As the terrain of business and enterprise grows and morphs, firm owners have to adapt to the current and future changes. In this week’s show, we had Ron Baker back on to talk about how Value Pricing will have to change, as well.
If you don’t know Ron, do yourself a favor and get familiar with his work by listening to his podcast and reading some of his books. You can also go back and listen to Ron’s previous interview on this show, which we’ve included in the resources section below. Our last interview with him is the most popular interview we’ve done!
In this week’s show, Ron introduces us to what he calls Value Pricing 2.0. But what is it? What has changed from the revolutionary concept of Value Pricing that has put Ron Baker on the map for so many people? Let’s jump into the highlights!
- The history of pricing models in accounting
- Why the industry is moving toward value-based pricing and why it’s better
- How value-based pricing has changed since Ron’s last interview
- And MUCH more
- Find Ron Online
- Ron’s Podcast
- The Book Based on the Podcast
- Ron’s Twitter
- Ron’s Goodreads
- Our Previous Interview with Ron
- The Book Subscribed
A Super-Short History of Past Pricing Models
As Ron briefly summarizes in the show, there are various pricing styles accountants and accounting firms have used in past years.
The first, and earliest, is the classic strategy of Hourly Billing. Within this model, you charge a client for the time you spent on something. Ron calls this pricing the input.
From Hourly Billing, we get the timesheets and all their hassle. It’s little wonder why many firms have tried in recent years to move away from an Hourly Billing model.
Next, we have Fixed Prices. Simply put, you take a service, be it one-time or something that’s recurring monthly, quarterly, or yearly, and you put a flat-rate price tag to it.
So an audit costs your client a certain amount. Payroll has a specific price. Any other service can be added to the package, but it has a fixed price associated with it.
Finally, we come to what, until recently, has been considered the latest and highest pricing strategy: Ron Baker’s own Value Pricing model.
With the classic model, now called Value Pricing 1.0, you charge a client for desired outcomes. Do you want something done? Do you want something handled? Taken care of? You pay for results and peace of mind.
Now, Ron Baker has come to us with an updated version of Value Pricing, a model that flips everything on his head. As Ron says in the interview, “This scares me.”
What is Value Pricing 2.0 all about, and why is it so “scary”?
Value Pricing 2.0 Explained
As Ron explains in the interview, when a business model changes, two things also have to change. One is the pricing strategy, because the old strategy may not make sense anymore, and the second is the way the company measures itself internally.
For example, Airbnb will have very different internal metrics than Marriott, Uber will measure things very differently from a taxi company.
So, as our business grows and develops, we have to rethink these two things. Value Pricing 2.0 does just that.
Value Pricing 2.0 prices the relationship between firm and client.
What does that mean?
Ron explains it in terms of a subscription service. We pay Netflix, for example, to have access to their library of movies and series. As long as we still get value out of Netflix, we’re happy to continue paying that subscription fee every month.
Think, too, of Amazon Prime. We pay that monthly subscription fee, and new features are constantly being added. The fee doesn’t automatically go up. The pot is just sweetened, so much so that we can’t imagine living without access to all the Prime goodies.
In much the same way, firms can become the go-to solution to an entire bundle of problems.
Instead of charging for specific service packages (which is basically the Fixed Price model), firms can charge a monthly or quarterly subscription fee to become their go-to accounting service, all included.
We have to move away from thinking in terms of service packages and hours spent and sectioned-off departments within a single firm, Ron explains. Instead, we need to think of ourselves as “one firm,” the single solution to a variety of needs.
The client pays a regular subscription for access to you, the accounting expert. Some months, they won’t need you very much. You’ll be doing only perfunctory things, like payroll. But, on other months, the client may be audited, and you step in and take care of that because that’s what the client has been paying for all along.
With this pricing model, you’re charging the client for an ongoing relationship, which becomes naturally more valuable the longer they work with you because you come to better understand their needs and personality.
The client is paying for your expertise. They’re paying for access, not a simple list of services.
The Subscription Model is Taking Over
It’s easy to see how subscription models are taking over so many aspects of our lives. It’s a trend that isn’t slowing down anytime soon.
We already talked about entertainment packages, such as Netflix. Many households pay for multiple subscriptions each month, so they maintain access to several massive libraries of content. We’re not just talking about movies, either. As was brought out in the show, many subscribe to Kindle Unlimited, a Netflix for ebooks, brought to you by Amazon.
There are also subscription boxes. Today, you can get subscription boxes for food, snacks, toiletry items, clothing, doggy toys, and many more things. Such subscriptions bring peace of mind. You don’t have to stress over what wines to buy at the liquor store. Just pay monthly for a “wine of the month” subscription and get a certain number of bottles delivered to your doorstep and enjoy a rich variety of wines, curated by your favorite wine expert.
Ron takes this even a step further, talking about subscription car services, like the one that has been created by Porsche, in which you can drive any car as long as you want, all expenses included, for $3,000 dollars a month. He also makes a reference to concierge medical services that allow you to have unlimited access to doctors, tests, and a full clinic for a monthly fee.
So is it really so strange to think of service firms, such as accounting firms, going to a concierge or subscription model? Absolutely not!
If you’d like to get more information about this topic, check out the references listed above. And, of course, if you haven’t already, give this interview a listen through the built-in player above, or by subscribing to it on your favorite podcast service.