Setting Price at a Professional Firm

by Michelle GoldenSenior Fellow, VeraSage Institute

TODAY

• Why you should set 3 prices not just 1

• How to develop pricing as a core competency within your firm

• How to scope complex jobs and use change requests

Understand the Buyer

Most pricing mistakes result in underpricing

not overpricing.

The 5 Cs of Value 1.   Comprehend  customers’  key  value  drivers  

2.   Create  value  for  customers  

3.   Communicate  that  value  

4.   Convince  customers  they  should  demand  (and  pay  for)  value  

5.   Capture  value  in  your  pricing  strategies  

Image: oregongirl (flickr)

Charles  Revson,    Revlon’s  Founder  

What people really buy….

“When  it  leaves  the  factory,    it’s  lips?ck.    

But  when  it  crosses  the  counter  in  the  department  store,    

it’s  hope.”  

Peter Drucker

“The  customer  never    buys  a  product.  

By  defini?on,  the  customer  buys  the  sa?sfac?on  of  a  want.    He  buys  value.”  

Customer  Segmenta?on  by  Value  

Value  of  Differen<a<on  

Pain  of  P

rice  

Low

Price Buyers

High

Convenience Buyers

Relationship Buyers

Value Buyers

High

Purchase Risks Performance  Risk  Won’t  func?on/solve  as  intended  

Financial  Risk  Monetary  loss  if  product  fails    (services  higher  risk  than  products)  

Time  Loss  Risk  Customer’s  ?me  due  to  failure  

Opportunity  Risk  Choosing  one  product  over  another  

Purchase Risks

Psychological/Social  Risk  Purchase  won’t  fit  customer’s  self-­‐concept.  (Restaurants,  cars,  stylists,  cosme?c  surgery,  etc.)  

Physical  Risk  Chance  purchase  will  cause  physical  harm  (medical  care,  Michelin  ?re  ads)  

Value Creation & Capture

Value captured

Value created

Price

Customer’s Profit

Costs

Intangible Value •  Specialist  exper?se/knowledge  •  Unique  social  capital  •  Brand/reputa?on  •  Unique  result:  crea?vity  &  innova?on  •  Reducing  risk  •  Excellent  experience  •  Making  customer  “look  good”  •  Rela?onship  •  What  else?  

34 Sources of Tangible Value

ORGANIZING & PRESENTING YOUR PRICES

(video clip)

SCOPE

COST TIME

QUALITY

The Triangle of Truth

8 Steps to Pricing on Purpose ①  Conversa?on  with  customer  ②  Present  to  value  council  ③  Value  council  ques?ons,    

develops  op?ons  ④  Present  op?ons  to  customer  ⑤  Op?on  selected  is  codified  

 into  an  FPA  ⑥  Proper  project  management  ⑦  Any  scope  creep,  use  change  

 requests  ⑧  Perform  AWer  Ac?on  Reviews  

Step 1: Conversation

• Listen > Talk • Focus on wants, needs and value

Opening: “Chris, we will only undertake this

engagement if we can mutually agree that the value we are creating is greater than the price we are charging you. Is that acceptable?”

Steps 2/3: Value Council 1)  Learn the customer

–  20 Questions Answered 2)  Establish internal prices 3)  Establish options

–  Generic customer segmentation strategies

–  American Express Models –  Five Ts for offering options –  Chris’s Concentric Circles

Image: cefeida (flickr)

Image: ginable (flickr)

Step 5: FPA = Scope Doc •  Objec?ves,  deliverables  •  Constraints,  assump?ons  •  Project  structure,  ?meline  &  milestones  •  Scope  details,  func?onal  requirements  •  Roles  &  team  defini?ons    (detail  customer’s  responsibili?es  too)  

•  Establish  parameters  for  change  request    (aka  project  change  control)  

•  Future  projects  list  (i.e.  what  is  NOT  included)  •  Approval  

Steps 6,7 & 8: Part of Work! •  Project  management  developing  a  core  competency  

•  Scope  creep  management  crea?ng  processes,  providing  training  

•  AWer  Ac?on  Reviews  if  we  don’t  act  differently  based  on  our  learnings,  we  miss  the  opportunity  to    improve  quality,  profitability,  everything…  

McKinsey: 1% Improvement

Review •  Turn  pricing  into  a  core  competency  •  Appoint  a  Value  Council  and/or  CVO  •  Develop  project  management  skills  •  Maintain  minimum  prices,  offer  op?ons  •  Price  EVERYTHING  up-­‐front,  use  phasing  •  Employ  Change  Requests  •  Don’t  treat  all  buyers  equally  •  Don’t  use  “?me”  as  your  basis  for  pricing,    instead,  align  w/customer  objec?ves  (KPIs)  

•  Learn  from  your  AARs  for  con?nuous  improvement  

michelle@goldenpractices.com goldenpracticesinc.com goldenpractices.com (blog) @michellegolden (twitter)