Business Strategy for CPA's 143 How to Price Intangibles
Intangibles have value. And value is the precursor to price.
If you’re not great at measuring so called intangibles, you won’t appreciate their value, and if you don’t appreciate their value, you’ll underprice, and when you underprice, you’re going to leave a lot of money on the table.
Then you’re going to have to work really hard to compensate for not understanding how to measure, value, and price intangibles.
3 sections today:
- Why CPAs can get stuck here
- Debunk intangibility
- Steps to get you closer to measuring, valuing, and pricing the intangible
SECTION 1
CPAs especially get so caught in this question, moreso than in some other professions, because of a few factors:
- Few thought-leaders in the industry know the answer. Many leaders in the industry do not appear to have cracked this nut. So there are few people to get the answer from.
- Industry standard. You get your license, you wonder how to price, you look around, other CPAs are billing by the hour so you think ok, this is how it’s done
- We can all agree on the length of an hour, so it appears to shorten pricing conversations, and there are so many other things to get to in business, so, rather than grapple with this difficult questions that who knows if it even has an answer, how about getting some work done. … so the question gets left unanswered.
- Because CPAs deal primarily in dollars and numbers, they haven’t been required in quite the same way to learn the value of subjective things. (By contrast, a professional commissioned artist is required to grapple with subjective value of art. But if you’re in the business of art, you’re likely to have a better appreciation and acceptance of the concept OF the subjective nature of intangibles, and their value.)
- And, GAAP accounting doesn’t help. The idea that only financial transactions get accounted for, and therefore only things financial in nature appear on the Balance Sheet, doesn’t help a person appreciate the value of assets that are intangible.
Next up what we need to do is debunk 3 intangible myths.
SECTION 2
- That they’re intangible. Some of the things you think are intangible, are actually quite tangible.
Where people get stuck is the idea that it has to be a physical object to be measurable. More things are tangible than you might have realized if you go inside your body and ask if you can perceive it with your senses.
- Things you cannot see as a material, or physical thing, cannot be measured.
- We tend to use time, weight, length, dollars, to measure things. But just because you can’t use one of these common tools doesn’t mean you can’t measure it.
- You can measure by comparison. A lot of a thing, or a little of a thing, crap ton of work to do, increase your peace of mind.
- You can measure by rough percentages. Like cutting client fires in half, increase employee engagement by 40%
- They are relative, they are measurements, and they could be useful.
Scales and tape measures aren’t the only way to measure things.
- You have to measure directly.
If I want to measure stress, one way is to draw a vial of blood and test for cortisol. But if a person reaches for the video game console to destress, then we can measure how much time they spend playing games to destress.
Once you start doing this, you may find that you use indirect measures more often than direct ones
- Needs to be exact
It doesn’t need to be exact to be useful.
As long as it’s precise enough to be useful, you’re allowed to use it.
SECTION 3
The actual steps to get you closer to measuring, valuing, and pricing the intangible
Learn to listen for the intangibles that are important to your buyer.
“Save me from snapping a box of #2 pencils in half because I never would have figured this out.” That’s frustration. Tune your ears to these things.
Find out what they use to measure that intangible - how often they play video games or golf to destress or unplug, to how many games of golf they play a week if business is running smooth - Find out what their indirect measures are.
And ask what that would be worth to them to have those things.
And you can get at the value of improving their condition through the backdoor, with a question like,
“Let’s just say, hypothetically, we WERE able to create that outcome. Would that be worth a million bucks? Or $500K or $250? Or Just $10,000?
They’ll GIVE you a range.
Now you have an answer of what the intangible thing, is worth to them.
And WHAT they tell YOU, is how you price intangibles.
CONCLUSION
Perhaps that’s Myth #5 that needs debunking, is the very nature of the question is flawed, when framed as “How do I price intangibles.”
How can I understand, appreciate, and translate into a dollar figure what intangibles are worth to my buyer?
YOU don’t determine the price of intangibles, your buyers do.
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