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Value-Based Pricing Featuring Geraldine Carter

Published by Summit Marketing Team on 15 Sep 2021

The Virtual CPA Success Show: Episode 45


Instead of charging by the hour or by project, why not charge based on value? In this episode, we sit down with Summit CPA Group's founders Adam Hale and Jody Grunden, and Geraldine Carter, founder of She Thinks Big Coaching to discuss how digital agencies can use their existing skills and expertise to provide valuable services for small businesses at a premium rate and how this approach will help them earn more money while building their brand and business.






Jamie Nau: Hello, and welcome to today's podcasts. We're excited to hit on a topic that we've wanted to talk about for a while, but we wanted to have a guest that really understood the issue to talk about this. So, Geraldine Carter was recently on our Modern CPA Podcast, and so we're bringing her back to really talk about this topic. So, Geraldine, do you want to give a little bit about your background and how you got started understanding value-based pricing?

Geraldine Carter: Sure. So, thank you, Jamie. Hi Adam. Hi Jody. It's great to be with you guys. Big fan of both of your shows. So, a quick intro, I work one-on-one with CPAs. I'm not a CPA. I'm an engineer by background, by training. I started a business with a friend and after six years I went out on my own to be a coach, have a simpler life and started working with business owners. To help them in their own businesses, understand their financials because in the business that I had, I basically blended the CFO role. So I understood all things financial, the money, math forecasting, all the rest, and a number of my colleagues in their own businesses were suffering not understanding those things. So that's how I got started. Business coaching. And then a CPA came to me and asked if I would help them in their business. I did a bit of research. So that was my launching point into working one-on-one with CPAs to help them transform their businesses from an overwhelming tax factory into something that's leaner, more profitable, and much more enjoyable.

Jamie Nau: If you want to hear more about that story, we did that on another podcast, on our Modern CPA Success Show. Great introduction. Let's jump right in. I think the important thing to me, and I've been in a lot of value-based pricing conversations, I feel like one of the most important parts of the value-based pricing conversation is I think you need to define. So, Geraldine, do you mind kind of talking about what we mean by value-based pricing? I’ll let Jody and Adam add any insights they have as well. A lot of times, its interesting, people have a different idea of what value-based pricing is.

Geraldine Carter: Important question. And I think requires clarification because in the accounting space, especially, which is where I listen, there's a lack of clarity around what value-based pricing is and is not. And what I hear when I sort of listened softly is basically anything that's not hourly or cost plus is therefore value. And that is not the situation value-based pricing requires where you have a one-on-one conversation with your client to understand what is valuable to them. A lot of the CPAs and accountants think that stuff is flat rate value and if you're not having a conversation with your client, you're not seeing the value. So in order to get at value for your clients, it's helpful to think of the three questions: Why now? Why me? Why this way? And when you ask those questions and you dig at the answers, you'll start to understand what is most valuable to your clients. And then you can quantify that, start assigning a price to that, and then back in to the services and the price that you'll offer relative to the value that it will provide for that client. But if your blanket flat rate pricing, for example, for CPAs and accountants returns, business returns, 1040, and you're rating them. That's flat rate. That's not valued if you're not having value conversation.

Jamie Nau: Great. Jody, you want to talk about that a little bit on the agency side. So again, for the agencies that are listening to this episode, how would you define value-based pricing for them?

Jody Grunden: Yeah, so I look at it very similar. I think it's important to know what the services that you're providing are and the profit you need to have on those services. I need to have a good in-depth knowledge of what you're providing and how much time it takes, because when it really comes down to it there's a time focus on really everything we do. So with that, we want to make sure that if we're going to do a flat fee, we are cheerleading. Making sure that we're profitable. We find people come to us. That's not why they come to us. That's not, that's not the value point. So we come up with a flat fee for the different service levels that we offer on the accounting side, but only charge what's important to the client. And we take it even one step further because what we present to a million dollar client, is significantly different than what's presented to a $10 million client. What’s profitable to both of those companies if very different. So pricing would look very different based on that. So, the traditional model of value-based pricing is a little different than then what we do at Summit. It sounds like it's very similar to what you do and what you coach with your with your team, Correct.

Geraldine Carter: Yeah. I mean, there's a lot in there for sure. And it's not an easy answer, right? So there are a couple of things going on with what Summit does. It sounds like you're segmenting by revenue. You're segmenting your people. Segmenting by how much people making is in essence, that’s how you are profitable and there are certain margins on there, which of course from a business standpoint, you want to make sure that what you're selling is profitable. Otherwise, what's the point. I think where things get murky is the thing with value pricing is that when you have a single conversation with people, the situation that it sets up is leaving the least amount of profit on the table. Whereas, the problem with value pricing by having the one-on-one conversation and then assessing prices after you have that conversation, is that it isn't scalable. With your situation at Summit, you need something that's scalable because you've got so many moving parts and you've got lots of clients, so it makes having a value based conversation, in a traditional sense. You know, specific prices, one price per customer everybody gets their own price. It presents complications for you. It reduces scalability, it increases friction. So I think what you're doing by, with segmenting your client base by revenue, by people, enables you to find a sweet spot between the two where you can have something that is, [00:09:00] you know, you're thinking about the value, but you're also leveraging the scalability of something that's more flat.

Jody Grunden: And we offer a-la carte for clients so that they're not buying something that they don't really want. So, every client that comes to us is going to be at a different price. It's not a one price fits all model like a lot of flat fee models. It's based on really what the clients wants and needs. Do they just want someone to oversee their accounting staff, or do they want somebody to be their accounting staff? Do they want somebody to sit along their CFO? Or somebody to be their CFO? You know, those are the different factors that are coming into play. Pricing is going to be completely different because the value is completely different.

Jamie Nau: Great points. So, Adam, we've heard for two opinions on value-based pricing here, which there are a lot of similarities, but also it sounds like a couple of little, small differences there. I'm interested in your thoughts on what both Jody and Geraldine defined.

Adam Hale: Yeah, obviously I'm swayed a little bit more towards, Jody's side in terms of being able to make it scalable. Geraldine, to your point. You know, our intent was to be able to have anybody on our team, be able to quote this service for our clients to really feel the transparency in what we're doing, and that people weren't being priced based on ability to pay. I think a lot of times whenever, and don't get me wrong, I talk about it all the time with the team internally. It's like, you can say that's $2,000 cause it's going to take 20 hours all you want or whatever. But at the end of the day, it's not worth $200 bucks to anybody. So, we shouldn't do it, you know? So, we'll have those kinds of conversations. But like I said, at the end of the day with the clients and the team, we wanted them to feel on that first initial call that based on what they said in that call what their status is in terms of their company on how we're going to charge them. So, we may say there's a certain value to us being your CFO, or there's a certain value to us overseeing your team. We understand that there are some modifications based on the size of the company. That's the only thing that we've really kind of seen, some indications. That doesn't mean that we don't spend just as much time on a smaller company as we do a large company or vice versa. But at the end of the day, you know, we kind of have to put our stake in the ground somewhere. And the clients really do appreciate that transparency. I think that's one of the things that helps sell our service the best.

Jamie Nau: Well, one of the things that I've always liked about value-based pricing. And again, I may be off based on this. So, I'm curious Geraldine, if I am going down the wrong path here, but to me, when we talk about value, it's nice to know a dollar amount of what that actual value is. Like we know how much it costs to hire a CPA because we do that all the time. We're always looking for CFOs. We're always looking for accountants, controllers. And so, I know exactly how much that I have to pay a CIF, CFO, or controller or an accountant. So, when someone comes to me saying, okay, these are the services, I want A, B, C, D. I know how much they're going to have to pay for that to get that full time. And so, if I know my price is in that range or a little bit less because they're getting it fractional, then I understand the value because I'm doing that pricing all the time. So, to me I've always made that correlation. Am I off based on that?

Geraldine Carter: Make your question, a little smaller so I can track the whole thing because we have a bunch of stuff in there.

Jamie Nau: Yeah, my question is, does the fact that I know how much it costs for them to do the services I'm doing directly, makes value-based pricing easier for me, because I know how much to charge them? Is that similar to value-based pricing?

Geraldine Carter: Okay. So, there are a couple of things in there. So, the fact that you know how much it cost helps you to be confident in your value of what you're doing and helps you be confident in your prices, right? And when you're confident in your prices, that gets conveyed to your client because you can say, basically look out on the open market. If you're going to hire these people all through piecemeal, here's how much it costs. So relative to that anchor price, what we're doing is a fraction of that cost by comparison, this is a great price for you because you get the exact same thing. You get the same value for less money, which makes it more work, right? And that's what buyers are thinking about. How much is it worth? So that's one piece of that. Another piece in there is based on ability to pay. I mean, we’re basing our prices on ability to pay because if somebody came to you and they only had $10,000 to spend, the conversation would go nowhere because they don't have an ability to pay. Even with value pricing it can become unclear not to see what we are basing our prices already by default on ability to pay. So. Does that answer your question?

Jamie Nau: I think so. Like I said, I think the fact that we understand our value because we see our value every day makes it easier to feel like I'm doing value-based pricing when I'm going into a quote.

Geraldine Carter: And let me check on one thing. Cause there's something that you're doing in there that I think is valuable for our listeners, that is you have an anchor point that is much higher than your price, right? And the anchor point of the summation of the controller, the CFO and the accounting team, $300,000 by comparison, your price is a fraction of that makes it appear more valuable in your buyer's mind and that's pricing psychology. So having that high anchor point to compare your price too, makes the buying decision so much easier when there's a clear spread between the sort of maximum anchor and what your price actually is.

Jody Grunden: I have a question to you. Circling back around to our creative agency space. If we're quoting a job that is maybe typically $300,000 or a million dollars, how would you go about value based pricing based on your modeling on something that's of that size versus just an accounting fee which may be smaller, a lot smaller in nature?

Geraldine Carter: So how would I go about the value-based pricing conversation? So, the place to start is always with which we said at the outset is understanding the value to the client, right? The three value questions. Why me? Which sounds like, you know, why you guys coming to us? Like, why are you leaving? Even thinking about leaving your old accountant may give you a whole host of reasons. They didn't do it on time. Their stuff was a mess. We weren't confident in its accuracy. And then you want to dig into those questions, right? Because you want to understand what's important that they think you have, that they weren't getting at their previous firm. And then why now? Like, why not wait six months and see if this problem goes away. Why not do this six months ago? What prevented you from calling? Did you not have the cashflow, and so on? So, you want to understand why it is important that it happened now. Why is this urgent? Are you looking at occupying a new space? Are you looking at expanding our, is your revenue shrinking and you're worried about it and you want to get on top of it before it's too late? They'll give you a whole host of reasons why it's important to do it now, and then why in this manner? You know, why do it with us? Why not outsource it to somebody else? There's a bunch of people who offer VCFO services, not as good as ours, but why not do it with one of them? Or why not bring it in house? You know, why not hire your own people? And they'll say, oh, we hired somebody in house. They were terrible. We don't like managing staff. They'll give you all the reasons. And you want to dig at the ones that seem most salient to understand why they're coming to you instead of somebody else. Why now, instead of waiting and why this way, instead of, you know, just going to something.com or cooking up their QuickBooks and do it all themselves, and they will tell you all the reasons why they can't do it. And from there, you can understand, you can back into the value and start to quantify. Why it's important that they work with you now, and you can pin back to Jamie's point a high price. Like if we could do all of these things for you and get all this lined out and have it done by this certain date so you could go to the bank for your loan. I mean, would that be worth to you? And you employ a sort of pricing trick. Which is an arbitrarily absurdly high price, just so you can back in to say would that be worth? A million dollars, a $100,00, $50,000, $50, and then they've got a window there. So, this is where value pricing becomes the art and not the science, because there's a ton of squishiness in there, but that's how you can systematically think about beginning to assign a value price to these sorts of tandem pieces that are not necessarily directly financially related, but that's how you can start getting close to it.

Jamie Nau: And I think, you know, to Jody’s question, thinking about that in terms of an agency, you know, whether it's a website design, a whole new marketing program, that's completely integrated web. I think those three questions as you were going through them. I was thinking about how my clients would have answered those. I think there's a lot of good things to unpack there. Adam, you work with agencies quite a bit. Do you want to give some examples of some things they might be seeing in terms of those three-value based question?

Adam Hale: Yeah. I mean, I think they start out that way. I think one of the things that they get a little bit hung up on is, you know, everybody's got a budget, you know. And so, how do you kind of counter that or tackle that whenever you're doing value-based pricing Geraldine because that's, you know, for a lot of agencies again, they're coming into it with a lot of moving pieces. So, you know, they might have four to five, six to eight people on a project at once. So how does that kind of go into value?

Geraldine Carter: So, providing a menu of options, right? As Alan Weiss likes to say a choice of yeses so that you're giving them three options, not five, not two, so that they can compare, and they feel like they are making an informed choice about which option works for them within their budget. And when you have that value-based conversation and you understand what their most important outcomes are, then you reverse engineer your services that will satisfy those outcomes. So just in simple terms, I had a transportation company. Somebody came to me and said, I want to get across town. You can say great. For $10,000, I'll drive you across town right now in my Lexus. For $5,000, you can take this Toyota. It's the exact same car with a different emblem on the front. Here's a map. And for 50 bucks, here's a bike. It's a beautiful day. It's all flat. It's five miles. It'll take you 30 minutes to get there. Which one do you want? They all get you across. They meet the exact same outcome, the exact same desired outcome, but the client gets to choose based on how much they have to spend and how much style they want to travel in if you will. So, for your creative agencies, focus on the outcome with the value conversation. That's how you get there. And then you back in with three services at let's just say the budget is $45,000. You can put one that's valuable above their budget. If it's valuable people will go above their budget when they see the value. There is a pricing curve in there, embedded in there that so that they've got a menu they can choose from. All of which is important, all of which satisfy their outcome and you as the provider design the service. So that is still profitable for you. That way you're providing a service that’s profitable for both parties.

Jamie Nau: I think the point you made there was right at the end. I think that the important part of selling in that way is understanding how all three meet their needs. I think to your point earlier, you have to understand what those needs are and what those questions are coming into that sales call. So, if they define this is the three things we need, you can say, well, I can meet those three things in three different ways. Let me explain the difference. That’s the art of the sale in a lot of ways.

Geraldine Carter: An important piece in here with value-based pricing is that oftentimes it works best. It's easiest to wrap your head around with projects. Single discreet projects with a clear beginning, the clear middle and a clear end. So, that’s worth at least $10,000, otherwise it's not worth your time to have the conversation to begin with just because it's an involved conversation. So if you think about just in terms of projects with value-based pricing, that's the easiest place to start. Then hen once you get good at it, you can kind of map it over to your recurring revenue streams. But I would say it's harder to start with your recurring revenue streams, because it's harder to get your brain around it.

Jamie Nau: So Jody, obviously we sell the recurring revenue streams, that's where we started. Do you want to touch on that? We touched on it a bit earlier.

Jody Grunden: Sure. So back in 2000, roughly 2004 is when we started implementing what we call subscription-based billing, which is again a recurring revenue stream for virtual CFO services. We did it in a similar manner or a similar positioning as if we were hiring an employee you'd hire. When you hire an employee, you're paying them on a bi-weekly basis or weekly basis or monthly basis. You're paying them on a regular basis for that service that they're providing. So, we look at it in a similar manner to which we were going to provide services. So, a service-based company on a reoccurring revenue model meaning the client can cancel anytime they want. We zap their accounts every Monday for the fee for the coming up week and the engagement's perpetual. So, if they decided they want to change scope and engagement, at that point, the engagement refocuses and the price changes, scope changes. At the end of the year, we evaluate how big the client is. So, if the client grew, we adjust our fee accordingly. We have touch points throughout that engagement to make sure that in the long-term we are not going out to lose out. And the client a long-term is not going to lose out as well. So, it's a win-win for both. It's similar to an employee arrangement, you know, at the end of the year you get a raise, or you don't get a raise. The same thing with us. So, the key there is making it perpetual so that the client knows what is going on at throughout the engagement. Over time we find clients stay with us for four plus years. The model works extremely well. The key is just creating that stickiness with the client. Making sure that it's perpetual and you know, making sure that you're providing a solid service at any time.

Jamie Nau: I think that's a great example. There’s a lot of those lessons we learned along the way. In my six years here at Summit, the way we were doing things back then has changed over time. There are certain things we've added. I think one of the things you mentioned is you know, evaluating the businesses every year. The other thing that we added was, I think we always had this, but giving the, the team, the CFOs, the accountants, the ability to change pricing throughout and engagement. I think a lot of times that's something that a someone might not be able to do at other companies. So, we are getting close on time here. I don't want to open a brand-new topic, but I do want to get some final thoughts on value-based pricing. I know this has been very successful for us. I know quite a few agencies I work with really have understood this and it's really changed their business in a lot of ways. So, we'll start with our guest, then we'll go around the room. Geraldine, any final thoughts on a value-based pricing that we may have not touched in this episode?

Geraldine Carter: Yeah, I would say the most important thing to remember is that your costs should be decoupled from your prices, right? Because there's, you want to make sure that you're profitable, obviously. But decouple that from the value that you're creating and site prices relative to the value.

Jamie Nau: That’s a great point. Adam.

Adam Hale: I was going to say and remember to do the opposite of that. Yeah. I'll be the Debbie downer. I'm on the accounting side. Value based pricing doesn't mean to get away from time tracking and understanding your resources and understanding your costs. So, it is an evergreen process. Like you're going to always be learning and changing and values going to change over time. There's going to be some things that maybe just aren't worth doing, you know, the value's not going to be there. So that's why just taking a step back and analyzing your costs on a regular basis. And maintenance on your own company is as important, whether you're an agency or an accounting firm, I think it goes a long way.

Jamie Nau: Great points. All right, Jody, I'll throw it over to you to finish up.

Jody Grunden: It's important to make sure you know what your costs are. And like Adam mentioned, you always want to look at time-tracking too.

Jamie Nau: All great points. I think just to add to that, a big part of this is, is there's so much education that goes into sales. Your salespeople need to understand all the information needed to have those conversations with clients. So great points. Appreciate having all three of you on today. I think that was an awesome discussion that our listeners are really going to enjoy. So, thanks for joining us.


Value-Based Pricing with Geraldine Carter


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