Columns / Phipps: Value Pricing

Value Pricing: What Are You Worth?

May 2, 2012
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Land surveying needs to change. No, scratch that-land surveying is changing. More of us need to be the captains of our own ship. Far too many are content to sit in the back and complain about the direction they are heading. Perhaps nowhere is this more evident than in how we price our services.

Get a group of professionals together, and a few things are sure to happen. Among the chorus of “how are you’s” and “long time no see’s,” someone will inevitably start discussing the common ills of that profession. One statement in particular is often high on the list: “We don’t get paid enough.” Go ahead and admit it. You’ve heard it. Maybe you’ve even said it yourself.

Personally, I hate that statement. The fact is, our clients do not determine how much we charge for our services. We provide the estimate or quote. We make out the invoice. We cash the check and call the deal complete. Our clients are not in charge; we are.1

The problem lies largely in our business model. The advent of the industrial age caused fundamental shifts in how people (both workers and consumers) were treated. Henry Ford made his fortune and changed the world by fully developing his assembly line process. Many professions adopted similar strategies. Surveying became driven and judged by  time sheets. The number of hours spent on each project became the benchmark against which the client was charged. Surveying became a “time equals money” profession.

The truth, however, is that time does not equal money. The efforts of a gifted, experienced surgeon are not equal to the efforts of a surgical resident. The same can be said for land surveyors. The time of one professional is not equal to the time of a different professional.

Even Ben Franklin (first widely attributed for using the phrase) wasn’t advocating that time equals money. Instead, he was addressing opportunity cost.



As you have desired of me, I write the following hints, which have been of service to me, and may, if observed, be so to you. Remember that time is money. He that can earn ten shillings a day by his labor, and goes abroad, or sits idle, one half of that day, through he spends but sixpence during his diversion or idleness, ought not to reckon that the only expense; he had really spent, or rather thrown away, five shillings besides.2

Still, we have been using the same “time equals money” business model for close to 100 years. Charging for your time tells the public that time is what matters. Knowing little or nothing about the intricacies of what goes on behind the scenes, the public is left to judge us on time and therefore, price alone.

Ultimately, this business model serves no one well. We as surveyors need to stop charging for our time and start charging for the value we create for our clients. Warren Buffett said it well: “In a chronically leaking boat, energy devoted to changing vessels is more productive than energy devoted to patching leaks.”

So, if we don’t price our services based on time, how should we price?

One of the great truths seemingly lost on everyone who bills for their time is that your clients do not care about your time. Your clients do not care how much you need to know to be professional land surveyors. They don’t care about degree requirements or how many hours of continuing education you must have every year. Clients care about one thing: themselves. How your work impacts the client is the true benchmark of value. For some clients, the impact of good work vs. bad work is negligible. For other clients, the impact can be significant.

Part of what this means is that being successful in pricing based on value is being really picky when choosing clients and helping the clients you do choose understand the value you provide.

In some cases, this means turning down clients. Saying, “I’m sorry I can’t help you” to prospective clients is tough for many people, but it is critical to your success. Those projects where your costs exceed the value you can create must be referred to someone else.

At this point, you might be thinking, “Surveying is complex and can’t be priced any way other than by the hour!” It is true that value pricing is more complex than the models many of us have used in the past. But that does not mean the system will not work. Quite a few people are already applying value pricing principles in their surveying businesses. The process can and does work. But careful management is required.

Over the next several months, I will lay out an eight-step process for successfully implementing value pricing. Are you ready to steer your own ship?

REFERENCES

1.  There are some obvious exceptions when it comes to government contracts, but this column focuses on private-sector work.
2.         Ronald J. Baker, Implementing Value Pricing, Wiley, 2011, p. 113.

What About QBS?

One thing to note is that value pricing is not value-based selection or best-value selection, which have been touted as alternatives to the qualifications-based selection (QBS) procurement process established by Congress as part of the Brooks Act. I support QBS and am not advocating a change in how our services are procured by government agencies.

Value pricing is simply the value that we as professionals place on our services specific to private-sector work. The central tenant of this pricing strategy is that we choose our clients and then charge based on the value we bring to the project and relationship. It’s a change in thinking that can have a dramatic impact on your business.

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