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Sell Your Brains, NOT Your Time

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Presentation for CPAsNET in June 2019

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Sell Your Brains, NOT Your Time

  1. 1. SellYour Brains, NOTYourTime The firm of the future and value-led pricing Ed Kless - @edkless – http://thesoulofenterprise.com/
  2. 2. “Sell what your customers buy.” - Peter Drucker 2
  3. 3. What is a Business Model? How your firm creates value for and captures value from customers. @edkless
  4. 4. “Disruptive threats come inherently not from new technology but from new business models.” - Andy Grove, Founder, Intel
  5. 5. ATale ofTwoTheories (Business Models) Revenue = People capacity + Efficiency + Cost-plus pricing Current Model: Professional Service Firm New Model: Professional Knowledge Firm Profit = Capital + Effectiveness + Value-led pricing ↑ ↑ ↑ ↑ @edkless
  6. 6. From Revenue to Profit @edkless
  7. 7. Market share is not an advantage, by itself. It is the result of a sustainable competitive advantage, not the cause. I am not saying that companies should ignore market share, although it would probably not hurt them if they did. Market share should simply be seen as a by-product, a secondary effect, of pursuing a company’s core mission. -Richard Miniter
  8. 8. $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 Cost Price Value @edkless
  9. 9. Giraffe’s neck 6/24/2019 10
  10. 10. 0% 20% 40% 60% 80% 100% 120% 140%Percentofcumulativeprofit Percent of Customers @edkless
  11. 11. From People Capacity toCapital
  12. 12. Types of capital Natural Produced - Financial - Structural Human - Social - Intellectual (aka Knowledge) @edkless
  13. 13. From Efficiency to Effectiveness
  14. 14. TheAntithesis of Efficiency • This session and entire meeting (sorry Sarah) • All continuing education • Knowledge management • Total quality service • Mentoring and coaching • Networking • Business development • Social media • Value-led pricing @edkless
  15. 15. The problem with benchmarking @edkless
  16. 16. FromCost-plus (service) to Value-led (subscription) pricing
  17. 17. @edkless
  18. 18. Two Basic Pricing Methods Cost-Based Pricing Product  Cost  Price Value  Customer Value-Based Pricing Customer Value  Price  Cost  Product @edkless
  19. 19. A 1% Improvement in: 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% - Fixed Costs + Revenue - Variable costs + Price 2.7% 3.7% 7.3% 11.0% 1.5% 2.5% 4.6% 7.1% McKinsey AT Kearny @edkless
  20. 20. “The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business.” -Warren Buffet
  21. 21. @edkless
  22. 22. DanAriely –The Economist sets price @edkless
  23. 23. Pricing The Economist
  24. 24. The Numbers Two options Three options Selected Price Revenue Selected Price Revenue One year, web only 68 59 4,012 16 59 944 One year, print only - - - - 125 - One year, print and web 32 125 4,000 84 125 10,500 Total Revenue 8,012 11,444 43% Production costs 32 30 960 84 30 2,520 Profit 7,052 8,924 27% @edkless@edkless
  25. 25. @edkless
  26. 26. Seven Ts to Offering Choices 1. Terms 2. Timing 3. Technology 4. Talent 5. Tailoring 6. Transference 7. Travel @edkless
  27. 27. Create choices C •B+ •Represent… B •A+ •Respond… A •Prepare… @edkless
  28. 28. Why subscription? Why now?
  29. 29. HotelCalifornia Columbia House
  30. 30. “In five years, you won’t buy anything, but subscribe to everything.” TienTzuo,CEO ofZuora
  31. 31. “In five years, you’ll have the option of subscribing to everything—and every business will have to accommodate that fact.” Anne Janzer, Subscription Marketing
  32. 32. 1 x 7 ≠ 7 x 1
  33. 33. Three actuarial axioms • If what you sell entails risk, you are not a commodity. • There is not such thing as a bad risk, just a bad premium. • There is no model for pricing risk by the hour.
  34. 34. Traditional vsSubscription P&L Traditional Net sales $ 100 Cost of goods sold (40) Gross income 60 Sale and marketing (20) Reasearch and development (20) General and administrative (10) Net income $ 10 Subscription economy Annual recurring revenue $ 100 Churn (10) Net annual recurring revenue 90 Recurring costs Cost of goods sold (20) General and administrative (10) Research and development (20) Total recurring costs (50) Recurring profit 40 Sales and marketing (30) Net operating income 10 New annual recurring revenue 30 Ending annual recurring revenue $ 120
  35. 35. Subscription metrics MRR – Monthly Recurring Revenue ACV – Annual Contract Value CAC – Customer Acquisition Costs Churn rate = MRR beginning of month divided by amount of lost MRR in the month Recency (last visit), Frequency (how often do they visit), and Volume (how many articles read) LTV > 3 x CAC (3:1 ratio of lifetime value must be 3 times greater than cost to acquire. Most successful sub business have 8:1 ratios)
  36. 36. http://thesoulofenterprise.com
  37. 37. A favor http://edkless.com/eval

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