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
Any other suggestions for a quick-start to VP for Len would be greatly appreciated.
Two weeks ago, in a post entitled, What I Believe, I put forward a declaration. It went thusly:
I believe in challenging the status quo. The way I challenge the status quo is helping professionals change their business model from a focus on service to a focus on knowledge. It happens to be a better model. Are you interested in changing?
In the fortnight since that post, I have been tweaking it in my mind and I am please to put forward this updated declaration.
I believe that small business is where the vast majority of the wealth of the world is created. I help small professional businesses recognize that they do this through developing and sharing their knowledge. It is a great model. Do you want to know more?
I am curious as to what your thoughts are about this. Did any of you make a declaration? If so, are you willing to share it below? What are your thoughts on my declarations? Do you think the second is an improvement?
I have read most of Seth Godin’s books and am an occasionally reader of his blog. On June 9, 2010, in a post entitled Hourly work vs. linchpin work, he wrote the following:
You should pay people by the hour when there are available substitutes. When you rely on freelancers you can put a value on their time based on what the market is paying. If there are six podiatrists in town, and all can heal your foot, the going rate is based on their time and effort, not on the lifetime use of your foot.
There is no other way to say it, this is just plain wrong.
Once again, a really smart person has fallen prey to Marx’ Labor Theory of Value. Effort does not have value, results do. The value of a podiatrists healing your foot is based on the lifetime use of your foot. This does not mean that the price is solely based on that lifetime value.
All value is subjective, not objective. Assuming a free market for this service (laughable considering it is healthcare), the “going rate” is not based on the time and effort of the doctor, but what a patient is willing to pay the doctor, period. Increased supply does bring price down, but not because any change in time and effort.
This has nothing to do with Pricing on Purpose, but I since we have quite and international following some of you might enjoy it. Others will want to take me on, so please do so.
Too low scoring. As a baseball fan I do enjoy the occasional pitcher’s duel, but most Major League games average over 4 runs per team per game. With soccer it is ridiculous, it is always a defensive battle. The solution is three balls in play at the same time. Better two white balls and one red ball, with the red worth three points instead of one! Not only will this increase the scoring, but it will increase the number of breaks in the game, this will allow more beer commercials to be shown.
Too many ties. North Americans do not like vaguery, we want a clear winner and loser especially in a once every four years competition. It really get crazy in the bracket rounds of the World Cup when after a brief overtime, they go to penalty kicks. This would be like a baseball game ending in a tie after 12 innings and then deciding the winner by playing home run derby. Nonsense! I would like to see them keep playing until they fall down from exhaustion except for the goalies. How cool would that be? Goalie on goalie until one of the scores! Of course, adoption my three ball proposal would also help reduce the number of ties.
The clock is not the clock. Again, this is a problem with vaguery. I mean really, only the referee knows when the game is going to actually end. I know they have added the approximate extra time, but still, it is way too arbitrary. Technology must exist to allow the referee to add this time exactly onto the clock. Oh, by the way, the time runs in the wrong direction. We want it to count down, not up. This ain’t track and field!
This one is specific to this World Cup - vuvuzelas. Sorry, they are worse then the insidious thundersticks that occasionally make their way into various North American events. The worst offense being the 2002 World Series between the Los Angeles Angels of Anaheim and the San Francisco Giants. There has got to be a way to filter this sound out of the feeds.
One of the key devices I use as a consultant is something I call the “Help me understand” question. I use this when there is an apparent contradiction between two statements or behaviors of a person.
The structure is this: Help me understand how A (one behavior or statement) is in alignment with B (the other behavior or statement)?
For example: Help me understand how letting one of your best people get away from your organization is in alignment with your company’s stated goal of attracting and retaining great people?
Sometimes this leads me to some very good insight and a much deeper understanding of the issues. Very often, I am convinced that A and B are, in fact, in alignment and that what was lacking was my deeper understanding.
Other times however, the person I am working with is unable to reconcile the dissonance and adjusts their behavior or statement accordingly.
Still other times I receive no feedback from the question, especially if I pose it in email. I can only assume that they make no adjustment and go on living a contradiction.
I have been wanting to write this post for over a week.
While the video below is nothing new, it does a great job of explaining and relating concepts I have known to be true.
It has inspired me to make this declaration.
I believe in challenging the status quo. The way I challenge the status quo is helping professionals change their business model from a focus on service to a focus on knowledge. It happens to be a better model. Are you interested in changing?
Please feel free to make your declaration below in the comments.
This has nothing to do with Pricing on Purpose, but I since we have quite and international following some of you might enjoy it. Others will want to take me on, so please do so.
Sometimes this leads me to some very good insight and a much deeper understanding of the issues. Very often, I am convinced that A and B are, in fact, in alignment and that what was lacking was my deeper understanding. 
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