How would you recommend to switch from fixed/hourly rates to Value Pricing?
On what variables would you base a rate increase?
Value to the customer, number of transactions, number of accounts, percentage of gross sales, scope of work, percentage of net sales, friction?
There are many articles about the subject of Value pricing but I don't understand how to implement it and also make sure my team and I will still be profitable.
Are you just implementing a price increase or are you looking at each customer and the value you provide?
Value pricing doesn’t take into consideration any of those variables. Creating packages and options, yes, but not true value pricing.
How does using one of the above variables ensure your profitability?
For example, let’s say you have 2 customers and both have $1M in gross sales.
Customer 1 has thousands of PayPal transactions to achieve $1M in revenue.
Customer 2 has 5 customers who they ACH each month and earn $1M.
So, which customer “needs” you more?
And which customer “values” you more?
Which customer is more complex, thereby, more “time consuming”?
Would you charge both of them the same “price” strictly based on Revenue?
No, it’s a customer by customer situation.
Value pricing is subjective – part science, part art, part intuition, part what are you willing to do the work for. There is no way to just do a mathematical calculation and have it give you the right answer. What if you quoted a price based on revenue, say $1K per month, or a % of revenue? What if you really understood the value you provided, how the customer values it and they were actually willing to pay $3k?
In order to make Value pricing work you have to perfect your introductory skills so that you can set the right price at the beginning of your relationship with the client.
Sometimes, it’s NOT apparent until you’ve had a relationship for a period of time. What happens, then though, is you’ve pigeon-holed yourself. You’ve established a base-line that you can’t move past. So, yes, knowing up front as much as you possibly can is imperative. Still, it’s guaranteed that “unknown’s” will pop up.
This answer was written by Michele Riffe.
Michele is a pricing and profit strategist who helps bookkeepers & accountants reach a half a million dollars with little overhead & minimal staff.