“How do we calculate the fee that’s commensurate with the value delivered?” That is THE question every services company asks when contemplating the value based pricing (VBP) model, and it continues even for firms who have adopted VBP already.
Value Based Pricing is the only pricing model that compensates the provider for the life changing value delivered to the client. There are two categories of value delivered: tangible and intangible.
This article is primarily about intangible value.
Before we get there, here’s a brief overview of tangible value. Tangible Value is value that can be measured in specific units.
Examples of Tangible Value include:
- Resolve a specific problem
- Conclude an ongoing issue
- Build a foundation for future (something)
- Improve their security
- Ensure their safety
- Boost their productivity
And so on…
Intangible Value changes the client’s life even though it is hard to measure in specific units.
These are the top four intangible values and how your firm can deliver them to your clients:
- Access to CEO or C-Suite executives. The firm’s associates or partners provide services to the clients. On occasion the CEO or C-suite individuals will call or meet with clients. How does this change the client’s life? In two ways: 1) the client has an opportunity to share his or her deepest desires to the most visionary person in the firm; and 2) the CEO/C-suite individual shares these desires with their services development team in order to provide even more life changing services.
- Flexibility: The defining characteristic of VBP is that the firm is not selling time. Time is a perishable inventory, almost like fresh food. Once it’s past its shelf life, it’s lost for good and no longer generates revenue. Unlike food, which may have a shelf life of a few days, time has no shelf life once the hour on the clock is past.
Flexibility is life changing because the client has confidence that the value they are paying for will be delivered. In other words, the client does not have to live in fear that their value received will be reduced because they needed some flexibility.
A time-based firm works hard to book every single hour. Great for them, not so great for any client. If you have an hour booked, and can’t use that hour, the firm will have a hard time re-booking you. And you may get charged for the hour you couldn’t use.
Another benefit of the intangible of value of flexibility is the ability to call as needed and get a call back quickly. A time-based provider that is booked solid may put off returning calls for a day or longer. The VBP provider has time built into their schedule to respond quickly and answer those sudden questions that arise. The client gets an answer and can go on with their day.
III. Connection to people that provides benefits to the client. The VBP firm knows that helping clients meet people who could be new associates or have connections to potential clients is a huge intangible value. Because the focus is delivering value, not selling hours, the VBP firm is always thinking about providing more value. They have the time to schedule meetings, meals, or drinks with clients who could be compatible with each other.
- Innovations before they are made available to others
The connections and conversations between clients and CEOs/C-suite execs leads to innovations. These are then made available first to the clients who suggested or requested them. These clients get a head start on business growth and business value which has the power to change their life.
How Will You Increase the Intangibles You Deliver to Your Clients?
Over the years, our clients have increased their value based fees by 20-50% as they have increased the intangible value they deliver. This revenue is almost entirely profit. And these intangibles–flexibility, innovations, access, and connections—cause clients to further commit to the providers and make introductions to others who value the same intangibles.
Do not underestimate or “throw in” the intangibles. They have value the right clients will willingly pay for.
If the path to Value Based Pricing, including tangibles and intangibles, is unclear to you, let me know. Text PATH to 703-801-0345 and we will talk. The only obligation you have is to speak freely and openly about your business, which helps us decide if there’s a way and a reason to work together.