Pricing Prophet: The value of executive mental health
Wednesday, July 4, 2012/
What price does a leading company put on the mental health of one of its executives?
Mental health problems are estimated to cost the Australian economy about $4.3 billion a year, of which $1.4 billion is estimated to be lost through lost productivity. Fortunately, 40% of this burden can be avoided through early detection and intervention.
A group of Melbourne psychologists and businessmen have recently formed a company called the Institute of Performance and Wellbeing, which offers a range services under the banner “Check Up from the Neck Up” to detect and remedy executive mental health issues.
One of the services involves an executive completing an on-site questionnaire, which is followed by a one-hour assessment by some of the most reputable and well-known psychologists in the business (including Dr Michael Carr Greg and Dr Simon Kinsella), as well as the provision of a written report, recommendations and a discussion forum after the assessment.
Unsure of what to charge for the service, they asked the experts at PricingProphets.com, and the results provide great insights into how to price on the basis of economic value. In this case, the economic value is provided to clients in the form of risk minimisation. Other sources of economic value can come from increasing the clients’ revenues or reducing their costs.
Using hypothetical numbers and a simplistic example, let’s take an executive who is on a $500,000 salary, and assume that the costs associated with that executive having a mental health problem is 5% of that figure (or $25,000). If the early detection of a mental health issue reduces this cost by half, the value delivered is $12,500.
Companies that employ value-based pricing will typically share such value with their client. If the institute chose to share the economic benefit with the client on a 50:50 basis, then its pricing for the service would come in at $6,250.
From here, it’s very easy to create a sales tool or tablet app that allows the vendor’s client to alter assumptions, such as executives’ salaries, the costs associated with mental health issues, and so on.
And let’s not forget that if the pricing of the service is based on executive’s salaries, there is only one way revenue is going to go: up!