Archives For value pricing

This week I’ve been working on several things in the financial realm.  I’ll be speaking this weekend out in California at a financial conference and yesterday I was working with a company out in Kansas on value pricing and managing financial metrics.

Financial matters are important to your business.  I often see them on the goal sheet.  “Make this much money this year…”  I don’t consider this a goal – instead, think of it as the result of achieving well planned goals.  Tacked up on the cork board in my office I have two sheets of paper – it’s my two page business plan. Why is it so short – because, just like a business owner I spoke with last week, I will never look at my plan if it’s buried deep inside my MacBook Pro.  I need it printed – hard copy!  Tacked up right in front of me.  On it I have several numbers I track…in fact, I maintain three other sheets, which are in large point-size fonts, right above my plan.  These are my scoreboards, and they track my monthly numbers – metrics I am keeping track of as I go through my year.  Everyone should have this – if you plan to hit certain targets.  Here are some numbers you should be watching:

Target Numbers:  Call them whatever you want, but these are my annual numbers.  Consider the target numbers you need to hit between now and your year-end.  I track GP (Gross Profit), MMR (monthly recurring revenue), Overhead % (which I try to maintain at 10%), and Retained Earnings.  If you’re in sales – GP and MMR are probably your two key target numbers, but you may have others such as new accounts this year, or a GP number on one of your major accounts.

Critical Numbers: These are generally events or ratios I care about, or that I believe will help me achieve my goals.  For instance, I track No. of Speaking Days/month, No. of Public Workshops/quarter, No. of eLearning Workshops/quarter, and No. of consulting days/month.  Pick one –  I know that if I hit 75 speaking days in a year, my financial targets will likely be met – I track this monthly to make sure I get there.  My scorecard, tacked up right above this plan tracks these speaking days by month using a bar chart.  One of the clients I am working with is focused on converting a large list of active clients to a new offering we have been working on in the area of security services.  This is a simple ratio – what percent of the clients have been converted?  We’ve set a goal for this year to convert 25% of them.  If we do that, we’ll know our offering is headed in the right direction.

KPIs: Drilling down to the quarter, I have created a table to track the quarter – this gives me a quick understanding of how my year is going.  On this list I have important goals to be achieved, along with a metric they will impact.  These are my Key Performance Indicators.

Some of the things you should be concerned with if you manage a business or run a division – resource utilization numbers, burden cost, project overruns, and gross profit (forget about Revenue numbers unless you are publicly held), etc.

If you run a sales organization, you should be conducting marketing events.  In my book, Event Marketing, 7 Secrets to Profitability, I discuss several points of conversion – these are numbers to track on a scoreboard – numbers that can be improved to drive net-new business.  I’ve included a conversion sheet in the appendix of this book that will allow you to start tracking your progress.

If you’re still tracking “number of calls you made today”, and “how many meetings resulted”, you may want to rethink your sales strategy…this is old school thinking.

© 2013, David Stelzl

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When was the last time you raised your fees?  If your business still quotes T&M most of the time, now is the time to make the change.   If you set fixed price fees based on estimated time, you might consider moving to “value pricing” this year.   Don’t wait; it’s the New Year, meaning people are open to change.

If you’re looking for justification on fee increases, look at the value you bring to your clients.  If your value is low, it’s time to upgrade.  However, most companies I talk to insist their value is high and their clients are highly satisfied.  If this is the case, you have justification to raise your fees.  But don’t penalize your existing customer contracts.   Guarantee pricing to your best clients while you move new business opportunities to new prices.  Consider adding new offerings to your existing programs that deliver more value with a higher price.  Figure it will take several months, if not a year to see bottom line impact, so get started now.  Those who wait until their income statements are in a crisis will be sorry.

Some considerations.  It’s time to charge more if:

o You are losing money on existing contracts

o Installations are coming in with lower margins than expected

o Fixed prices are turning into losses

o You are the low price leader in a high-tech market

o Larger companies won’t consider you because of amateur pricing levels

o Your business is project oriented

o Your value exceeds your price

© 2010, David Stelzl