Chris Foster from Green Taylor Partners in Australia sent me the following E-mail today, recounting a Value Pricing success story.
I have really taken on board your value pricing concepts and am trying to indoctrinate the team.
Yesterday we had a team meeting and I raised two client issues:
- Client where we had opportunity to have some $21,000 in late payment/lodgement penalties with tax office totally
- Client where our review of previous years tax returns (back to 1988) prepared by prior accountants revealed that we
potentially could create tax refunds of some $110,000 being taxes overpaid.
I asked the team one at a time what we should charge based on the value that we could potentially create.
The ranges were as follows:
- $500 to $5,000. I personally thought $2,000. A team member relatively new to our team sold the work to the client for
$5,000! You could really see his self esteem rise because of the success. I think the team also shared in that success.
Our cost of this according to our costing system—$200! (What we would have charged prior to value pricing!)
- $5,000 to $30,000. I personally thought $20,000. I believe that to be selling the value of the project—i.e., $110,000 tax saved,
cost of doing 20 years returns approximately $80,000 then asking what they felt they should pay that $30,000 should be
achievable. Need to present to them tomorrow so will be interested in the outcome.
Our cost of this project—$6,000!
It was interesting to note that the wide variation on value suggested by the team confirmed that some are stars, some are ok and some are wimps! The team member who suggested the highest value was the one I least expected!
So thanks again in being the catalyst for change forever in our firm!
More evidence that knowing your costs is nowhere near as important as knowing the value of what you’re doing for the customer.
Focus on the value and let that drive the price, then decide if you can invest in the costs necessary to perform the engagement at an acceptable profit. Notice how you do the cost accounting BEFORE doing the work, not after, as with timesheets. Get better at determining value, and more skilled at setting a price commensurate with that value, and timesheets are simply superfluous.
Thanks for sharing your story, Chris. We applaud you, and know you’ll keep up the good work!