Really? Value Pricing doesn’t make the case for profitability?

The first letter to the editor, in response to the November 2008 article—The Firm of the Future—has now been published in the March 2009 issue of the Journal of Accountancy, along with my reply.

The letter is from Lawrence W. Schwartz, CPA, MBA, CVA, of Fairfax, Virginia. Here’s part of what he writes:

For several years our firm (preceding our combination with another firm) carefully set “fixed” prices based on several factors, among them client hand-holding expectations, transaction volume and complexity, and intellectual capital requirements. Clients continually expected more for less, making scope creep (despite “change orders”) a consistent obstacle to the development of client-firm value congruence. This led to the continuation of unprofitable, sometimes unnecessarily risky, client relationships, and often for the wrong reasons. We were, thankfully, profitable but not nearly at levels we could have achieved using more traditional (and, admittedly, more carefully tracked) value and productivity measurements.

Change is good, and looking at things differently is a useful exercise…Unfortunately, the article failed to make the case for profitability.

You can read my reply, but I feel I left off a very important point (isn’t that always the case; you come up with the perfect retort long after your initial response).

Schwartz seems to be arguing that the profitability of Value Pricing has not been proven, based on his firm’s poor track record in implementation (does anyone really, really, believe they were doing Change Orders for all scope creep?).

But his argument belies logic. Hourly billing automatically puts a ceiling on a firm’s profitability, period.

And most firms don’t even reach this artificial ceiling, hence the realization rates of between 65 and 95 percent, depending on the size of firm.

Value Pricing inverts this ceiling into a floor. If done right, it will certainly lead to more profitability.

To argue otherwise displays a misunderstanding of the economics of value and pricing, and of logic itself.


  1. Nice try Larry. But if you don’t think Value Pricing is more profitable, than you are ignoring a ton of empirical evidence, some of which is available on this very Web site.

    Pricing is the number one driver of profit in any business, as multiple studies have proven, which is why the Fortune 500 now have professional pricers.

    We don’t advocate “value billing” as that is done after the work has been done, whereas value pricing is ALWAYS done up-front.

    MAP studies for decades have shown average realization rates of 65-95% of standard rates. If firms really did value price, why are they writing down more than they are writing up?

    Find the cause of those write-offs, and you are well on your way to discovering Value Pricing.

Speak Your Mind


Time limit is exhausted. Please reload CAPTCHA.