Ron Baker, Founder VeraSage Institute Pricing for ... Session 5.pdf · 6. Proper Project Management...

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Ron Baker, Founder VeraSage Institute

@ronaldbaker Pricing for Profitability

What are you really selling?

What are your customers really

buying?

The customer never buys a product. By definition the customer buys the satisfaction of a want. He buys value.

- Peter Drucker

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When it leaves the factory, it s lipstick. But when it crosses the counter in the department store, it s hope.

Charles Revson, Founder, Revlon

The First Law of Pricing: All Value

is Subjective

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What is the cost of a bottle of water?

What is the value of a bottle of water?

COST vs. VALUE



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$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

Cost

Price

Value

Confusing Cause and Effect

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Cost-Plus Pricing

Value-Based Pricing

Customer Value Price Cost Service

Service Cost Price Value Customer

Eight Steps to Implementing Value Pricing

Implementing Value Pricing

Eight Steps at a Glance

1. Conversation with Customer

2. Pricing the customer, not the services (CVO/Value Council)

3. Developing and pricing options

4. Effectively present options to customer

5.Option selected codified into an FPA

6.Proper Project Management

7.Scope creep, utilize Change Orders

8.Conduct Pricing After Action Review

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“Language was invented to ask questions. Answers may be given by grunts and gestures,

but questions must be spoken. Humanness came of age when man asked the first

question. Social stagnation results not from a lack of answers but from the absence of the

impulse to ask questions.”

Eric Hoffer, Longshoreman Philosopher

Implementing Value Pricing 1. Conversation with customer

Not: What do you need?

But rather: What are you trying to accomplish?

Implementing Value Pricing 1. Conversation with customer

Listen > Talk

Opening: “Mr. Customer, we will only undertake this engagement if we can agree, to our mutual satisfaction, that the value we are creating is greater than the price we are charging you. Is that acceptable?”

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Step 2: Pricing the Customer

Why price the customer?

100 Passengers willing to pay $400 100 Passengers willing to pay $200

If you price all at $400: $40,000 If you price all at $200: $40,000 If you price 100 @ 400 + 100 @ $200 = $60,000 A 50% increase

Implementing Value Pricing 3. Developing and Pricing Options

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Peter Van Westendorp’s Price Sensitivity Meter

The Second Law of Pricing: All

Prices are Contextual

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Behavioral Economics

1 Yr Sub Price Mkt Share Web only $59 68%

Print & Web $125 32%

42.8%

Anchoring

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$1,000 Omelette

Framing

Options

Six Ts for creating options

 Timing  Terms  Technology  Talent  Tailoring  Transference

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Implementing Value Pricing 4. Effectively present options to customer

Presenting your pricing

1. Present your most expensive option first; this is your anchor price.

2. After stating your price(s), shut up. One CPA walks out of the office.

3. Use the word price instead of fee.

4. Use the word agreement instead of contract.

5. Use the word fair, as in Is this a fair price to you?

6. Do no qualify your price: Our normal/standard/regular price is… as it

invites negotiation.

7. Remember to negotiate value, not price.

8. Place a timeline on proposals; no price should last forever.

9. Copyright all your proposals to retain your intellectual property.

10. Real bargaining takes place between equals—you re an equal to your

customer, not a supplicant. 11. Finite number of price objections—shouldn t we have answers?

Implementing Value Pricing 5. Fixed Price Agreement (FPA)

Elements of an effective FPA

Memorializes the meeting of the minds

Specifies scope of work

Includes deadlines, delivery dates, and other milestones

Details customer s responsibilities for providing information

Includes payment terms (use EFTs, credit card authorization)—no invoicing necessary

Establishes parameters for Change Orders

Bundles Unlimited Access

Includes service guarantee and price guarantee

The Perpetual FPA (useful in difficult economic times)

DOES NOT replace your Engagement Letters

Implementing Value Pricing 6. Proper Project Management

Effective PM

Project Management is not pricing

Project management is important no matter how you price

Scope of work

Who performs work

Resources needed

Capacity planning—forward looking, not backwards

Customer responsibilities and commitments

Deadlines—duration, not time spent

Who s in charge of project management?

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Implementing Value Pricing 7. Change Orders

Implementing Value Pricing 8. Conduct a Pricing After-Action Review

After-Action Review Questions

1 Did we add value for this customer?

2 How could we have added more value?

3 Did we capture a fair portion of that value?

4 Could we have captured more value through a higher price?

5 How much money did we leave on the table?

6 If we were doing this engagement again, how would we price it?

7 What are the implications for product/service design? Did we learn any new intellectual capital that we could leverage across other customers?

8 Should we communicate the lessons on this engagement to our colleagues and how?



9 How could we have enhanced our customer s perception of value?

10 What did we teach this customer?

11 What other needs does this customer have and are we addressing them?

12 Did this engagement enhance our relationship with this customer?

13 What impact has this engagement had on developing our customer s trust in us?

14 How would you rate our customer s price sensitivity before and after this job?

15 How has this engagement advanced us?

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16 Did we have the right team on this engagement?

17 How high were the costs to serve?

18 What unexpected value did we create?

19 What could we do better next time?

20 What went well that we can replicate on other engagements?

21 Do we need to update our customer complaint register?

22 How could we thank this customer for their business?

Pricing is an art, and a skill, requiring

•  Wisdom •  Judgment •  Patience •  Unlearning

(backward bicycle video)

Don t solve problems; pursue opportunities.

Peter Drucker

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www.journalofaccountancy.com

June, 2009 Pricing on Purpose: How to Implement Value Pricing in Your Firm

November, 2008 The Firm of the Future

April, 2010 Project Management for Accountants, by Ed Kless

Simon Sinek, www.TED.com

Thank You!

[email protected]

Twitter @ronaldbaker

VeraSage website/blog www.verasage.com (707) 769-0965

www.thesoulofenterprise.com www.verasage.com/tsoe Fridays, 1pm PT/4pm ET

http://www.amazon.com/Lets-Get-Real-Not-Play/dp/1591842263

https://itunes.apple.com/us/podcast/how-to-dramatically-increase/id268104018

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WHK Work

Maybe Work

Likely Work

Yes Work

Accounts Receivable

Customer does invoicing M&A does data entry from monthly

sales summaries


sales summaries


sales summaries

Accounts

Payable Customer pays invoices M&A does data entry

M&A pays invoices (cheques provided)

M&A does data

M&A pays invoices (cheques provided)

M&A does data entry

Receipts Customer sorts receipts into

categories M&A does data entry

M&A does sorting M&A does data entry

M&A does sorting M&A does data entry

Reconciliation Bank Account(s) CD & US$

Credit Card(s) Bank Account(s) CND & US$ Credit Card(s)

Bank Account(s) CND & US$ Credit Card(s)

Government Remittances

HST Return – efile Source Deduction Return - efile WSIB Return - efile

HST Return – efile Source Deduction Return - efile WSIB Return - efile

HST Return - efile Source Deduction Return - efile WSIB Return - efile

Reporting

Quarterly financial statements Balance sheets Income statements Annual financial review

Quarterly financial statements

Balance sheets Income statements

30 minute quarterly financial review Annual financial review

Monthly financial statements Balance sheets Income statements

30 minute quarterly financial review Annual financial review Cash flow Budget

Supporting/ Communication Unlimited business hour access Unlimited business hour access

Unlimited business hour access

Service Guarantee 100% 100%

100%

Inclusive Software Office Supplies

Software Mailings – max 5 per month Office Supplies Liaise with Government Bodies

Software Mailings – max 10 per month Office Supplies Liaise with Government Bodies

Storage Storage of the files to completion of

fiscal year (hard copy) Soft copy storage $15.00 per box monthly charge for

storage of files past fiscal year end

Storage of the files to completion of

fiscal year (hard copy) Soft copy storage $15.00 per box monthly charge for


Storage of the files to completion of fiscal year (hard copy)

Soft copy storage $15.00 per box monthly charge for


File Transfer Customer to drop off/transfer files

Drop box Customer to drop off/transfer files Drop box

Customer to drop off/transfer files Drop box

Payroll

Prepare pay stubs ROE’s - Web ROE Annual T4’s and Summary

One time set up $99 for EFT Prepare pay stubs ROE’s - Web ROE Annual T4’s and Summary

One time set up $99 for EFT Prepare pay stubs ROE’s - Web ROE Annual T4’s and Summary

Year End Prepare year end Liaison with Accountant/Auditor Customer provides back up and

documents to Accountant/Auditor

Prepare year end Liaison with Accountant/Auditor M&A provides Accountant/Auditor

back up and documents

Prepare year end Liaison with Accountant/Auditor M&A provides Accountant/Auditor

back up and documents

EFT Services

Vendor EFT payments (CDN$) Payroll direct deposit service Government remittances

Vendor EFT payments (CDN$) Payroll direct deposit service Government remittances

Online Banking

(customer account)

Bill payments/transfers Cash flow management - weekly

Service Packages 519.954.9248 • [email protected]

FUNDAMENTAL $589/month

ESSENTIAL $709/month

INTEGRAL $799/month

(Please select a package) Signature and Date

Price valid until March 13, 2014

Copyright 2009. American Institute of Certified Public Accountants, Inc. All rights reserved. Used with permission.

THEORIES OF VALUEProfessionals undervalue their servicesbecause they are operating under thelabor theory of value, which posits that thevalue of a service is determined by theamount of labor used in its production.Conversely, professionals who subscribeto the subjective theory of value believethat the services they offer are only valu-able to the extent that there is a poten-tial buyer desiring them. Value is in theeye of the beholder. For any transactionto take place, both the buyer and the sell-er must profit from the exchange and re-ceive more value—in their subjective

Pricing on Purpose: How to ImplementValue Pricing inYour Firmby Ronald J. Baker

Abusiness is defined by the value it creates for its customers.Your price speaks volumes about your value proposition,more so than any other component of your firm’s marketing.

The business world pricing revolution began in the 1980s, whenmany of the Fortune 500 companies began to employ professionalpricers, and organizations such as the Professional Pricing Societywere founded to assist companies in achieving excellence in pricingfor value. Yet many CPA firms are still defined by “hourly rates.” TheCPA profession has taken its collective intelligence, experience, judg-ment, education, wisdom, knowledge, and intellectual capital andcommoditized them into a one-dimensional hourly rate. This arti-cle illustrates that pricing by the hour is the wrong way to measurethe value created for the client.

perception—than what they are giving up.Today, thousands of firms price their

services according to the external valuecreated—as perceived and determinedby the client—rather than internal costs

incurred in generating those services.(For a summary of the advantages ofvalue pricing, see Exhibit 1.) Changingthe pricing culture in your firm will notbe easy. It requires confronting the in-herent challenges involved with pric-ing—all of which take hard work,commitment, leadership, creativity, in-novation, and dedication of resources tocontinuing education.

VALUE PRICING VS. VALUEBILLINGValue is defined in economic terms as: Themaximum amount that a consumer would bewilling to pay for an item. Therefore, valuepricing can be defined as the maximumamount a given client is willing to pay for aparticular service, before the work begins.This is not to suggest we can capture 100%of maximum value, but rather that we havethe potential to access some of it withstrategic pricing.

This definition contradicts the popu-lar term value billing. The difference isvalue pricing is always done before thework begins, whereas value billing is usu-ally marking up—or more frequently,marking down—the invoice to the clientafter the work has been performed.

A cardinal rule on behalf of clients infirms that value price is: no surprises. Justas no auto mechanic performs work notpre-authorized by the customer, thesefirms only provide services after price,payment terms and scope have been pre-determined and agreed to by the client.This creates a better client experience,with fewer write-downs and write-offs,lower collection and financing costs, andgreater client loyalty—not to mention su-perior profitability for the firm.

TRANSITIONING FROMHOURLY BILLING TO VALUEPRICINGNot all pricers in a CPA firm are createdequal. Firms should establish a pricingcouncil and appoint a chief value officer(CVO) in order to centralize the pricingfunction and make it a core competen-cy within the organization. Pricing is tooimportant to the profitability and healthof a firm to accept anything less than ex-cellence in this vitally important skill.

If you diagram hourly billing, a form ofcost-plus pricing, it would look like this:

Service→Cost→Price→Value→Client

Value pricing inverts the above chainby recognizing the economic fact that theclient is the ultimate arbiter of value:

Client→Value→Price→Cost→Service

Thus, value pricing turns the order ofcost-plus pricing inside out. Goods andservices do not magically become morevaluable as they move through the facto-ry and have costs allocated to them by costaccountants. Firms that value price do notask, “What prices do we need to cover ourcosts and earn a profit?” Rather, they ask,“What costs can we afford to incur on thisproject given the price obtainable from theclient and still earn an adequate profit?”Costs in a CPA firm are largely fixed, butpricing is a policy. In most CPA firms, serv-ices are priced based on the costs incurredand not the value created. These firms haveample data on their costs, hours, activities,efforts and other inputs, but a paucity ofinformation on the value they create forclients.

www.journalofaccountancy.com June 2009 Journal of Accountancy 63

P R A C T I C E M A N A G E M E N T

E X E C U T I V E S U M M A R Y

■ Change the pricing culture inyour firm from one that “sellstime” to a value pricing firm thatprices services according to theexternal value created for theclient rather than the internalcosts incurred to generate theservices.

■ Value pricing means themaximum amount a given clientis willing to pay for a particularservice before the CPA beginsthe work.■ Value pricing creates a bet-ter overall client experience be-cause it improves communication

between the firm and the client,offers certainty in pricing, andcreates a service guarantee thatallows the firm the chance to winback the client in the event of aproblem. ■ To transition from hourlybilling to value pricing establish

a pricing council in your firm tocentralize the pricing functionand make it a core competencywithin the organization.

Ronald J. Baker is the founder ofVeraSage Institute. His e-mail address is [email protected].

64 Journal of Accountancy June 2009 www.journalofaccountancy.com

In firms that use value pricing, costs only determine if aservice should be provided, and in what quantities. Costs donot play a role in determining external value to the customer,or setting prices (except as a minimum).Value pricing reverseswhat is now an artificial ceiling on firm income, inverting theceiling into a floor.

THE EIGHT STEPS REQUIRED FOR PRICING ONPURPOSEFollow these eight steps on every major engagement, and yourfirm will be on its way to pricing on purpose:

STEP 1Have a conversation with your client to determine their needsand wants in the forthcoming year. Ask them the questions inExhibit 2. This is your opportunity to comprehend and commu-nicate the value you can add, establishing the scope of value andthen the scope of the work to be performed. Sometimes a mem-ber from the pricing council attends this meeting, especially ifthe partner is not a member of the pricing council, or is un-comfortable with pricing.

STEP 2The information gleaned from Step 1 is then presented to thepricing council, where three options, at three levels of service,are established. For example, American Express’ Green, Goldand Platinum cards vary in price based upon the value and serv-ices they deliver. Firms should offer clients options, not a take-it-or-leave-it single price. This allows the client to convincehimself or herself of value. It also reveals the client’s individ-ual price sensitivity, which the firm can use in future pricing.It helps the firm answer the question: Did we leave money onthe table? If there isn’t trepidation about the price, then theprices may be too low.

STEP 3The pricing council then goes through the 20 questions to askbefore establishing a price (see Exhibit 3). Based upon the an-swers, the council then conjectures three internal prices foreach level of service, based upon their assessment of the client’ssubjective value and price sensitivity. In tough economic times,this three-tier pricing model is a great opportunity for firmsto offer less expensive options for struggling clients. Whentimes get better, many clients will often choose to upgrade theirservices.

1. Reservation price. Below this price, the firm would turndown the work. It must get this price. It will generate anormal profit.

2. Hope for price. A firm should get this price more often thannot. It will generate a supernormal profit.

3. Pump fist price. This is an aspiration price, when the firmis adding extraordinary value. It will generate a windfallprofit.


Exhibit 1 Advantages of Value Pricing

■ Value pricing comports with the laws of economicsand consumer psychology, aligning the interests of thefirm with those of the client.

■ It manages, clarifies and offers the firm the ability toexceed the client’s expectations.

■ It prequalifies the client to ensure they are a good fitfor the firm.

■ It provides the opportunity to cross-sell additionalservices.

■ It allows you to gain “ego investment” from the client.

■ It improves communication.

■ It projects confidence and experience, as opposed tobeing unable to inform the client upfront of a price aswith hourly billing; or offering a range of prices,which is done more for the benefit of the firm thanthe client.

■ It increases a client’s switching costs, increasing theirloyalty and long-term profitability.

■ It forces the firm to be effective in project manage-ment and to get the work done within the time prom-ised to the client.

■ It overcomes the client’s pricing emotions and maxi-mizes the firm’s price leverage.

■ It incentivizes the client to complain—through trig-gering the service guarantee—giving the firm a secondchance to win back the client, and prevents similarproblems from happening with other clients in the future.

■ Fixed-price agreement (FPA) prices can be increasedeach year, even if there are no changes in services. It ismuch easier to increase the price of a customized FPArather than increasing your hourly rate by $10 per hour.

■ It provides a competitive differentiation for your firmwhen you offer clients certainty in price and less riskof dealing with you.

■ It specifies conditions for change orders that are usu-ally value-added services that can command a premi-um price.

■ It uses price bundling, allowing the client to focus onthe totality of the firm’s value proposition rather thanthe price of each service.

Many firms use the following nine-box model:Reservation Hope For Pump Fist

Platinum $C $B $A

Gold $N $M $L

Green $Z $Y $X

From this brainstorming session, the pricing council thendetermines at which price the three options will be presented(obviously, not all nine prices are presented to the client). Theupper bound of these prices should be based upon the valuebeing created, yet all will be lower than that value to ensurethe client earns more value than the price they paid.

For example, if you know the client is highly price sensi-tive, you may only present the reservation price for all threeoptions. However, if there are some services that are adding



Price PsychologyPeople tend to buy emotionally and justify intellectually, whichmakes the study of price psychology a worthwhile endeavor.Essentially, price psychology has two characteristics:

1. Price leverage2. Pricing emotions

Price LeverageBefore an engagement begins, the CPA possesses priceleverage because he or she has the knowledge and skills toperform the service the client needs. If the service is per-formed and two to three weeks elapse before the client isbilled, the value of that service is greatly diminished andperhaps even forgotten, often leaving the CPA in the posi-tion of trying to recoup any portion of the price the clientis willing to pay. Accountants who set prices after thework has been performed do not achieve 100% of their“standard hourly rates.”

Pricing EmotionsClients experience three primary pricing emotions at vari-ous times throughout the purchasing cycle:

1. Price resistance2. Price anxiety3. Payment resistancePrice resistance is the proverbial “sticker shock”—an

initial reaction to your price. The best way to overcomethis emotion is by educating your client as to the valueyou provide. Before the consulting firm McKinsey & Co. begins work for a client, it claims it has to provide at leastthree times as much value as the price it charges. If CPAfirms used this approach, they would have to focus onvalue before any work was performed.

Sticker shock is a healthy emotion that reveals a client’sprice sensitivity. Failure to induce sticker shock means youare probably underpricing services.

Price anxiety is also known as buyer’s remorse. Mitigatethis emotion by staying in constant contact with the client.Assure them that they made the right decision in hiringyour firm by managing and exceeding their expectations,and offering total quality service. Offering a 100% moneyback service guarantee dramatically lowers buyer’s remorse.

Payment resistance is the client’s unwillingness to paythe invoice. Overcome payment resistance by involvingthe customer in the design, price, scope and paymentterms of your services. Once committed to a fixed-priceagreement, customers are more likely to act in accordancewith that commitment. This lowers accounts receivable, financing and collection costs, and negative feelings thatresult from slow payment.

Exhibit 2 Questions to Ask the Client

■ What do you expect from us, and how do you see ushelping you address challenges and opportunities?

■ What growth plans do you have?

■ If price were not an issue, what role would you wantus to play in your business?

■ Do you expect capital needs? New financing?

■ Do you anticipate any mergers, purchases, divesti-tures, recapitalizations or reorganizations in the nearfuture?

■ We know you are investing in total quality service, asare we. What are the service standards you would likeus to provide?

■ How important is our service guarantee to you?

■ How important is rapid response on accounting andtax questions? What do you consider rapid response?

■ Why are you changing firms? What did you enjoyabout your former firm? What did you not like aboutyour former firm that you do not want us to repeat?

■ Are you concerned about any of your asset, liability orincome statement accounts to which we should payparticularly close attention?

■ How do you suggest we best learn about your busi-ness so we can relate your operations to the financialinformation and so we can be more proactive in help-ing you maximize your business success?

■ What is your budget for this type of service?

66 Journal of Accountancy June 2009 www.journalofaccountancy.com

marginal value, a hope for price may bequoted for the Gold and Platinum levels.If extraordinary value is being created,quote the pump fist price.

This is where the art of pricing comesinto play. It requires judgment, but themore the pricing council does it, the bet-ter the members will get, since pricing isalso a skill.

Firms that use this model report thatit makes a firm “compete with itself.” Toreceive a pump fist price, the firm mustconjure up ways to add extraordinary

value. This is a worthwhile thought ex-periment that focuses on value, not time.

Many people ask how to ascertainvalue since it’s subjective and there’s noformula. The answer is with a deep un-derstanding of your client’s value drivers,which requires a deep conversation withthe client.

STEP 4Present the options to the client. A mem-ber of the pricing council should attend thispresentation, especially if the partner in


AICPA RESOURCES

JofA article“The Firm of the Future,” Nov. 08, page 68

Publications■ Bill What You’re Worth (#090479)■ The Firm of the Future: A Guide for Accountants, Lawyers, and Other Profes-sional Services, by Paul Dunn and RonaldJ. Baker, John Wiley & Sons Inc., 2003 (#WI264245P0300D)

Webcast“Bill Reeb’s Trusted Business Advisor Webcast: Pricing Your Advisory Work andEngagement Tips” (#TBA90729)

For more information or to place an order,go to www.cpa2biz.com or call the Institute at 888-777-7077.

Private Companies Practice SectionThe Private Companies Practice Section(PCPS) is a voluntary firm membershipsection for CPAs that provides memberfirms with targeted practice managementtools and resources, as well as a strong,collective voice within the CPA profession.Visit the PCPS Firm Practice Center atwww.aicpa.org/PCPS. The PCPS PricingYour Services page has related archivedWeb forums, articles and publications atpcps.aicpa.org/Resources/Fee+Pressure+Pricing.

OTHER RESOURCES

Books■ The Strategy and Tactics of Pricing: AGuide to Growing More Profitably, 4th edi-tion, Thomas T. Nagle and John E. Hogan,Prentice-Hall, 2006■ Pricing on Purpose: Creating and Capturing Value, Ronald J. Baker, JohnWiley & Sons Inc., 2006■ Measure What Matters to Customers:Using Key Predictive Indicators, Ronald J.Baker, John Wiley & Sons Inc., 2006■ Mind Over Matter: Why Intellectual Cap-ital is the Chief Source of Wealth, RonaldJ. Baker, John Wiley & Sons Inc., 2007■ Burying the Billable Hour, Ronald J.Baker, The Association of Chartered Certified Accountants, 2001. Visit www.verasage.com to download a free PDFcopy.

Exhibit 3 20 Questions the Pricing CouncilShould Ask Itself Before Establishinga Price

1. What is the client’s cost of not solving this problem in dollars?

2. What is the economic benefit to the client if they solve the problem?

3. With whom on the organizational chart are we dealing?

4. Who referred this customer to us? Why were we referred in the first place?

5. Do they have any time-sensitive deadlines for the completion of this project? Why do they need to do it now and not in six months?

6. Who’s paying for the service? Are they spending other people’s money?

7. Do we have any competitors? If so, who?

8. What price information do we have about these competitors?

9. How profitable is the client’s company? How long have they been in business?

10. Have they engaged with someone else prior to us to do similar work? Who was the prior firm, and why are they changing?

11. How sophisticated is the client?

12. Does the client add to the firm’s skills or markets?

13. Do we like this client?

14. How do we help reduce the client’s risk?

15. At what price would this be so expensive the client would not considerbuying it?

16. At what price would this be expensive, but the client would most likelystill buy it?

17. At what price does this become inexpensive?

18. At what price does this become so inexpensive the client would questionits value?

19. What price would be the most acceptable price to pay?

20. What costs can we afford to invest in at the target price and still earn an acceptable profit? At what price would we walk away? What price do wedesire?


charge is not a member of the pricing coun-cil or is uncomfortable discussing price.

STEP 5The option selected by the client is thencodified into a fixed-price agreement(FPA). The firm can include as much de-tail as required as to the scope of work,client responsibility to provide informa-tion, timelines for delivery of work, etc.

STEP 6The firm would perform adequate proj-ect management on the scope of work,detailing who will perform the work,timelines for delivery to the client, andother planning details.

STEP 7If the firm finds scope creep while per-forming the work, the client is informed,given the option of how to proceed, anda change order will be issued if the firmis to perform any additional work. This

policy also applies to any new servicesthe firm provides within the year notspecified in the FPA.

STEP 8The U.S. Army has a policy of performingAfter Action Reviews (AAR), which takeplace after every mission. After assistingmany firms in implementing AARs, we areconvinced it is a practice that would havenumerous benefits for firms, especially asit relates to the roles of the CVO and pric-ing council, helping them evolve pricinginto a core competency.

CONCLUSIONThere is nobility in earning what you areworth. Yet if a firm’s leaders do not thinkit creates more value for its clients thanis reflected by hourly billing, clients maynever understand a value proposition be-yond hourly rates.

Hourly billing is a risk-averse andsimplistic tradition that has been taught

for multiple generations. Your firm willbe unable to adopt value pricing if it continues to denominate everything inhours, thus remaining mired in the men-tality that you sell time.

Now is the time to change your con-versations with clients from hours to value.Do this upfront, before you begin anywork. Appoint a CVO and establish a pric-ing council—a group of intellectually cu-rious leaders who will become, over time,experts in creating and capturing value.

Your firm will become obsessed withvalue. Your clients will appreciate it, andthey will not bother asking about hours.I guarantee it. Make your firm one of thepioneers that is blazing the trail for othersby burying the billable hour and pricingon purpose. ❖


For more information on value pricing, view the online version of this article atwww.journalofaccountancy.com. Enter20091530 in the search box.

Ron Baker, Founder VeraSage Institute Pricing for ... Session 5.pdf · 6. Proper Project Management...

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