Presentation for CPAsNET in June 2019

1. SellYour Brains, NOTYourTime
The firm of the future and value-led pricing
Ed Kless - @edkless – http://thesoulofenterprise.com/

2. “Sell what your
customers buy.”
- Peter Drucker
2

3. What is a Business Model?
How your firm creates value for
and captures value from
customers.
@edkless

4. “Disruptive threats
come inherently not
from new
technology but from
new business
models.”
- Andy Grove, Founder, Intel

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. From Revenue
to Profit
@edkless

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. $0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
Cost
Price
Value
@edkless

10. Giraffe’s neck
6/24/2019 10

11. 0%
20%
40%
60%
80%
100%
120%
140%Percentofcumulativeprofit
Percent of Customers
@edkless

12. From People
Capacity
toCapital

13. Types of capital
Natural
Produced
- Financial
- Structural
Human
- Social
- Intellectual (aka
Knowledge)
@edkless

14. From Efficiency
to Effectiveness

15. 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

16. The problem with
benchmarking
@edkless

17. FromCost-plus (service) to
Value-led (subscription) pricing

18. @edkless

19. Two Basic Pricing Methods
Cost-Based Pricing
Product  Cost  Price Value  Customer
Value-Based Pricing
Customer Value  Price  Cost  Product
@edkless

20. 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

21. “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

22. @edkless

23. DanAriely –The Economist sets price
@edkless

24. Pricing The Economist

25. 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

26. @edkless

27. Seven Ts to Offering Choices
1. Terms
2. Timing
3. Technology
4. Talent
5. Tailoring
6. Transference
7. Travel
@edkless

28. Create choices
C •B+
•Represent…
B •A+
•Respond…
A •Prepare…
@edkless

29. Why subscription?
Why now?

30. HotelCalifornia
Columbia House

31. “In five years, you won’t
buy anything, but
subscribe to everything.”
TienTzuo,CEO ofZuora

32. “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

33. 1 x 7 ≠ 7 x 1

34. 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.

35. 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

36. 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)

37. http://thesoulofenterprise.com

38. A favor
http://edkless.com/eval