Q&A: How to Start Moving a Company to VBP

Question: Thanks Mark. I really enjoy your quotes in your posts. Questions for your podcast (or blog): 1. How do you get started on a journey away from cost plus pricing in an organization when they have been doing it for years 2. Related to this – how to convince people that the above is a worthwhile use of limited resources. Greg

Answer: Hi Greg, here’s an answer you may not have expected. Moving to value based pricing may not be the best use of your limited resources. What????? Did he just say that?

Yes. In most cases, moving to VBP has huge ROI. But, it’s possible there are other opportunities that have even bigger ROI. Hence, the answer to both of your questions is the same answer. Step one is to quantify the expected return of moving to VBP.

You might start by finding anecdotes of buyers who would have paid a lot more. Your salespeople probably know who they are. Use these anecdotes to justify a slightly larger study on buyers’ willingness to pay. You can probably do this yourself. Check out Van Westendorp’s Price Sensitivity Meter on Wikipedia.

Once you get results which show you could have won deals from some buyers at higher prices, take that to your CFO and have conversations about value based pricing. CFO’s are smart. They care a ton about margin. And they have a lot of influence.

Hope that gets you started.