{"id":56682,"date":"2019-01-23t12:00:53","date_gmt":"2019-01-23t17:00:53","guid":{"rendered":"https:\/\/48e130086c.nxcli.net\/?p=56682"},"modified":"2024-08-14t09:30:22","modified_gmt":"2024-08-14t13:30:22","slug":"value-pricers-ignore-half-the-pricing-puzzle","status":"publish","type":"post","link":"\/\/www.g005e.com\/2019\/01\/23\/value-pricers-ignore-half-the-pricing-puzzle\/","title":{"rendered":"value pricers ignore half the pricing puzzle"},"content":{"rendered":"
profits.<\/strong><\/p>\n by frank stitely<\/em> the best thing about value pricing is that you can succeed with just one piece of information \u2013 the value of your services to clients. you can toss your time sheets or any other cost tracking.<\/p>\n more stitely:\u00a0<\/strong>beware the leeches and consultants<\/a> | 2 lessons clients taught me<\/a> | no consultant can solve your biggest problem<\/a> | the great marketing hoax<\/a> | what the value-pricers get wrong<\/a> | 3 rules for asking great tax-return questions<\/a><\/p>\n <\/span><\/p>\n exclusively for pro members.\u00a0log in here<\/a>\u00a0or\u00a02022世界杯足球排名 today<\/a>.<\/span><\/p>\n<\/blockquote>\n the income statement for a value-pricing cpa firm consists just of revenue \u2013 no expenses. expenses are irrelevant when we have forward-looking metrics such as client and employee satisfaction.<\/p>\n let\u2019s have a little fun with the core tenet of value pricing. you only need know the value of your services to a client. you can ignore the cost of providing the services.<\/p>\n let\u2019s assume that our value to our prospective client, sharon, is $20,000 per year.<\/p>\n value pricing theory holds that we can price our engagement with sharon up to the value of the services we will provide. if we leave some value in the engagement for sharon, she will accept the engagement as she profits more from accepting the engagement than from turning it down. because i\u2019m a nice guy, i\u2019ll charge $19,999.99. that leaves a penny for sharon. she still makes a profit on the deal, so she\u2019ll jump all over this.<\/p>\n because you\u2019re sitting here patiently, we\u2019ll let you play and make a proposal to sharon. we are going to give you one little piece of information. this service will only cost $1,000 to provide. you have a service worth $20,000 to the client that will cost you only $1,000 to provide. what\u2019s your bid to sharon?<\/p>\n because you know my bid was $19,999.99, you could safely bid $19,000 knowing you will get the business. somewhere a value pricing consultant reading this is having a convulsion waiting to tell me, \u201cbut frank, how would someone know what another cpa has proposed?\u201d<\/p>\n this is how you know these consultants don\u2019t work in cpa firms. all you do is ask sharon about my proposal. she\u2019s dying to tell you. she\u2019ll tell you\u00a0my bid was $15,000. maybe you lower your bid to $15,000 or maybe you stick with $19,000. you\u2019re still going to win the business.<\/p>\n then sheri comes along and bids $14,000 for sharon. now you lose. think about this. you lost a really profitable job, because you got greedy. sheri was just slightly less greedy. she wins \u2013 at least until john comes along and bids $10,000. and so forth. same as it ever was.<\/p>\n the value pricing dudes will tell you that we\u2019re all just racing to the bottom. economists would tell us that we\u2019re racing to a market equilibrium in which demand intersects with supply. in a market flush with firms hungry for business, the price will settle somewhere above cost, where a reasonable rate of return is achieved. i\u2019m betting on about $3,000. doesn\u2019t this example look a lot like the market for corporate tax preparation?<\/p>\n let\u2019s change our example just a little. now, assume that our cost is $19,000, instead of $1,000. what\u2019s your bid to sharon? you might not even make one. if you\u2019re off just a little bit on your cost estimate, that $1,000 profit will be gone, and you could lose money.<\/p>\n let\u2019s do a third example. let\u2019s assume my cost to provide the service is $16,000 and your cost is $12,000. do you think that gives you a bidding advantage? of course it does.<\/p>\n cost matters. the only variable in our example was cost. cost drives outcomes every bit as much as client demand. that\u2019s why income statements have revenues and expenses. value pricers ignore half the pricing puzzle.<\/p>\n they\u2019re great on the demand curve, but ignore the supply curve altogether.<\/p>\n in the above example, we didn\u2019t even question the $20,000 value amount. let\u2019s come back to that and look at how that number was developed. let\u2019s start with a simple example. let\u2019s determine the value to a client of a basic 1040.<\/p>\n what is the value of a properly completed individual tax return to a client? think about how you might develop a method to compute this. the value pricing people tell you to look at the thousands of tax dollars you are saving for the client. compared to what? an incorrectly prepared 1040?<\/p>\n what level of incompetence are we to assume in making this calculation? are we talking about a preparer who takes his shoes off to calculate the standard deduction? are we talking a preparer who doesn\u2019t know about itemizing deductions?<\/p>\n the real way to determine the value to a client is to examine the additional value any particular preparer brings versus the average preparer. if you\u2019re an above-average preparer who saves a significant amount for clients more than the average preparer, you should get some of the incremental benefit.<\/p>\n this approach has a couple of hurdles to overcome. first, let\u2019s consider the concept of the average preparer. obviously, none of us is average. we are in the top 10 percent of the profession. if you surveyed cpa firms across the country, how many would rate themselves as average? i\u2019m guessing none, except for the maybe one guy with pathological honesty. however, on average the average cpa is, well, average. so industrywide, how solid is the foundation for the calculation of incremental benefit over the average preparer?<\/p>\n second, let\u2019s assume someone really is above average. how does she convey that effectively to prospective clients?<\/p>\n \u201clookie, lookie, lookie me. i\u2019m the bestest cpa in the world!\u201d<\/p>\n you can hate that wording, but every assertion about being above average really boils down to some version of that line. to which the guy down the street responds, \u201cshe sucks. her clients get irs letters. i\u2019m the bestest cpa in the world!\u201d<\/p>\n whom does the client believe? the cpa proposing the lowest cost. because clients can\u2019t accurately assess the quality of a cpa, they buy on price, which they believe they can accurately assess. they can\u2019t accurately assess price, but they think they can, and that\u2019s what really matters.<\/p>\n","protected":false},"excerpt":{"rendered":"
\nthe relentless cpa<\/a><\/em><\/p>\n