Capacity and Value Based Pricing Model for Professional Services

The capacity and value based pricing (CVBP) Model for professional services was derived out of a need for a new way to think about how professional service “products” should be priced in a competitive marketplace. In general, the price of any product or good should represent an aggregate of the value assigned to the various attributes of the good (for which there may be a rather large number). For services, in particular, there are several views on how this pricing decision should be undertaken. Traditionally the pricing decision in professional services has fallen into the category of what is called “cost-plus” pricing, see for example Scardino et al., 2005. Cost-plus is the idea that service engagements are priced based on the costs incurred by the provider in supplying their services plus some pre-determined margin on these costs. While this is a feasible way to price service goods, it is not necessarily the most effective way, with respect to overall profit, to approach the pricing problem.

By: Clarence Wardell; Laura Wynter; Mary Helander

Published in: RC24349 in 2007


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