What Are You Worth?

In my last blog post I briefly introduced the concept of value pricing advocated most famously by Ronald J. Baker author of the best-selling books Pricing on Purpose, Professionals Guide to Value Pricing and The Firm of the Future.

After doing some research, I found out that this topic seems to engage lots of professionals over a wide range of business fields at the moment.

One of them is Larry Phipps, a North Carolina licensed land surveyor with more than 20 years of business experience who recently also formed a consultancy company supporting surveying firms amongst others at implementing value based pricing.

The core message Phipps wants to convey to businesses is, that despite the general perception time does in fact not equal money.

He claims that charging for time tells the public that it is time that matters, even though the time of one professional might not be equal to the time of a different professional.

Moreover, Phipps states that ultimately the true benchmark of value has to be how your work impacts the client.
In return, this also means that being successful in pricing based on value partly depends on carefully choosing clients and helping those to really understand the value of the work your provide.

Phipps admits that in some cases this practice does indeed entail turning down clients.
However, he is convinced that this is critical to a businesses success:

“Those projects where your costs exceed the value you can create must be referred to someone else”

Ross Dawson, a globally recognized entrepreneur, strategy advisor and bestselling author, shares Phipps’ view that value-based pricing is central to the future of professional services.
Dawson asserts that it is indispensable for fees charged to correspond to the value creation in a world like today’s, where value is increasingly shifting to professionals with world-class expertise.

Nonetheless, Dawson also admits that value based pricing might not always be the best approach. For limited scope engagements, he claims, using hourly fees does incur lower transaction costs.

Taking up an opposing position and thus joining the ranks of the time based pricing’s advocates is Edward Mendlowitz, Certified Public Account with over 40 years of professional experience.

Among the many arguments in favor of time based pricing and billing he offers, one stroke me at especially insistent yet simple – Mendlowitz states:

“Time is our inventory and hours the units.”

And inventory, he adds, must be controlled. Therefore, timesheets need to be maintained and the use of them to fix prices is the easiest and most logical consequence.

Personally, I cannot deny that there seems to be some truth in Mendlowitz’s statement – control over inventory is crucial to the efficacy and success of a business.
Consequently, if you select time to be your inventory it seems reasonable to base your prices on billable hours – the unit of the measurement of your inventory.

Nevertheless, simply from a human being’s point of view, I also have to acknowledge that the idea of not getting paid simply according to the time I spend completing a task but really for the value my work creates to others, sounds a lot more appealing.

To finish off, I’d like to leave you with a quote by Warren Edward Buffet, American entrepreneur, investor and philanthropist, illustrating why it might be only reasonable to concentrate on concepts focusing on value creation:

“In a chronically leaking boat, energy devoted to changing vessels is more productive than energy devoted to patching leaks.”


5 responses to “What Are You Worth?

  1. Dear Fenja,

    Thoughtful as usual. Your post is appealingly written and has a clear structure. You found some pros and cons, listed them here and included references!

    I would have liked to see a stronger personal position. Yes, at the end of your article you state your opinion, but it doesn’t really tell me whether you are in favor of one position or whether you could live with both.

    While I agree with Phipps that the “true benchmark of value has to be how your work impacts the client”, it is very difficult to price something without the inclusion of time. I think time, especially a person’s time, is very valuable and that should be reflected in the price! How can we determine the value created for the client? If a client needs a software for her new internet start-up company they need someone who provides such a program. If this particular person offers such a program, how can she determine what the value will be? How can she predict the impact of her software on the company’s future?

    Therefore, I think if we measure our time and monetize it we will get a far more transparent and quite fair outcome! Furthermore, there is a labor market, where the value of time is valued at the “right” price.


  2. Hey Fenja,
    It is really nice to see how you found a topic which interests you and how you made it nice to read. It is nicely structured and I also like that you often referred to professionals. Furthermore I really like the way and the design you present quotations! Someone gave me the advice to include some sources which offer the reader possibilities to dig deeper, as I like this advice I also would like to give it to you. But nevertheless it is a very good post !

  3. Hey Fenja!
    Already your heading caught my attention! What an interesting topic! I’m glad that you chose to set your focus on such a topic! It is a very present topic and affects all of us! Very well chosen!
    Your post is well structured and shows a lot of different opinions. The pictures are very supportive and therefore fit to your topic.
    The use of quotes are great for this post, because they work like eye- catcher for the reader.
    I really liked that you showed your own opinion at the end of your blog post and that you actually ended this post with a quote. This makes the reader think about this whole topic and he or she will easily remember this post, because of this impressive quote at the end.
    Very well done, Fenja! Great work!
    I’m looking forward to your next post!

  4. Pingback: Retrospect #4 : Slowing it down | BLOG OR DIE TRYIN'·

  5. Pingback: How To Put A Price On Value | BLOG OR DIE TRYIN'·

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