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Is Value Pricing the Way of the Future?
by Andreas Noodt, Member, IFAC SMP Committee | June 9, 2014 |
According to an increasing number of accounting practices providing professional services, billing by the hour does not make economic sense. Rather, it’s better for practices to adopt Value Pricing strategies—both to better align their and their client’s interests and to avoid commoditizing their services. Value Pricing, which sets prices primarily, but not exclusively, on the value to the client rather than on the cost of the service or historical prices, has caught on in certain markets, most notably in the US.
Last year, I had the pleasure of interviewing Ron Baker, founder of the Verasage Institute and one of the foremost advocates of Value Pricing, to find out more about this new and fast emerging model. Baker’s quest is to “bury the billable hour and trash the timesheet,” and he sees Value Pricing as having universal appeal. A blog post by Mark Koziel, Vice President, Firm Services & Global Alliances at American Institute of CPAs, indicates that Value Pricing is increasingly being accepted as a better way of doing business in the digital age and suggests that CPAs will need to evolve their processes to stay relevant.
Ron has kindly authored a 3-part series of articles, Pricing on Purpose: How to Implement Value Pricing in Your Firm, now available on the IFAC website. The articles explain how to get started with Value Pricing and are based on his sixth and latest best-selling book, Implementing Value Pricing: A Radical Business Model for Professional Firms (John Wiley & Sons, Inc.), which I strongly encourage you to read even if you are primarily involved with audit.
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