Value Pricing: What, Why,

When, and How

Joe Woodard Woodard™

About Woodard Our team provides professional

•! Education

•! Coaching •! Resources

•! Community

About Joe Woodard Joe’s Recognitions

•! Top 100 Most Influential People by Accounting Today (2012, 2014, 2015, 2016)

•! Top 40 Under 40 Up and Coming Thought Leaders by CPA Practice Advisor (2008)

Learning Objectives

1.  Learn what value pricing really means and how it is different than fixed fee pricing

2.  Learn the connection between effectiveness, intellectual capital and value

3.  Learn how to develop a personalized action plan to implement value pricing for your practice

Part 1

What is Value

Pricing? Value Pricing !

!"#$%&'()*$+'

,)-+'.)/"'

Understanding Value

Lack of Specific

Knowledge

Limited Expertise

Wrong Types of Clients

Specialization

Results

Focused

VMP Driven

Value

Value

Value Drivers – Up and Down

A business does not exist to be efficient; rather, it exists in order to create wealth for

its customers.

The Wealth Must be Greater than What the Customer is Willing To Pay

The Value of the “Wealth” is Made Only by the Customer

The Value Proposition

$8.50 $8.50

An Industry “Miss”

$375.00 $172.00

An Industry that Understands Value

Wealth for the Client Time

Applying This Principle to Our Profession

“A commodity has a value, because it is a crystallization of social labor. The greatness of its value, or its relative value, depends upon the greater of less amount of that social substance contained in it; that is to say, on the relative mass of labor necessary for its production. The relative values of commodities are, therefore, determined by the respective quantities or amounts of labor, worked up, realized, fixed in them. The correlative quantities of commodities which can be produced in the same time of labor are equal.”

– Karl Marx

Labor Value

The Labor and Value Disconnect

Labor (Cost) Value

Du Pont ROI

The Labor and Value Disconnect

Labor (Effort) Value

Karl Marx

Great Quotes by Ron Baker

“Pearls are valuable not because people dive for them. People dive for them because they are valuable.”

“The job of financial management is not to insist that

prices recover costs. It is to insist that costs are incurred only to make products that can be priced profitably given

their value to customers.”

The Labor and Value Disconnect

The Firm of the Future

Customer’s Increase in

Wealth* Value

*Remember: Wealth is not necessarily (perhaps not even essentially) monetary.

The Labor and Value Disconnect

“No customer in the world buys time, so how can that possibly be what

professionals are selling…it is no longer relevant in an intellectual capital-based

economy.”

Ron Baker & Paul Dunn

Labor and Value Disconnect

Fixed Fee Pricing vs. Value Pricing

CostIncurred % Price

Valuepricingisnotfixedfeepricing.

1.  Determine your cost to deliver a specific service, or a slate of services

2.  Determine the price needed so your firm has a margin

3.  On a regular basis, monitor a. The cost that you incur b. The scope/nature of the services offered

4.  Adjust the fixed fee price to maintain target margin

Fixed Fee Pricing as Cost Plus

WealthGenerated % Price

Fixed Fee Pricing vs. Value Pricing

ValuePricingFormula

Part 2Effectiveness, Intellectual Capital and

Value Pricing

Service Worker vs. Knowledge Worker

Labor Category Professional Category

Service Worker Service Worker

The Wrong Practice Equation

Revenue People Power Efficiency Hourly Rate

Obsession with Efficiency

Production Trumps Knowledge

The Correct Formula

Profitability Intellectual Capital Price Effectivenes

s

Value

Obsession with Intellectual Capital

KnowledgeTrumps Production

The Components of Intellectual Capital•  Human Capital (i.e. Knowledge) is contained within all of the

people in your organization, including contracted resources.

•  Structural Capital is everything that remains when the people have left for the day.

•  Social Capital is: •  Customers (Primary) •  Suppliers •  Vendors •  Networks •  Referral Sources •  Alumni •  Brand/Reputation

The Customer and Value ConnectionFiveSteps…

•  Step 1: Think about how you purchase à Become the customer

•  Step 2: Sell reactions and get those reactions through knowledge (your product)

“Customers will exchange their hard-earned money for only two things: good feelings and solutions to

problems.” - Ron Baker

The Customer and Value ConnectionFiveSteps…

•  Step 3: Always ask the customer, “What do you expect from us?”

•  Step 4: Exceed the customer’s expectations by transforming the customer à The customer is your product.

•  Step 5: Create “Adaptive Capacity” in your firm •  Use it for VIP customers with time sensitive

needs •  Use it to increase your firm’s IQ

Pricing Myth

“A huge thing that’s holding us back in the profession is this big myth that we believe that clients are price sensitive. The reality is that is completely wrong.”

- Mark Wickersham

Pricing Fact

“The reality is clients are value sensitive - and value sensitive and price sensitive are two very different

things.” - Mark Wickersham

Client’s Projected Return on Investment

Value

Value

Client’s Investment

Increased Profits

Scaled Infra-

structure

Work-Life

Harmoni-zation Peace of

Mind ???????

Ultimate Value

“When you understand that accountants change lives, how on earth could you charge for that in 6 minute

units.” - Paul Dunn

Part 3

How to Implement

Value Pricing

Complete the sentence:

Don’t sell me accounting services, sell me _________________.

Implementing Value Pricing: A Primer

Step 1: Discover What Your Client Values (i.e. what will generate wealth for them)

Step 2: Find a Way to Leverage Your Knowledge to Create that Wealth

Step 3: Communicate (and if necessary educate) the Client on the Connection Between Your Knowledge and their Wealth

Step 4: Set the Price According to the Wealth the Client Receives*

Step 5: Connect the Knowledge you Provide the Client to the Wealth You Created for the Client (post-engagement or engagement phase)

*Price is based on a percentage under the wealth you create, not a percentage over the cost you incur.

Implementing Value Pricing: A PrimerA&$6'CD'E#13)@$+'<=/&',)-+'!"#$%&'0/"-$1'F#;$;'*=/&'*#""'7$%$+/&$'*$/"&=':)+'&=$?G'

A&$6'HD'>#%4'/'</I'&)'J$@$+/7$',)-+'K%)*"$47$'&)'!+$/&$'&=/&'<$/"&=''

A&$6'LD'!)??-%#3/&$'F/%4'#:'%$3$11/+I'$4-3/&$G'&=$'!"#$%&')%'&=$'!)%%$3M)%'N$&*$$%',)-+'K%)*"$47$'/%4'&=$#+'<$/"&='

A&$6'OD'A$&'&=$'(+#3$'P33)+4#%7'&)'&=$'<$/"&='&=$'!"#$%&'Q$3$#@$1R'

A&$6'SD'!)%%$3&'&=$'K%)*"$47$'I)-'(+)@#4$'&=$'!"#$%&'&)'&=$'<$/"&=',)-'!+$/&$4':)+'&=$'!"#$%&'F6)1&T$%7/7$?$%&')+'$%7/7$?$%&'6=/1$G'

A&$6'CD'E#13)@$+'<=/&',)-+'!"#$%&'0/"-$1'F#;$;'*=/&'*#""'7$%$+/&$'*$/"&=':)+'&=$?G'

A&$6'HD'>#%4'/'</I'&)'J$@$+/7$',)-+'K%)*"$47$'&)'!+$/&$'&=/&'<$/"&=''

A&$6'LD'!)??-%#3/&$'F/%4'#:'%$3$11/+I'$4-3/&$G'&=$'!"#$%&')%'&=$'!)%%$3M)%'N$&*$$%',)-+'K%)*"$47$'/%4'&=$#+'<$/"&='

A&$6'OD'A$&'&=$'(+#3$'P33)+4#%7'&)'&=$'<$/"&='&=$'!"#$%&'Q$3$#@$1R'

A&$6'SD'!)%%$3&'&=$'K%)*"$47$'I)-'(+)@#4$'&=$'!"#$%&'&)'&=$'<$/"&=',)-'!+$/&$4':)+'&=$'!"#$%&'F6)1&T$%7/7$?$%&')+'$%7/7$?$%&'6=/1$G'

E)'P""'):'&=#1'U%4$+'/'>#9$4'>$$'V%7/7$?$%&;''

One Slide Synopsis of Value PricingA business does not exist to be efficient; rather, it exists in order to create wealth for its customers.

The Wealth Must be Greater than What the Customer is Willing To Pay

The Value of the “Wealth” is Made Only by the Customer

Our Core Value Proposition

We Speak the

Language

Thank You for Attending!

Joe Woodard

Woodard.com @joewoodard