Ask VeraSage: Advice to a Value Pricing Champion

Jun 24

I met Len Pepe back in 1997 when he was a partner at BDO. Len took to the Value Pricing message like a fish to water, even providing a blurb for the very first edition of my Value Pricing book.We reconnected recently, and Len has moved to another firm in Boston: CCR LLP. We've been exchanging emails on his attempt to implement Value Pricing in the firm.Most firms have an internal champion that is incredibly enthusiastic about VP, and it's not always a partner (although Len is).We understand how hard it is to transition to VP—I like to say the concept is revolutionary but the implementation is evolutionary.Len recently sent me the following email:

Ron,Tomorrow I have my Alternative Billing Arrangements Task Force meeting and then I have to report to the Equity Partners.Do you have any words of wisdom as to:

Other CPA firms that this has worked successfully for in this area— as I know how well it works for Law firms (Jay Shepherd and Chris Marston).
Do you run a simultaneous time system to see where you are with profitability for the na-sayers?
Will it work as well for audit departments as it would for tax departments?

Any insight is appreciated—it's coming down to putting up or shutting up for me.Thanks my friend,Len

Here's my reply:

Hi Len,Here's some Words of Wisdom guided by experience:If the firm is serious about making pricing a core competency (this is what we mean by Pricing on Purpose), appoint a Value Council and a Chief Value Officer (CVO).Don't call it "Alternative Billing," as billing is always done in arrears, after the work has been performed.Instead, call it Fixed Pricing (with the client anyway, hence the Fixed Price Agreement term), because pricing is done upfront, before the work begins.There are literally thousands of firms that have successfully implemented Value Pricing, some of their stories you can find on VeraSage under "Trailblazers."There's a top 100 accounting firm that has also appointed a Pricing Panel and a CVO and has about one-third of its revenue under VP (but it hasn't gotten rid of timesheets—yet). There are also law firms, advertising agencies, IT and consulting firms where VP is being used.You can access an article I wrote for the Journal of Accountancy article profiles four Firms of the Future:You can also access an article I wrote for the Journal of Accountancy on Pricing on Purpose, which also includes 11 Exhibits firms can use to aid implementation.A simultaneous time system is almost inevitable, because very few firms have trashed timesheets before, or at the same time as, implementing VP.But between you and me, I do believe trashing timesheets is the only thing that will make a firm better at pricing. As long as timesheets exist, we look back to time to measure price—precisely what we are trying to get away from.VP will work in any department. In fact, it's not department-dependent; it is customer-dependent.I don't think a firm should allow different pricing based on departments, especially if the customer experiences more than one service. Imagine being billed by the hour for one thing, and given a fixed price for another.We are doing VP for the benefit of the customer (to give them certainty, a "no surprises" rule), and thus that experience is created one customer at a time, not one department at a time.Although VP is revolutionary, its implementation is evolutionary—one customer at a time. We always suggest to firms that are serious, but are not ready for a value council and/or CVO to do all of its pricing, the following steps:

Each partner do five Fixed Price Agreements over some time period (one to three months)
No partner gets to price their own work. You have to bounce every price off someone else. I'm a wimp when it comes to pricing my services, but I'm brave as a lion when pricing Len's because I know how much value Len creates and I hate to see him give it away.
Be vigilant about scope creep and using Change Orders. It's very rare that any but the simplest engagement is not going to have scope creep. When it happens, you must discuss with the client, and agree upon the price.
The Golden Rule is: No surprises to the client. In fact, many firms offer a price guarantee: if the client ever receives an invoice that was not agreed upfront, they don't have to pay. This forces us to price everything, no exceptions, before we do the work.
Perform an autopsy (After Action Review) on every FPA done, using the questions from the JofA article above (in one of the Exhibits).

Does that help?Good luck Len!Ron