Jonathan Stark is a mobile consultant who helps retail brands thrive in a post-PC era. He's written three books on web development including O'Reilly's Building iPhone Apps with HTML, CSS, and JavaScript. He made the national news with Jonathan's Card, an experiment using mobile payments at Starbucks. He ditched hourly billing and has 10 years experience with value pricing.
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Value Pricing vs. Hourly Billing
- What is the most important thing you can share about pricing?
- Do it!
- If you are doing hourly estimates, you are not really pricing.
- The client cannot trust you if you do not base your price on the results.
- There is an emotional difference when using value pricing vs. hourly billing.
- How are you demonstrating you are an expert through value pricing?
- Goal is 100% customer satisfaction.
- As an hourly biller, you are going to be wrong 90% of the time.
- Hourly billing allows you to start working without agreeing on the goal first.
- Find out what the point of the project is first.
- Can you really focus on the end result through hourly billing?
- The practice of billing by the hour is unethical.
- Expertise is not rewarded with hourly billing.
- If a tool exists to solve a customer problem, you will look for it if you are motivated to focus on the end result.
- You likely would not if you were billing by the hour.
Having a Value Conversation
- What is one of your favorite questions to ask in a value conversation?
- Follows this line of questioning:
- Tries to talk them out of hiring him first
- Discuss what the project is
- Look for alternatives to do the project at all
- Discuss reasons to avoid the alternatives
- Recognize the pain of staying where they are
- There is a difference between a fixed bid and a value-based bid.
- You can set the price more correctly if you are using a value-based approach.
- Elicit conversation with the customer that increases the perceived value in their mind, which avoids sticker shock.
- Work with the customer to figure out a price that is going to work for both of you.
- Sometimes a customer can't determine the value, but if you give them the number, they know if it is worth it.
- Have a 30-60 minute value conversation so that you and the customer are clear on the value to the organization before you set a price.
- Follows this line of questioning:
- How do you balance talking about the “what” and “why” with a customer?
- Ask why.
- Customers try to self-diagnose.
- Challenge their assumptions.
- Walk the customer through how big of a problem it is for them.
- How do you handle resistance when having a value conversation?
- Rarely, but he is genuine about having the conversation so the customer does not feel gouged.
- Explain that you need to know the ultimate goal so that you know how to make decisions to get to the end solution.
- When you first start out, it feels risky, but the risk is already there.
- There will be fewer disagreements with your customers if you take on the upfront risk.
- “We spent all this money and we have nothing to show for it” can be the customer's reaction to an hourly estimate at the end of the project.
- Price with the margin in mind.
- This business model changes the way you think about your livelihood.
Learning from Alan Weiss
- What has been your experience with Alan Weiss' teaching of value pricing?
- There are significant differences from pricing for management consulting vs. software development.
- Alan's philosophy is to not think about deliverables, but software development requires it.
- Software development is a different risk profile, so there are deliverables that must be included in a proposal, which Alan would disagree with.
- Alan's projects are more short-term, but fundamentally, it is the same process.
- How have you implemented Alan's concept of objectives, measures and value?
- Jonathan is more casual about the approach, as they have different personality types.
- He asks, “What does a home run look like?”
- Once the customer describes it, he works it into the proposal.
- What are other ways you have applied Alan's teaching to software?
- You can pick and choose what works over time.
- It is a bible of the industry.
- Take it with a grain of salt, but do not ignore the conceptual agreement part.
- The first meeting cannot go by without getting an answer to the conceptual agreement.
- Questions can be addressed over email so that you can go into the initial meeting with some background.
- He does not do in-person meetings, which Alan says is a requirement.
- If you do not leave the first call with conceptual agreement, you will either under- or over- price the proposal.
- Do you ever get to the proposal and realize you do not have a conceptual agreement?
- You can present anyway and if your price is out of line, a good customer will explain it so you can address it.
- Then you can have the conversation you should have had the first time.
- You can revise the quote to remove the items with lower value and re-price it, or break it into phases.
- If you don't get the conceptual agreement on the first call, you dramatically lower the likelihood of closing the deal.
- Do not just lower your price.
A Couple of Examples
- What is one of your best stories about creating value for a customer?
- A plastics manufacturing factory ran a software system as its core operation, 24/7. If they were down, they were losing tens of thousands of dollars. He was able to quickly upgrade the software at a very reasonable price to prevent much downtime.
- Photo industry business that saw that digital was the future. For a reasonable price, he transitioned their business model from digital to paper.
About Jonathan Stark
- Mobile consultant for retail brands
- Author of Building iPhone Apps
- Practicing value pricing for 10 years
- Website: jonathanstark.com/mentoring
- Twitter: @jonathanstark
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