For over a decade, Chris Marston has been paying his team based on the value they create for the law firm. Each employee can choose how to serve a customer in an engagement from five different roles. The contribution of the role, the lifecycle of the project and the importance of the customer to the firm determine the compensation paid. His “value” model aligns how the company prices customers to how it compensates the team.
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Creating Authentic Relationships
- What is the most important thing you can share about pricing?
- Invest in authentic relationships.
- Being able to price on value starts with caring, a mindset of being fully engaged with whom you are meeting.
- If you walk in with that mindset, you are usually met with that same mindset.
- It is one step beyond being present.
- There are joys you cannot open up until you are fully there and invested in a prospect.
- Why is it challenging for a lawyer to use his judgment to price?
- Jay Shepherd talked about this idea.
- Lawyers think they have the answers to everything.
- There is a trust in one's abilities.
- The billable hour can have people spend decades thinking of value as an internal metric, as the value of their time.
- By mentoring professionals through this change, you learn that you have to take a leap.
- Pessimists seem to perform the best in law, so the ability to identify value is a genuine challenge.
[clickToTweet tweet=”Being able to price on value starts with investing in authentic relationships.” quote=”Being able to price on value starts with investing in authentic relationships.”]
Pricing Models for Lawyers
- What is the pricing model of concentric circles?
- Ron Baker put this model in his book.
- It is a pricing tool that helps professionals understand what the customer wants to buy.
- Value pricing litigation does not mean you are not scoping.
- The Four Circles:
- The inner circle is the “Yes” work, that you will absolutely do.
- There is “Likely” work, which is the next ring out of the circle, which the customer may or may not want to pay for today.
- Outside of that circle is the work that is “Maybe”, which the customer could either include or is not interested in buying.
- “Who the hell knows” (WHK) is the widest circle, which can be included in a price as an insurance policy.
- Calling something a premium is gutsy because you are telling the customer to their face they are paying a premium price.
- This tool becomes part of the relationship process with their customers.
- A customer can buy peace of mind or can budget for the next 3 months.
- You can determine which they want by showing up and giving a hoot.
- Look for social queues and ask questions to understand where the customer fits into the tool.
- What is the pricing model of the airline fuselage?
- The concentric circles tool helps to define the amount of work that needs to be accomplished.
- The airline fuselage is an excellent example of value pricing.
- When you pass the first class cabin on your way to coach, you realize that many people paid up to 20 times more than what you paid for your ticket.
- There is a margin of service improvement with each upgrade in cabin selection.
- It raises the question of, “How do you act and serve better to create more value?”
- Don't forget the reason you are here: to serve.
- If you don't want to serve, get out of the market.
- Think of how can you serve in ways that are unique to the specific customer.
- Thousands of professionals dip their toe in the value pricing waters and fail because they only do fixed pricing.
- Value pricing creates a win-win.
- Create a disruption in your industry to stand out.
[clickToTweet tweet=”Calling something a ‘premium' is gutsy. It tells the customer it is a premium price. #pricing” quote=”Calling something a ‘premium' is gutsy. It tells the customer it is a premium price.”]
Compensation in a Value Economy
- How do you compensate your employees on value?
- Authenticity is really important.
- Value pricing inherently means you understand value.
- If you then have your employees paid on labor theory, you are not creating value alignment.
- The employees are not, then, incented to create value.
- Professional knowledge firms employ smart people who are able to increase the size of your pie.
- In effect, Exemplar created an S&P Index of Value, which acknowledges the value contributions that every employee makes to the organization.
- What are the roles in your value economy?
- The roles are likely not that different in any business.
- Good to Great doesn't have any law or accounting firms in it, for a reason.
- The five roles (or hats) are:
- Opener – an originator, who qualifies a new relationship
- Closer – a knowledge expert, who is relevant to the particular prospect to turn him into a customer
- Relationship Manager – an account executive
- Project Managers – responsible for quality work and on time delivery
- Delegatees – anyone who works under a project manager or who is delegated a task
- Traditional firms do not differentiate roles and it creates:
- Infighting
- Failure to cross-sell
- Hoarding
- The employees can gravitate toward their strengths.
- In a value economy, you tell the team what is valuable and ask them to maximize it.
- The employees self-organize into their own categories, and they can cross roles when appropriate.
- How can an owner apply value compensation to his company?
- Value-based compensation applies to every organization.
- Not all roles are created equally.
- A dollar from an annoying customer is not equal to one that you love serving.
- You can reward success for bringing excellence to the role.
- A percentage is assigned to each of the roles, which might vary depending on the customer.
- Understanding what you are worth to a customer is rewarding to an employee.
- You can look in the mirror at the value you are creating for your customer over time.
- How has value compensation impacted your company culture?
- In value theory, you look at how the customer wants you to approach something.
- Understand what the customer wants and execute on that.
- You pay a premium for insurance, knowing that they make a bunch of money off you.
- Routinely you pay for things you value that have no correlation to the cost of production.
- Value pricing reflects the value in the price.
- The increase in value reflects an increase in compensation to the team members who create the value.
- Making more by doing less helps with innovation in your business.
- What is one of the challenges of practicing value compensation?
- Not everyone is good at creating value.
- Self-confidence and your ability to form meaningful relationships are examples of character traits that can create challenges.
- Sometimes you are right; sometimes you are wrong.
- Jack Welch spoke about how at the height of his career he was only right 80% of the time.
- In general, the best originators are not the best technicians and the best technicians are not the best salespeople.
- You can still create tremendous value through teamwork.
- Professionals get caught up in creating value and don't bother to communicate it, which is a fatal step regardless of your business model.
- What was the reaction of your team to value compensation?
- If an employee is coming to Exemplar from a traditional organization, they usually have read an innovation article and are interested in trying it.
- The first 6 months, they take their queues by letting others guide them through the process.
- They are offered training on the method, which helps with loyalty.
- If they didn't understand that this method is the future, they probably would never be hired.
- Chris believes it's the responsibility of Exemplar to change the industry.
- Chris believes if he can change things, he must, because it is a calling.
- They are in a broken profession (law) and people, who deserve to be happy, are miserable.
- He is restoring a spiritual bottom line to an industry that has had the life sucked out of it.
- You are not only creating value for innovative customers; you are creating a profession that honors and trains its people.
- They can have meaningful long careers with a family they can keep close.
- The human impact you make on your industry is stronger than any force.
- What is one of your best stories about creating value for a customer?
- A customer was scaling a private school model, taking the best curriculums and teaching methodologies from around the world, to a nationally branded concept, which was 50% more affordable than traditional private schools.
- They engaged Exemplar for business consulting, where they explored the economic model the school needed to operate under to provide the most value to its investors.
- The result was a deep authentic relationship with the founders and a price insensitivity that allowed the engagement to enter into 6-digits, which none of the peer firms would have been able to command.
- It crossed all the different areas of the firm and allowed them to bring the whole picture, authentically.
About Christopher Marston
Christopher Marston is the founder and CEO of Exemplar, a holistic knowledge firm, specializing in law, tax, investment banking and business advisory. They have offices in Boston, New York, Chicago, Los Angeles and Silicon Valley. Chris also is a Practicing Fellow at the VeraSage Institute.
- Firm Website: ExamplarCompanies.com
- Email Chris: cmarston@exemplarcompanies.com
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