Option Pricing

Not For Your DLOM, For Your Proposal

Have you read any of the literature addressing value pricing? Ron Baker is the authority in this filed. In this article, Rod Burkert introduces the subject of pricing options, a menu of services and fee choices prospects can consider, so as to remove or mitigate price as an objection to hiring.

Have you read any of the literature addressing value pricing? Ron Baker is the authority in this field. I highly recommend his book, Implementing Value Pricing: A Radical Business Model for Professional Firms, for an introduction to the basics and his Facebook group (you must request to join and be approved), VeraSage & Friends, for ongoing information, trends, and ideas.

The Power of Pricing with Options

Now that said, I am not writing here about the general topic of value pricing but rather, one principle that Ron espouses: giving our prospects pricing options…a menu of service and fee choices that they can select from. The purpose of the options is to remove (or mitigate) price as an objection to hiring us.

Almost all of my prospects get pricing options in their proposals. Giving them options about how we might work together changes their question from Do I want to work with Rod? (which only allows for a yes or no answer when there is only one option/price) to How do I want to work with Rod? (because I formulated pricing options based on discussions with them so at least one should have some appeal).

[Note: Whatever options we offer, they must demonstrate the value we bring to the table. If we want our prospects to perceive that value, help them by showing (1) what makes you different and (2) how that makes a difference compared to other practitioners they could hire.]

Pricing Options Won’t Work For Me

You may think pricing options only work for appraisers who provide a package of consulting services like feasibility studies, M&A pricing, and exit planning where such options are common, if not expected. But you don’t do that kind of work.

And certainly, pricing with options can’t apply to your transactional engagements—like 409A/fair value/ESOP/tax-purpose valuations—where you proffer the required service for the standard fee that your prospect accepts or rejects…or maybe accepts only if we lower the price, right?

[Note: Prospects do not pay for our valuation services. They pay to have their problems solved. So when prospects object to our one and only price, they’re not saying we’re too expensive; they are saying their problems are not worth that much to fix at that price.]

Walk With Me

Imagine proposing on that transactional engagement. What options do we have at our disposal? Well, we could:

1. Propose our standard fee of $A for our standard delivery time.
2. Propose $B if the fee is paid upfront.
3. Propose $C if the report submission date can be extended.
4. Propose $D for a lesser service report (e.g., summary vs. detailed).

Of course, not all of these options may work in every case. But the point is we do have options even for the most straightforward assignments.

[Note: Research shows that no more than three options be presented and that the most expensive option should be presented first. For more on this, take a look at Predictably Irrational: The Hidden Forces That Shape Our Decisions by Dan Ariely.]

It’s a Negotiation

When we put forth a service/fee option and the prospect counters with a lower price, a negotiation has begun. It’s “Game On,” not “Game Over.” We can counter with options like the ones suggested above. Or better yet, anticipate the prospect’s objections and put pricing options in our proposals.

The fact is, offering options to prospects can save us from walking away with our tails between our legs because either we didn’t get the engagement at the only price we quoted, or we accepted a lower price without getting anything in return.

[Note: Accepting an engagement for a lower price than what we wanted may sound ok at first. Bills have to be paid, right? But any glee about landing the engagement will give way to gloom once the engagement starts, knowing that we are working for less than what we’re worth.]

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Rod Burkert, CPA, ABV, CVA. Many BVFLS practitioners hit a time and income ceiling and not have the impact or make the money they are capable of. They get stuck in “survival,” “stability,” or even “success” mode…treading water and feeling frustrated by their limitations. If you are feeling frustrated by those limitations and want to grow faster and more effectively, e-mail me at rod@rodburkert.com.