While I was attending the Business Solutions Conference in Illinois and visiting with vendors I heard the term “value pricing”. A vendor, providing bookkeeping service, was providing the service at a fixed price on a monthly basis and calling it “value pricing”. Although I wasn’t calling it “value pricing”, I was offering it through my fixed price services. This got me thinking about value pricing.
Value pricing is providing a specific service at a fixed price for a specific type of client. This allows the business owner to be able to budget for the service. Traditional CPA firms and firms providing outsourced CFO services usually offer their services based on fee pricing. The fee is based upon the number of hours worked by a standard hourly rate (usually $200 per hour or more).
Not all services can be value priced. There are services that are project based and the number of hours required to do the work can vary by project.
As the founder of CFO 4 Small Biz TM, I provide services that are value priced and some that are fee based. As an example, I offer a financial management service (Silver, Gold, and Platinum) at a fixed fee price. I offer other services, such as a software implementation, on an hourly fee basis.
To offer value pricing it is necessary that:
- The service being offered is to a specific type of client.
As an example, I offer my “Silver Service” for the smaller, less complex, companies. The Silver Service is for companies that do not have a complex structure such as multiple locations, more than four cost centers / departments, multiple types of businesses, allocations, or consolidation. This type of company would typically have revenues less than $5 million per year.
- The service is specifically defined.
As an example, my Silver Service is available monthly or quarterly and includes:
- Generation of financial reporting package including Income Statement, Balance Sheet, Statement of Cash Flows, and Financial Ratio’s. Financial reports include comparison to budget and variance analysis and relevant charts.
- Rolling forecast
- On-line conference to discuss results
- Preparation of annual budget & strategic planning (separate fee)
- “On Call” access (Silver level)
- The work can be performed efficiently.
Today’s technology provides the opportunity to get work done efficiently. As an example, I am certified in third party software, that I own, that will import the chart of account and balance data directly from Quickbooks or from any other software that can export to Microsoft Excel. With this software I can perform financial reporting, budgeting, and rolling forecasting. My knowledge of this software allows me to be efficient in getting the work done while providing high value to my clients.
Also, technology can be used to perform the work remotely either through VPN or uploading the database. Using video conferencing (Citrix or “Go to Meeting”) can make the meetings much more efficient and allows more flexible scheduling.
By defining the type of client, the specific work to be performed, and using technology to perform the work, I value price my services offered. I offer my Silver Service for the less complex companies; for the more complex companies I offer two value priced options – my Gold Service and my Platinum Service.
Value pricing takes the guess work out of what the service will cost and allows the client to budget for the service. It is a fixed price that offers tremendous value through the use of technology.
One caveat, it is very important for the provider of the service to accurately estimate the amount of time it will take to perform the work.
Dave Mayo, CPA, CGMA
Founder & Partner
CFO 4 Small BizTM