggled very month to use his financial statements as decision-making tools. He read the numbers, but they didn’t help him answer questions or solve problems.
I was driving one day when I suddenly pictured with extreme clarity exactly how I could re-design his financial statements, so that he could “see” at a glance what was most important to him.
I recorded my idea on an app, and when I got back to my desk, I quickly sketched it out. We met the next day, he got it immediately, and expressed relief and gratitude.
He said, “These new reports will change the way I do business for years to come.”
Then I had to record something on my timesheet. Do I record the 25 minutes thinking about it when I was in the car? The ten minutes when I recorded it on my app? The half hour when I sketched out the new design at my desk? All of it, some of it, or only the last part, sketching it out at my desk?
And even more important, how was the hourly rate I would bill him in any way close to compensation for the value I just delivered to him. Value that would “change the way he does business for years to come.”
No hourly rate could capture that.
That’s when I told Susan Trivers “I’m ready to commit to value based pricing.””
We Do This Every Day
We experts who live and breathe our knowledge and expertise can find ourselves in similar situations time and again.
The creative designer who gets a brilliant idea on a walk with her dog. The attorney who reads an article in the news that inspires new thinking about a case. The subject matter expert who hears something at an industry conference that can be applied to their work on behalf of clients.
These ideas combine with years of experience to lead to delivering life changing value to their clients.
No hourly rate, no matter how high, is fair compensation for value that changes the outcome for clients for years to come.
Intellectual work doesn’t unfold in neat 60 minute increments only when we are “on the clock.”
How do we bridge the gap between the value delivered and the fee charged.
Value Based Pricing Defined
Value based pricing is pricing that considers the relationship between the value delivered to the client and the client’s success, whether in the short, medium, or long term.
I use the word ‘commensurate’ to arrive at the actual figure. Commensurate means “corresponding in size or degree; in proportion.”
The starting point is to review your firm’s work from the past 6-12 months. What did you do, what was the value delivered to the client, and how big was the impact?
Everyone who worked on any projects should be invited to this conversation. You’ll get different perspectives which tends to help clarify the value delivered. In certain instances you could ask the clients to describe in their own words the value they received.
You rank a list of 10 projects and their value according to the extent or impact of that value. There is no single or perfect answer but this step is necessary to begin to understand your fee-to-value ratio.
Eric gathered his staff of 8 to do this review. As we talked the value delivered came into focus.
One category of value delivered is that Eric’s CPAs help client companies plan and implement major growth goals. One client was beginning to prepare her company for a sale in 2-3 years. She learned from the CPAs what to do to make the company eminently attractive to buyers when the time comes.
For others, the value was about using financials as decision-making tools. With financials designed and presented in ways that work with a client’s particular environment and needs, the CEO, CFO, and others can see the impact of their recent decisions and can model the impact of decisions they are considering.
In other cases the value was straightforward– compliance with tax regulations. For those clients, the value is satisfaction that they’ve fulfilled their tax duties.
Each of these outcomes has a different value. A single hourly rate (or even a range related to the experience of the CPA) can never be commensurate to the value delivered—that is, in proportion.
If This Might Be You…
If you see yourself in Eric’s story and want to charge your clients fees that are commensurate with—or proportional to—the value your firm delivers, you’ll want to schedule a STARTER Call with me. In the 45 minutes that we’ll talk, I will listen to you describe your situation what’s on your mind. By the conclusion of the call, I’ll give you 1-2 recommendations of actions you can START right now.
Text STARTER to 703-801-0345 to schedule your call.