The Pricing Dilemma – What’s your Approach?

  • Posted by Judy Reynolds 18 Mar
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The Pricing Dilemma – What’s your Approach?

Time?  Commission?  Schedule of Costs?  Or Value Pricing?

Which one?  Professional service businesses who have embraced value pricing have seen impressive increases in productivity and profit.  So why is the take up so slow?

Here is some food for thought…

For those who have invested many years perfecting their craft and invested significantly in improving efficiency, in people, IT, systems and learning… time based billing does not always reflect the real value transferred.

Pablo Picasso:

One day a woman spotted Pablo Picasso in the market and pulled out a piece of paper.  “Mr Picasso”, she said excitedly, “I’m a big fan.  Please could you do a little drawing for me?”  Picasso happily complied and quickly etched out a piece of art for her on the paper provided.  He smiled as he handed it back to her and said, “That will be one million dollars.” “But Mr Picasso”, the flustered woman replied, “It only took you 30 seconds to do this little masterpiece.”  “My good woman,” Mr Picasso laughed, “It took me 30 years to do that masterpiece in 30 seconds”.

Read this daily!

Remember the first sale is to YOURSELF – YOU must firstly believe that the value transfer is fair and balanced – that price = value.

A significant shift in thinking is required to accommodate the value pricing model, when historically you have billed based on the time taken to do the job, a schedule of costs, or on a commissioned based calculation.

Only then will you be able to confidentially articulate the value to your clients.

The point of reference is no longer the input based pricing but the clients’ outcome based value.  Price is justified by the value added to the client NOT the number of hours it takes to do the job.

Value pricing is all about:

  • You valuing you and the intellectual capabilities of your business;
  • Realising that you do not sell time – you sell knowledge;
  • Making the invisible, visible – tell your clients what you will do, and what value you will add and tell them again;
  • Finding the value in everything you do from your clients’ perspective – it is there it just needs to be unbundled;
  • Articulating the value to your clients – they won’t understand if you don’t explain it; and
  • Being confident and believing in yourself.

Consider this:– it is not up to you to set the price – it is up to your market.  If there are no objections – your price is too low – continually test the market until you establish the real value.

Share these concepts with your team – they must be on the same value-pricing page as you are.  What I have found is, it is the team who more readily embrace value pricing and they will keep you accountable!

It is not rocket science.  It makes financial sense both to the client and the business.  And as part of the process of pricing up front, value pricing reduces WIP and Debtor days, delivers a more stream lined billing process and so much more.

At Opening Gates we examine the benefits, myths and challenges of value pricing with business owners and their team, and kick start the implementation process in our BUSINESS by DESIGN Program.  How successfully do you and your team implement value pricing?

 

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