Bill pay services are valuable.
And whenever you provide a service that has value, you should price based on that value. But how do you do that?
Before you can come up with a value-based price you first need to be clear on what the value is, and articulate that value so the client fully understands it. This is critical. If you’ve ever had a client say to you, “That’s a bit expensive,” it’s not because you’re too expensive — it’s because they don’t understand the value.
Defining the Value
First, let’s think about some of the features that are valuable about bill pay services:
- Automate approvals and eliminate check printing, signing, and mailing.
- Benefit from greater access, visibility, and control with anytime, anywhere access.
- By sending electronic invoices you will typically receive incoming payments two or three times faster.
Those are just 3 benefits and there are many more. However, while you might understand those benefits, do your clients?
Some of the items above are merely features. And marketers teach us that people don’t buy features, people buy benefits. So we must make sure we turn every feature into a benefit. For example, the first feature on the list above would grab your clients’ interest if it said:
“Automate approvals and eliminate check printing, signing and mailing, which typically saves 50% of time spent on payables, and that means you can spend more time doing the things that generate sales and profits for your business”
Can you see how your client can now see the benefit of that particular feature? Now they’re interested.
Quantifying the Value
But we need to go further. Wherever possible, quantify the value. In this case, how many hours will it save? What is that worth?
You can quantify the time saved by either:
- Asking the client how much time they typically spend per week (this is the best approach when doing a bespoke pricing exercise for a particular client); or
- You could give a typical amount for a typical small business.
Let’s say the client tells you they typically spend 4 hours per week on this task, and bill pay will save them 2 of those hours. What is it worth to the client to free up 2 hours of time every week? Again, you need to ask the client. Say something like:
“Can I ask you a question to help me understand how valuable your time is to you? As you know, a local car repair mechanic typically charges their time out at $100 per hour. How much an hour is your precious time worth to you?”
They’re thinking to themselves that their time is worth much, much more than a car mechanic’s. Let’s say they tell you $150.
Now you can say, “When we sort out your bill pay, the automation of approvals and the elimination of check pricing, signing and mailing will save you $300 of time every single week. Over the course of a year that will add up to $15,600 worth of time saved.”
We’ve just used a third technique, extrapolation. We’ve taken a quantifiable benefit and made it a bigger number by, in this case, expressing it over a bigger period of time. This is important. $15,600 now creates a point of reference, or anchor. If your price for doing bill pay is $600 per month, that price now seems small juxtaposed against $15,600.
And that’s only one of the benefits we’ve looked at.
So let’s summarize where we are so far.
You need to list every single feature of bill pay and explain it to the client (we listed just 3 above). And then for each feature, wherever possible you should:
- Turn that feature into a benefit to the client.
- Quantify that benefit — estimates and best guesses are perfectly acceptable.
- Extrapolate that number and make it bigger.
Coming Up With a Price
Now that you’ve properly explained the benefit, how do you come up with a value-based price?
Your difficulty here is that value is subjective. Not only that, everyone values things differently, and so you will need to use what economists call price discrimination. A very effective way to do this is with menu pricing and using the Magic of Three. This means you present your client with 3 different packages; think of them as:
- An entry-level bill pay service,
- A standard level, and
- A premium level.
Aim to add in features/benefits into the more expensive packages that have a high-perceived value and low cost to deliver.
Your entry level wants to be priced at an amount that is at least as much as, and ideally 10% – 20% more than, what you would have charged if you were charging based on time. Time is irrelevant, other than making sure you make a profit.
How much higher should the standard and premium package be? Much more than the cost of delivering the extra benefits (because you will be including items with high perceived value). Those clients that value the extra benefits will then choose to pay you more money by buying a more expensive package.
To find out more about value pricing bill pay services, CLICK HERE to watch my 27-minute training video, “How to value price bill pay services – Part One.” The video is on YouTube, so once you have watched it, you’ll be able to watch Part Two.