Powered by: SmartPros ADP LUNCH & LEARN CPE PROGRAM “How Do You Price Your Services?” Based on a program by: John Burnett, Prof. of Marketing, Univ. of Denver Adapted for CPE accreditation by SmartPros Ltd. ( The ADP Logo is a registered trademark of ADP of North America, Inc. Powered by: v.1099a

Powered by: SmartPros 2 Agenda  Presentation  Group Discussion on Review Questions  Review of Program Reference Material  Completion of Course on ADP’s Accountant Web Site

Powered by: SmartPros 3 Overview Today We’ll Discuss the Following: I.The Difference between Pricing Products and Pricing Services II.Determining Service Pricing III.Pricing Decisions IV.Pricing Strategies V.Pricing Considerations VI.Pricing Your Services

Powered by: SmartPros 4 Course Objectives Upon successful completion of this segment, participants should be able to understand: 1.Different objectives and various strategies of pricing. 2. The difference between pricing products and pricing services.

Powered by: SmartPros 5 I. Services vs. Goods Pricing of Goods and Pricing of Services Requires Different Methodologies 1.Goods are based on tangible objects produced to be sold. 2.Services are based more on labor and performance.

Powered by: SmartPros 6 I. Services vs. Goods 7 Areas that Differentiate Services vs. Goods 1.Tangibility 2. Customer involvement in production 3. People are part of the product 4. Quality control 5. Lack of inventory 6. Time factor 7. Different distribution channels

Powered by: SmartPros 7 I. Services vs. Goods How Services Are Different 1.Tangibility 2. Customer involvement in production Example: Your clients participate in the quality, timing and reliability of the information they provide to you in connection with tax returns, financial statements, etc.

Powered by: SmartPros 8 I. Services vs. Goods How Services Are Different 3. People are part of the product Quality lies in the employees who deliver the service. 4. Quality control 5. Lack of inventory

Powered by: SmartPros 9 I. Services vs. Goods How Services Are Different 6. Time factor is important 7. Different distribution channels

Powered by: SmartPros 10 II. Pricing Services Price of Services Determined by:  Value customers place on services  Who those customers are  Why they purchase the service  How they make buying decisions

Powered by: SmartPros 11 II. Pricing Services Strategic Pricing Price of services is based on:  Value of services to customers Knowing your perceived value is important Not knowing the value typically results in under-pricing the service Customer Value = Profitable Business Note: The concept of “value” is directly related to the price a customer expects to pay.

Powered by: SmartPros 12 II. Pricing Services Effective Pricing  Requires service providers to understand that not all buyers want: To pay the same price for services To be offered the same services To have the same delivery channel To have the same promotional message Pricing services requires being able to differentiate all of the unique needs of a client.

Powered by: SmartPros 13 III. Pricing Decisions Decisions Are Based on Value  Consideration of lifetime benefit  Calculate cost/benefit over lifetime Positioning this ROI is important A higher initial price may be accepted Lifetime value will offset any initial costs

Powered by: SmartPros 14 III. Pricing Decisions Pricing Is a Key Component in Developing and Maintaining Client Relationships Decisions that Can Disturb Client Relationships Reduction of quality to increase margins Prices raised without justification Clear communication to justify raised fees is key!

Powered by: SmartPros 15 III. Pricing Decisions Decisions Must Factor-In Low-Cost Services from:  Offshore or outsourced providers  Discount providers  Technology

Powered by: SmartPros 16 IV. Pricing Strategies Good pricing strategy is based on sound assumptions made by marketers.  Price sensitivity of your customers  Competitiveness of your industry

Powered by: SmartPros 17 IV. Pricing Strategies Non-Price Competition  Strategies other than price to attract customers: a.Advertising b.Games c.Credit d.Delivery e.Displays f.Private Brands g.Convenience

Powered by: SmartPros 18 IV. Pricing Strategies Competitive Pricing – (The Same, Higher or Lower than Your Competition)  Pricing to meet competition based on: Accurate definition of competition. Knowledge of competitor's prices.

Powered by: SmartPros 19 IV. Pricing Strategies Competitive Pricing – (The Same, Higher or Lower than Your Competition)  Pricing above competition based on: High quality of services. High perceived value of services.

Powered by: SmartPros 20 IV. Pricing Strategies Competitive Pricing – (The Same, Higher or Lower than Your Competition)  Pricing below competition when: Customers are price-sensitive. Firm has lower cost structure.

Powered by: SmartPros 21 V. Pricing Considerations Challenge of “More-for-Less” Economy  Use of bundling Marketing two or more services in a single package for a single price Goal: Sell more for less to increase overall sales  Need for price flexibility Technology has made competitive shopping more accessible

Powered by: SmartPros 22 V. Pricing Considerations Cost-Plus Method (Gross Margin Pricing) A Cost-Oriented Approach to Pricing Based on difference between: Cost Selling price  Advantage: Does not require forecasting general business conditions.  Disadvantage: Inherent inflexibility in the business chain.

Powered by: SmartPros 23 V. Pricing Considerations Break-Even Analysis Based on producing revenue to cover costs  Disadvantage: Assumes that variable costs are fixed. Does not consider factors such as: - Advertising - Wage increases

Powered by: SmartPros 24 V. Pricing Considerations Multi-Faceted Approach (Marginal Analysis) Marginal analysis is based on three assumptions: The sole objective of a firm is to maximize profits. Profit is the difference between revenue and cost. Demand and cost can be measured accurately for analysis.  Disadvantage: Difficult to: –Obtain information –Apply information  Advantage: Can be used with other methods

Powered by: SmartPros 25 VI. Pricing Your Services Pricing of Services Considers:  Complexity and amount of work  Reputation of service provider  Potential for bundling services  Competition

Powered by: SmartPros 26 VI. Pricing Your Services When Pricing Services, Consider the Following:  Fixed and variable costs  Price-sensitivity of clients  Prices charged by competitors

Powered by: SmartPros 27 VI. Pricing Your Services Different Ways to Calculate Price  By packaged rate or fixed fee  By hourly rate  Bundling or value-added packaging Goal: Make client comfortable and happy while you earn a reasonable profit.

Powered by: SmartPros 28 VII. Summary In Today’s Program We Examined: I.The Difference between Pricing Products and Pricing Services II.Determining Service Pricing III.Pricing Decisions IV.Pricing Strategies V.Pricing Considerations VI.Pricing Your Services

Powered by: SmartPros 29 Discussion Questions Why has it become important to understand pricing strategies for service providers? To what extent do you develop pricing strategies for your own practice or for your clients who are service providers?

Powered by: SmartPros 30 Discussion Questions, continued Services are often priced based on the reputation of the service provider. How is the value of your services perceived by customers? Is it reflected in your price strategy? How about the services provided by your clients (doctors, attorneys, etc.)? To what extent are these prices based on reputation value?

Powered by: SmartPros 31 Discussion Questions, continued The program recommends that service providers consider 'bundling' services - providing two or more services to one client for a single price. Do you provide multiple services to the same clients? Do you break the prices out or provide them for a bundled fee? What are the advantages or disadvantages?

Powered by: SmartPros 32 Discussion Questions, continued The related reading advocates the elimination of the billable hour in favor of value billing. How does this concept relate to your practice? How does this concept relate to the services provided by your clients? Is it worth pursuing?

Powered by: SmartPros 33 Discussion Questions, continued To what extent has this program been helpful in terms of managing your own practice?

Powered by: SmartPros 34 Next Steps Reference Handout Material for Additional Content Information Review CPE Card Complete Course by Taking Online Components Thank you