I didn’t say that. Ed Kless of Sage US says it in this podcast about value pricing. Ed’s a Fellow at Verasage. Ed’s session was totally interactive with no PowerPoint. A lot of people resist value pricing, preferring instead to stick with the billable hour. I really liked the questions that framed Ed’s session because the answer to each challenges the way that business is done.
Among other things, Ed notes that the billable hour comes from Karl Marx’s labour theory of value. And as we know, that system of economics has been totally discredited. The main message is that price does not come from cost. Ed uses the example of Starbucks where you’ll pay £2.59 (or thereabouts) but where the cost is 15-20p. They can get their price because there is a perceived value for which millions of people are prepared to pay.
The key to getting this right is to offer options. So for example, what level of tax service do you want to offer? OK – so many professionals have a lot of compliance work. In this case, you can still offer options but you can also adopt a factory production approach which should allow you to still calculate a value based price. You can review client pricing on the basis of factors like credit taken and timeliness in information delivery.
An interesting aspect of Ed’s discussion is how you compensate your people. Apart from a base salary, Ed suggests there should be reward for learning because we’re knowledge workers and reward based on the profit of the firm as a whole because we’re all contributing. Sounds good to me.
Does Sage provide this kind of talk to its professional partners in the UK? If so then I’ve not heard of it.
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