Post on 09-Nov-2018
transcript
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
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
“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
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
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
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
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.
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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